World Development Movement reportSeptember 14, 2011 Tim WorstallWoo Watch2 CommentsI have now read it. Yes, they are still cretins. Here. previousRitchie: Pah, I Spit on Your Nobel LaureatenextCretinism on housing policy 2 thoughts on “World Development Movement report” Kevin Monk September 14, 2011 at 2:17 pm Typo – “There are a few problems with their thesis this is true.” Matthew September 14, 2011 at 5:03 pm It’s a somewhat more rigorous and impressive document than I was expecting. They do take on the no stocks argument – I’ve not thought about what they say yet but here it is: Some critics, such as those noted above, have argued that if price transmission occurred in this way then there would be a significant growth in inventories as commodities are held off the market by producers anticipating higher prices.99 Such an argument assumes that futures prices only affect the expectations of food producers and not of food buyers. As food buyers also look to the futures market to inform their expectations they may also be willing to pay a higher price now to avoid paying a higher price in future. As food producers are then able to sell their food at a higher price now (as both buyer and seller have agreed at a higher price) commodities are not held off the market, but the price of the commodity has risen.100 If the impact on expectations is greater on buyers than on sellers, it would clearly be possible for the physical commodity price to rise in response to changes in the futures markets, while at the same time inventories are falling.101 The short run price elasticity of supply and demand for agricultural commodities is also very low, in other words supply and demand do not respond quickly to changing prices. People need to eat and will be willing to give up other expenditure in order to maintain their levels of consumption. Production of food takes months or years, so producers cannot react quickly in response to rising or falling prices. Therefore only very significant and long lasting price changes could be expected to change supply and demand sufficiently to produce a noticeable change in actual inventories.102 Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.