Commodities traders caused starvation and malnutrition for 200 million people

[JimW]

Article in PDF -- Speculation in food commodity markets by Thomas Lines

These reasons relate to what commodity traders call 'the fundamentals': the physical balance of supply and demand. But they do not explain everything.
Consider these two comments:

'At the source ... was a supply phenomenon and a demand phenomenon, which was explaining most of what we have' (Jean-Claude Trichet, President of the European Central Bank);

'In 2006, the International Monetary Fund concluded that in commodities generally, speculative activity responded to price movements rather than the other way round. But by this March the IMF was puzzling over why prices were still rising in spite of the credit crunch and economic slowdown. A large part of the reason, it decided, was financial buying.' (Financial Times, May 12th, 2008.)

There is no contradiction here. The fundamentals of supply and demand are indeed 'at the source' of price rises, as M. Trichet put it. But as a matter of course, speculative activity responds to such price movements, as the IMF stated. A herd instinct animates financial investment and explains frenzies such as stock market and house price booms. On commodity markets too, a price surge entices speculation ('financial buying', in the FT's phrase) to come in and amplify it, and even take it over.

 

[yield]

Actually, some guy at FT with knowledge about how the futures market's really work comprehensively rebuts the argument and provides further studies to back up his argument.

The third is to a firewalled FT piece.

Assuming I'm looking at the right one, part of the article can be read here.

How effective are speculative limits in commodities anyway?
FT Aug 27 2009.

Between June-December 2005 the Chicago Board of Trade and the CFTC increased position limits on non-commercial players in corn, wheat, soybean and oat-futures markets, also on fears that speculators were disconnecting prices from supply and demand, and hence increasing volatility.

I can't find any rebuttals.

 

[not-bono-ever]

Its been a live debate of late with the growth of exchange traded products based on physicals , where the miniscule % of people going to physical delivery or Using it as a hedging tool (what they was designed for initially ), is potentially distorting the prices of the underlying - the cart driving the horse is a popular analogy

 

[not-bono-ever]

Assuming I'm looking at the right one, part of the article can be read here.

How effective are speculative limits in commodities anyway?
FT Aug 27 2009.



I can't find any rebuttals.

Volatility is what makes the market attractive for investors looking for a retun as oppsoed to a hedge - all those years studying Black Scholes and the greeks has paid off for many

 

[butchersapron]

So again, against the grain of those reports in that shit FT article. And your own earlier post...

 

[not-bono-ever]

I did indicate that there was much more going on than just GS piling into commodities

BUT

Given the influence thats GS or one of the big funds that specialise in soft commodities, its not suprising that people wanted to get out of the usual shit and get a return that beats cash in the bank.

Anyway, high Volatility is indicitive of a lively/ uncertain market - this used to be during uncertainty over supply of the underlying- bad harvests and shit - now, given the relatively low use of futures n options to actually hedge production or consumption vs. the massuve holdings of the speculators, then Vol could be viewed with a little more suspicion, or at least, down to influence other than just abundance / paucity of the underlying - OIl was at 147 USD during the summer of 08- that has a huge impact on the cost of production

 

[not-bono-ever]

on a related ntoe ,here we go...

http://www.guardian.co.uk/business/2010/jul/06/commodities-cocoa-futures-liffe

"Producers and traders complain that speculators cause such volatility that financial commodity exchanges become even less reliable than the physical market. "From the moment a market becomes purely a vehicle for speculation, it loses its usefulness," the letter said."

ETA, I know who are behind this, and yes, its a purposeful position they have taken i.e profit

this example sort of detracts form my earler post about there being much more going on, but I am well aware that is is getting increasing common in the smaller markets where a relativly small outlay can produce a swing in your favour.Just cos I undertand it, doesnt mean I support it.

 

[kropotkin]

Some wonk at the FT rubbishes Hari's claims

Hang on a minute:

Higher futures prices are usually symptomatic of a glut in the cash market — and too much supply.

But in this circumstance, the futures system can protect the farmer and end-users from potential volatility or price collapse by opening up the storage carry-trade. This provides the incentive to store crops, because you can buy them cheap today and sell for a higher price ‘tomorrow’.

Doesn't that actually bolster Hari's claim, and undermine her own?

Namely, that Haris entire argument is that futures created a pressure to increase grain prices above and beyond simple supply and demand?

She says in this quote that futures prices rise (due to the capital glut due to displacement from the collapsing housing market), which acts as a signal to store grain- thus causing the grain price to rise (and peasants to starve).

 

[butchersapron]

This claim = fucked. Off it goes,

 

[ymu]

Actually, some guy at FT with knowledge about how the futures market's really work comprehensively rebuts the argument and provides further studies to back up his argument.

Wut? There's nothing of any substance in there at all. Take this bit:

What Hari is suggesting therefore is akin to saying the outcome of the Grand National is influenced by the number of bets taken on any particular horse. The fact the winner might very well be the horse with the most bets is more down to being an educated guess by the punters, or even the result of the wisdom of crowds, than the clear rigging of the race.

Right. And speculators piling into housing didn't cause that bubble either? Completely nonsense analogy.

Odd that she doesn't address these bits of the article, isn't it?

When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked well.

Then, through the 1990s, Goldman Sachs and others lobbied hard and the regulations were abolished. Suddenly, these contracts were turned into 'derivatives' that could be bought and sold among traders who had nothing to do with agriculture. A market in "food speculation" was born.

[hmmm - what other regulations were lobbied out of existence in the 1990s - now let me think ...]

...

They started to buy massive amounts of derivatives based on food: they reckoned that food prices would stay steady or rise while the rest of the economy tanked. Suddenly, the world's frightened investors stampeded onto this ground and decided to buy, buy, buy.

[Self-fulfilling prophecies, anyone? Is she really clueless enough to think that these cannot affect markets any more than they can affect the outcome of a horse race? Or just dishonest enough to make the argument anyway?]

...

Even George Soros said this was "just like secretly hoarding food during a hunger crisis in order to make profits from increasing prices."

[Pfft, Soros - what does he know?]

...

As Professor Ghosh points out, some vital crops are not traded on the futures markets, including millet, cassava, and potatoes. Their price rose a little during this period - but only a fraction as much as the ones affected by speculation. Her research shows this speculation was "the main cause" of the rise.

[Ooh, actual empirical evidence. Why is it not addressed in her article?]

Forgive me for not trusting your professional judgement on this matter, but there is absolutely no reason for me to think that your professional judgement is worth anything whatsoever. Unless you've been desperately warning your bosses about the sticky mess they've been creating for themselves and everybody else over the last 30 years of their moronic actions, of course. Your posts do not suggest that you were, or are, possessed of any such insight..

 

[A Dashing Blade]

. . .Forgive me for not trusting your professional judgement on this matter . . .

No prob, many views make a market.

 

[ymu]

No prob, many views make a market.

And self-serving nonsense makes for a global financial crisis.

 

[ItWillNeverWork]

No, it's not. In this case it's someone whose elevated a belief, an article of faith into an eternal truth. Great question though.

Can you give any evidence for your idea that I have 'elevated an article of faith into an eternal truth'? What exactly in my post indicated anything other than an analysis that differs from yours?

How about taking on the points I made and showing me where I am incorrect? I have no issue with changing my mind when I am shown a point of view that seems more coherant - I've changed my worldview more than once in my life and would do the same again if you could provide a good reason.

 

[butchersapron]

Can you give any evidence for your idea that I have 'elevated an article of faith into an eternal truth'? What exactly in my post indicated anything other than an analysis that differs from yours?

How about taking on the points I made and showing me where I am incorrect? I have no issue with changing my mind when I am shown a point of view that seems more coherant - I've changed my worldview more than once in my life and would do the same again if you could provide a good reason.

Your posts here on belief in the market. Spook-stuff.

I think your posts elsewhere have shown this to be a bit untrue. I've engaged in this thread. Why

 

[not-bono-ever]

re the article I posted about mysterious fugures supposedly cornering the Cocoa market - the Sunday times named hime today - the head of Amajaro trading house - has effectively bought the entire stockpile of warehoused Cocoa that has been avaible. and yes, becase of droughts and stuff in West Africa, he will make tens of millions off the back of the failing Cocoa farmers cos of his position

 

[newharper]

And self-serving nonsense makes for a global financial crisis.

Seen this?

This year Laurie Santos, a cognitive psychologist, explained how her experiments with capuchin monkeys suggested that they make similar miscalculations about financial risk as humans do, and that this might enable us to think up ways of hedging against it.

http://www.guardian.co.uk/technology/2010/jul/18/tedglobal-ideas-conference

The paper version said ,

"She taught them how to use tokens as currency for food and discovered they thieve, fail to save, and miscalculate risk. Just as we do"

Hmm.

 

[teqniq]

Anyone interested, these people World Development Movement are running a campaign on this issue. Phone the FSA today on 0845 606 1234.

 

[A Dashing Blade]

. . . he will make tens of millions off the back of the failing Cocoa farmers cos of his position

Meanwhile, to take a slightly less simplistic view of the situation, this from Bloomberg . . .

July 17 (Bloomberg)
-- Cocoa production in Ivory Coast will
rise to 1.3 million metric tons in the year through September
2011 as higher prices prompt growers to invest in their farms,
the International Cocoa Organization said.
Aging orchards, poor infrastructure and instability have
curbed growth in the world’s biggest producer of Cocoa over the
past few years, Jan Vingerhoets, head of the group, said at a
press conference late yesterday in Abidjan.
The West African country produced 1.16 million tons in the
12 months through September 2009, down 16 percent from the
previous year, according to statistics from the country’s Bourse
du Cafe et du Cacao.
“We believe it would take three to four years for
production in Ivory Coast to return to normal growth rates,”
Vingerhoets said.
Investment and proposed reforms to the industry have been
held back amid repeated failures to hold elections due since
2005, following an accord signed between leaders in the rebel-
held north and government-controlled south.
Ivory Coast Cocoa Harvest to Reach 1.3 Million Tons, Group Says 9
Global prices for cocoa could continue to move around
record prices of $3,000 a ton, which would allow farmers to
reinvest increased revenue in production, Vingerhoets said.
Speaking beside Jean-Marc Anga, the organization’s director
of statistics who is due to take over as president Oct. 1,
Vingerhoets said global grinding figures will probably grow 4
percent to 5 percent in the cocoa year that finishes in
September.
Global exports may rise by 6 percent in the season, while
consumption could increase 2 percent to 3 percent in the period
assuming normal weather patterns, he said.

 

[butchersapron]

Is this the same sort of demolition as posted above? The International Cocoa Organization - yeah, they've got everyone interests at heart. News: Supermarkets says supermarkets are great.

 

[yield]

Hunger is man-made.
heraldscotland. 5 Jun 2011

This is a man-made disaster: the result of an international food system which creates huge profits for a few while leaving millions hungry. Three US companies – Archer Daniels Midland, Bunge and Cargill – control nearly 90% of the world’s grain trade. In the first quarter of 2008, at the height of a global food price crisis, Cargill’s profits were up 86%, and the company is now heading for its most profitable year yet.

"Three US companies – Archer Daniels Midland, Bunge and Cargill – control nearly 90% of the world’s grain trade." Beggars belief.

 

[Ae589]

The genie is out of the bottle, I doubt you can de-liberalise these markets. We need to allow everyone to speculate, based on the same flow of information that the current traders have. When everyone is special, no-one is.

 

[butchersapron]

Speculate with what?

 

[TruXta]

Speculations.

 

[free spirit]

Meanwhile, to take a slightly less simplistic view of the situation, this from Bloomberg . . .

it fails to mention the likelihood that a glut in the market in a couple of years time as all these farmers invest in producing more cocoa, multiplied by the speculation effect, will lead to many smaller farmers who've borrowed to finance these improvements going bankrupt, and multinationals buying them out at knockdown prices while the farmers move to the city slums / commit suicide.

it's a fairly regularly repeated story from the last 50 years or more, and one that can only be made massively worse by speculators falsely raising and lowering the price of the products by many times more than simple supply and demand would do alone.

hopefully this time I'll be wrong, and the farmers will invest wisely based on realistic long term price levels, but I'd bet that there will be a lot of pushy sales types out there pushing them into borrowing more than is sensible to spend unaffordable amounts of money on the latest wizzbang farming technology to push up their productivity levels based on pie in the sky projections of ongoing price increases etc.

 

[free spirit]

The genie is out of the bottle, I doubt you can de-liberalise these markets. We need to allow everyone to speculate, based on the same flow of information that the current traders have. When everyone is special, no-one is.

so the poorest in society and globally can hedge their position on the price of their staple goods by taking their weekly food budget and spending it in the commodities market buying up a minority position on next years grain harvest... is it nice weather in cloud cuckoo land?

 

[hammerntongues]

re the article I posted about mysterious fugures supposedly cornering the Cocoa market - the Sunday times named hime today - the head of Amajaro trading house - has effectively bought the entire stockpile of warehoused Cocoa that has been avaible. and yes, becase of droughts and stuff in West Africa, he will make tens of millions off the back of the failing Cocoa farmers cos of his position

He lost his arse by the way , Cocoa prices failed to move higher in spite of practically every other commodity rallying , crops were huge , demand was poor and prices dropped , not only did prices fall but they had to pay storage for the 240,000 mtons they took delivery of. It is not as easy as some people believe.

 

[Ae589]

so the poorest in society and globally can hedge their position on the price of their staple goods by taking their weekly food budget and spending it in the commodities market buying up a minority position on next years grain harvest... is it nice weather in cloud cuckoo land?

Just because the barriers to entry are huge now, doesn't mean they have to be.

"What, so the poorest in society can just send you an email and ask for your money?" - free spirit, shortly before micro-finance.

 

[TruXta]

Just because the barriers to entry are huge now, doesn't mean they have to be.

"What, so the poorest in society can just send you an email and ask for your money?" - free spirit, shortly before micro-finance.

Micro-finance: sounds lovely, usually ends up as the privatisation of public welfare.

 

[butchersapron]

Just because the barriers to entry are huge now, doesn't mean they have to be.

"What, so the poorest in society can just send you an email and ask for your money?" - free spirit, shortly before micro-finance.

micro-financing speculation you couldn't make it up.

 

[Ae589]

Micro-finance: sounds lovely, usually ends up as the privatisation of public welfare.

Are you saying people are better off without it?