Financial speculators responsible for rising global food prices, claims report

Really? Gosh, who is this report by?

The activity of financial speculators is overwhelming agricultural commodities markets, fuelling global food price inflation and hunger, according to new analysis from the anti-poverty group the World Development Movement (WDM).

Teenage Trots claim capitalism is bad, M\’Kay?

Rilly? This is news?

I shall read the report later but the newspaper list of crimes seems to indicate that they\’ve no clue what they\’re talking about. For example, they\’re claiming that lots of money in futures is driving up spot prices. This simply isn\’t possible. Spot prices can rise as a result of speculation, yes, but it needs to be speculation where someone buys and stores the commodity.

Which means we would see a rise in stocks of that commodity and no, we\’ve not seen a rise in stocks of food. So we\’ve not had that sort of speculation then, have we?

At first blush it\’s all very like their last report. Commodity speculation is something done by men in offices with money. Evil then innit?

 

4 thoughts on “Financial speculators responsible for rising global food prices, claims report”

  1. The teenage trots have an answer for that on page 19:

    “Physical markets (also known as ‘spot’ markets) for agricultural commodities are believed
    to perform price discovery poorly, largely due to limited transparency and the fact that much
    physical trading takes place bilaterally, with trading based on a range of fragmented sources
    of information and based on individual traders personal and commercial motivations.
    49
    These
    attributes of the physical market for commodities are now widely recognised, as a recent report
    by the International Organization of Securities Commissions (IOSCO) for the G20 noted, ”The
    transparency and functioning of cash markets for commodities remains a prominent concern.”
    50
    Theoretically, as futures markets are more transparent and, generally, have greater liquidity,
    they play a vital role in supporting the price discovery process for agricultural commodities
    through providing important price information and price signals to the physical market.
    51 “

  2. This must be the 100th time we’ve gone over this but hey ho. I’ve been thinking about it a bit and I guess there are some issues.

    1. Hidden stocks might have risen. For example if every household now has two bags of sugar rather than one, that would add to UK stocks by 60m kg. Processors, manufacturers etc could also do this. If the reason they did this was higher future prices then it’d be fair to say speculators were ‘to blame’.

    [It’s worth noting though that to have a continue impact on the price they need to keep adding to their stocks]

    2. Producers might respond to higher future prices by withholding production thus supply falls. This is certainly the case with finite goods such as oil and metals, but doesn’t make much sense with soft commodities, after all growing them one year doesn’t preclude growing them the next year.

    3. If higher futures prices induced higher consumption then it too could be ‘blamed’ for higher spot prices. I’m struggling to think why this might be the case though as you don’t eat more food now and less later (maybe very marginally ).

    In the absence of that then we have simple mathematics. We don’t believe higher future prices have reduced supply, we don’t believe stocks have risen, so the amount consumed must be the same. And we don’t see why they have changed the distribution of demand.

    In which case it’s hard to see how they have changed the price, or caused shortages.

  3. Andreas Paterson, if physical spot markets perform price discovery poorly, then we should see the signs, in either stocks of food building up unable to be sold, or in people being unable to buy food at any price. Price discovery is just a matter of finding the price at which supply equals demand.

    As Tim says, there’s no sign of food stocks building up in wholesalers’ hands, and in my experience of supermarkets, prices have been going up rather than the shelves emptying (leaving aside places like Venezuela, where the government is preventing price discovery). I take it from this that commodity markets are performing price discovery reasonably adequately.

    And, if you read what they quote, the IOSCO doesn’t say that cash markets for commodities are not functioning, they just say it’s a “prominent concern.” It is very easy to get concerned about something that doesn’t actually exist, I’ve done it myself. If done by someone good at getting media access, a concern can become prominent without having any basis in reality.
    (Of course, I suspect you know all this anyway, I’m mostly putting the response together for the sake of any other reader who might be confused.)

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