The Ethics of Food Commodity Speculation

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The Ethics of Food Commodity Speculation

bobbinm

04-26-2008, 3:20 PM | Post #2511954 | 20 Replies

Speculators argue that commodity prices are simply the product of supply and demand, yet an oil analyst on TV this morning stated that a barrel of oil would be priced at $75-$80 now if speculation was taken out of the market. A similar situation exists with the price of food commodities worldwide.

Here's an article which discusses the situation :

Commodity speculation spread long ago from standard products like oil and gold to anything edible and available for trade on the Chicago Futures Exchange. These days there are futures contracts for everything from wheat to oranges to pork bellies. The futures market is a traditional tool for farmers to sell their harvests ahead of time. In a futures contract, quantities, prices and delivery dates are fixed, sometimes even before crops have been planted. Futures contracts allow farmers and grain wholesalers a measure of protection against adverse weather conditions and excessive price fluctuations. They can also help a farmer plan how much to plant for a given year.

But now speculators are taking advantage of this mechanism. They can buy futures contracts for wheat, for example, at a low price, betting that the price will go up. If the price of the grain rises by the agreed delivery date, they profit.

Some experts now believe these investors have taken over the market, buying futures at unprecedented levels and driving up short-term prices. Since last August, this mechanism has led to a doubling in the price of rice -- including the 500,000 tons that the Philippine government plans to buy in early May to address its own shortage.

Greg Warner has worked in the grain wholesaling business for more than two decades. His office sits a block away from the Chicago Futures Exchange. He's an analyst with the firm AgResource, and he says what is happening now in the wheat market is unprecedented.

"What we normally have is a predictable group of sellers and buyers -- mainly farmers and silo operators," he says. But the landscape has changed since the influx of large index funds. Fund managers seek to maximize their profits using futures contracts, and prices, says Warner, "keep climbing up and up."

He's calculated that financial investors now hold the rights to two complete annual harvests of a type of grain traded in Chicago called "soft red winter wheat."

Wagner is stunned by such developments. He sees them as evidence that capitalism is literally consuming itself.

Here's another comment on the current situtation and where it may lead:

At this moment Hedge funds are Moving into the Food-business and they are making Big Money.

Just like every Bubble the Food Bubble will also burst at a certain moment. It is not difficult to imagine when this will happen. It will happen when a only very small part of the world is able to pay for the food. The Bubble is already infecting the Economy of the Rich Countries.

Also the poor people in the West will be unable to pay for the food but at a certain moment also the Middle Class will feel the effects. When the Poor People in the Rich Countries will feel a Food Shortage they will Riot just like the poor people in the Underdeveloped Countries are Rioting. When the Riots start in the Getto's of the Big Cities the Rich will become Afraid. They will Ask for Protection of Police or the Military. In the end they have to surround there homes with walls and create there own food supplies.

Is this what the Investors really want?

Bobbi

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Re: The Ethics of Food Commodity Speculation

Santa Cruz

04-29-2008, 7:02 PM | Post #2513059

Santa Cruz:
Roger from SF:
Anyone else old enough to remember Johnny Carson? On a monologue one night, he made a gag about the coming "toilet paper shortage." The next thing you knew, there was a real toilet paper shortage caused by consumers stocking up, just in case. It was the actions of thousands (or more) of consumers going long on toilet paper that caused the shortage.
Sam's Clubs and Costco have limited sales of rice. Some consumers had been buying literally dozens of 50 lb sacks. Every consumer who "stocks up" is engaging in a form of speculation. In our household, we've been known to engage in rampant oatmeal speculation.
---
Generally speculators smooth out prices. To get an idea what markets would be like without their activity, consider a commodity that does not have a futures market: hops.
Hops are used for making beer, and almost nothing else. For more than a decade, prices were below the cost to grow them. Many farmers naturally switched to other crops (the U.S. lost nearly half its hop acreage). Excess inventory was converted to extract, which keeps for several years.
Last year, the excess inventory was finally consumed, accompanied by a mediocre worldwide harvest. Then there was a warehouse fire that destroyed 4% of the U.S. crop.
Spot prices went from under $3/lb. to $25 and up.
I consider it very likely that a futures market would have softened this price action.
Hi Roger from SF,
Yes
I checked the "spot" price on ebay for a LB of Cascades (this years crop I think) $24.00.
I knew the hop farmer/distributer was in "trouble" when my favorite supplier Morris Handberry went out of business. I use to buy German Northern Brewers, czech saaz hops and German Hauteur Hirschbuhler hops from them.
They were 1/2 OZ hop plugs pack in nitrogen.
The best!!!!
There is nothing like real German grown Northern Brewer hops in your home brewed "anchor steam"
beer.

here is my favorite that uses domestic hops

10 LBS AMERICAN 2 row 
.25 LBS AMERICAN CARAMEL 120 
.25 LBS BLACK ROASTED BARLEY 
.25 LBS ROASTED BARLEY 
.25 LBS AMERICAN CHOCOLATE 
1 OZ COLUMBUS 13.5 ALPHA ACID 60 MINS. 
.5 OZ COLUMBUS 13.5 ALPHA ACID 30 MINS. 
1 PINT SPECIAL LONDON WYEAST 1968 
.25 TBS SALT NaCL 
.5 TBS CALCIUM CARBONATE CaCO3
Recipe Calculations
 BATCH SIZE  5
 OG   1.05
 FG   1.01
 OG EST.  1.0645
 COLOR  65.85
 IBU  75
 EFF  77.5193798449613
 ALCOHOL  5.16

Style Guide Lines
 STYLE   DRY STOUT
 OG   1.040-1.050
 FG   1.008-1.014
 IBU   30-50
 COLOR   35-70
 ALCOHOL   4-5.5

Related Topics Stocks sales commodity futures market alpha

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Re: The Ethics of Food Commodity Speculation

Santa Cruz

04-29-2008, 7:22 PM | Post #2513066

Roger from SF:
Hey Santa Cruz,
There is a video on youtube that shows a Czech hop yard that was completely wiped out by a hail storm last year. An excellent excuse for crying in my beer, LOL.
It sounds like it might be time to get acquainted with the new domestic cultivars that were bred from some of the classic European ones. The Universities of Oregon and Washington have ongoing programs that have had good results.
Sterling is a cross between Saaz and Mt. Hood (itself descended from German Hallertauer).
Santiam's pedigree includes Tettnang (mother), Hallertau Mittelfrüh (grandmother) and Cascade (great grandmother).
Nugget and Chinook are considered reasonable Northern Brewer substitutes.
But I hear you, and feel your pain.
Roger

Nugget and Chinook I have used but only in combination with Cascade.

Sterling and Santiam must be new...

they sound interesting.

Have you ever thought of firing up a still?

I just made a batch of hard cider from trade joe apple juice... a bit tart for my taste.

Related Topics apple European beer video youtube

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Re: The Ethics of Food Commodity Speculation

Roger from SF 04-29-2008, 8:28 PM | Post #2513084

Never considered firing up a still. That's a bit much for me.

Yes, Sterling and Santiam are fairly new. Even more recent is Glacier, which is a Fuggle descendant. I've got all three (plus a Nugget and a Horizon) just planted in the back yard. We'll see what happens.

If you've got some yard space, it's not too late to plant hop rhizomes this year, if you can get some (but the clock is ticking down fast). You would need a heavy-duty trellis, as they can get up to 20' high. In year one, most varieties yield from zero to eight ounces, dried. Mature (3rd year) plants yield one to two pounds. Cascades grow like weeds.

Related Topics horizon yield

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Re: The Ethics of Food Commodity Speculation

stephenl 05-11-2008, 3:24 PM | Post #2516833

It's time for the democrats to repeal their death by ethanol bill. People are starving and cutting down rain forest to grow sugar cane to put fuel in our cars.

China is coming on line as well as India and hundreds of millions are now able to buy rice, corn, wheat and they like it! You aren't going to stop them no matter how much you punish the markets, dictate prices for farmers, etc.

Government entervention has pushed the cost of food up by driving supply DOWN. Supply is DOWN because the food by law has to go into our tanks to meet ethanol requirements.

Europe is now looking at rolling back ethanol requirements because ethanol has been a disaster for pollution and for people.

The answer for tight food supplies is not to punish the markets, it's undo damaging government policies.

I would also suggest the same is true of oil. The answer is not to punish oil producers but to undo damaging government policy.

Related Topics china food Europe India rice

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Re: The Ethics of Food Commodity Speculation

Limoman

05-12-2008, 7:37 AM | Post #2516973

Food Problems in the USA and World

Re: To ease your moral guilt on Being Comfortable and /or making $ on this situation?

Why not Just donate it...?

I do thru a local Food Bank, that I know is very strick on who gets anything ( BG ck constantly) not to people driving around in Caddillacs and /or have Equity in their Homes or cash paying jobs, as many do and to one World Food charity program.

"As for the rest of the World? Alot of these countries refuse our help for Planting, Farming and most importantly? Family Planning..( the new 5 yr IUD is being refused now ) Most of Americans have children we can afford to raise , but they don't see it that way for Religous and Dictatorships and they hate us, but are first with their hands out when things go wrong and want the rest of the world to bail them out all the time.

Which is One main reason the USA is Slow in providing relief to these countries.( ie: To give to a Beggar, supports a Begger for Life ) and they will never learn from their mistakes."

Per PBS/Bill Moyers show

ps.After Wife Died from Cancer and Hospital bills drove me into Bankruptcy, I was Broke/Busted and Destitute ( sleeping on a Couch at parents home ) and I learned the hard way and vowed never to be broke again and went to work 12+ hrs/day x 7 days wk for 8 yrs. in the Limo business before slacking off..to working 12+ hr days, but only 5 days wk.

Our Work ethics are fastly different than many other people in our country and the rest of the world.

Related Topics Equity bank jobs food aol

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