Who Benefits From High Food Prices?
News: Forget subprime. The next price bubble to watch is food speculation.
June 19, 2008
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Last week, new consumer price data released by the US Labor Department confirmed what most shoppers already suspected: Food prices, which took their biggest one-month leap in nearly two decades in April, rose even further in May. Energy costs, too, went up last month. The big question, though, is why?
Commodity analysts are quick to pinpoint reasons: Midwest flooding affecting food, livestock feed overdrive provoked by the Chinese, biofuel-related demand, and a weak dollar. These reasons all have some merit, but I'd argue it's speculation that's skyrocketed prices higher faster, not supply vs. demand.
At the financial leaders G8 summit that wrapped up over the weekend, food and oil speculation were front and center.And G8 leaders aren't the only ones expressing concern over traders profiting from the world's pain. Major hedge-fund stars like George Soros and Michael Masters are also screaming moral foul on commodity speculation—a clear signal there's more fire than smoke on the horizon.
As Masters told a Senate committee last month, "Institutional investors have purchased over 2 billion bushels of corn futures in the last five years. [They] have stockpiled enough corn futures to potentially fuel the entire United States ethanol industry at full capacity for a year."
Indeed, the current agricultural price bubble has produced record highs in soybeans and wheat as well. Against this backdrop, a clueless Congress passed US farmer and food-stamp aid within the recent farm bill, without addressing the possibility that speculation could be to blame, or that curtailing speculation could help alleviate the domestic and global food crisis. They should have looked toWall Street's lead.
The latest grain and oilseed trading report from the Chicago Mercantile Exchange cited first quarter of 2008 trading volume up 32 percent over the last quarter of 2007. That's extra money coming in from speculators, not corn or wheat farmers hedging their crop prices in case of bad weather.
Additionally, the hot new favorite among traders is betting on packages of energy and agricultural futures. Called CCO's (collateralized commodity obligations), they are like their subprime cousins, CDO's (collateralized debt obligations). Their performance is linked to rising commodity prices; the higher the prices, the more profit to the CCO.
There's another group, besides the standard speculator crew, literally reaping extreme profits from the price squeezes—the crop equivalents of Exxon, multinational agricultural biotechnology corporations. Monsanto, which recently told the 12th Annual Goldman Sachs Agricultural Biotech Forum that its profits would double by 2012, is buzzing (PDF); the firm's stock price doubled during the past year. ADM, the nation's second-largest ethanol producer, saw its annual revenues increase by 64 percent. Even agriculture conglomerate Cargill's third-quarter profits rose 86 percent.
Last week, a group of senators led by Carl Levin (D-Mich.) introduced the Close the London Loophole Act, which would curtail a situation that allows speculators to bypass all Commodity Futures Trading Commission regulations by trading on foreign exchanges.
But without strong regulation of electronic exchanges and the derivatives products that enable speculators to move huge proportions of the futures markets underlying commodities, putting a bit of regulation into the London-based exchanges will not alleviate anything. Unless that's addressed, this bubble is going to take more than homes with it. It's going to take lives.
Nomi Prins is a Mother Jones writer and former Bear Stearns analyst.
Time for a planned economy.
How about world food shortage?
Drought in Australia caused a plant that processes enough rice to feed over 20,000,000 to close - the largest cattle ranch in the world to shut down etc.
I guess it's only in the US that food is produced huh???
Dude, I agree with you. I just so happened to pick up Friedmans Capitalism and Freedom at a conference a few weeks ago. Here is a quote from page 8.
"The citizen of the United States who is compelled by law to devote something like 10 percent of his income to the purchase of a particular kind of retirement contract, administered by the government, is being deprived of a corresponding part of his personal freedom."
Exactly, because everyone, and I mean EVERYONE, who slaves their lives away creating the massive amount of wealth for a handful of people have economic freedom when they're 75 and can't exhange labor for wages. WTF?!?!?!
As a side note, this jagoff won the nobel prize in economics. If anything spectacular hasn't happened, they ought to just give the money to aids research or the people who risk life and limb clearing landmines from the 3rd world and Lebanon.
http://www.eatwellguide.org/i.php?id=Home
http://www.localharvest.org/
http://www.sustainabletable.org/
http://tinyurl.com/5x5mqe
http://www.localflavourplus.ca/index.htm
http://bigbarn.co.uk/
http://greenfinder.co.uk/home/
http://www.foodloversbritain.com/
http://www.organicfooddirectory.com.au/
http://www.theorganicsdirectory.com.au/
http://organicfoodexpress.com.au:808...ml?id=gcVwLsd6
http://www.certifiedhumane.org/
http://100milediet.org/getting-started-guide/
I have been telling students and friends for months that speculation by people/entities that will never take possession of a bushel of these crops is driving the price increases.
The US government needs to follow India's lead in banning speculation in basic food commodities. In the 19th century (see William Cronon's excellent book "Nature's Metropolis: Chicago and the Great West"), the Illinois legislature tried to make speculation in grain illegal. The effort failed, and we have the speculation driven market that we see today.
In the early 1980s, the Broin family in Minnesota looked for a way to add value to their corn crop (at a time when many farmers were going bankrupt). Broin, now Poet, developed a model in which local farmer investment in local corn grain ethanol plants added value to the corn crop and created jobs in economically depressed communities.
The problems with corn grain ethanol have been well documented; however, an understanding of this history and the real excitement (and economic upturn) that locally owned ethanol plants brought to small rural communities in the Midwest should not be overlooked.
I have a question about the CFTC, am I correct in assuming that the significant change in the rules occurred in the last 8 yrs? specifically 2003. What public interest did the rule change purportedly serve. I can understand the interest of speculators (gamblers)whose only motivation is rolling winners, but what concern for the public welfare is served by commodities futures trading. does it lead to greater production of goods and services?; more jobs for those outside commodity trading? It only seems to be another rigging job by those who deregulate to transfer wealth from the folks to the riggers and their supporters. Another bubble ready to burst! Would Ray, Carolyn Asbaugh or some other enlightened reader please help me understand.
following: Food, Oil, Medicine,Finance,
Intelligence, Mining, Education....
i think we get the picture.
All of the aforementioned will be
used on the US to replace the original
constitution with the constitution of
the north american union.
THE HIGHEST ACT OF TREASON POSSIBLE!!!
NAFTA, Public laws 89-719 and 94-564,
APEC,HAARP (Kissenger needs to keep his
finger off that button),Federal Reserve
(did we know that himler served on the
board of Schroder Banks of Germany,
who, during the war, owned a chunk
of the Fed?)
The EU is in an equally bad or possibly even worse situation, but they just raised rates today. This disparity between the Fed's policy of purposeful inflation and the European Central Bank's actions is what Merrill Lynch is characterizing as a possible financial "catastrophic event". As a clarification, neither the Fed nor the ECB are government entities. They are private banks that control the flow of money to nations.
The money is also going into oil and commodities because the bond market has been destabilized due to the Fed taking on worthless collateral for these above-mentioned loans, and thus the bond market and even the banks themselves are no longer a safe place to store money.
The numbers above are from the Fed themselves. More info is available at http://ptohoi.wordpress.com
And for re-clarification, the Fed is not a private bank. This idea is an urban myth. The Fed is very much an arm of the government. In the same way that we are forced to pay into social security, the banks are forced to contribute capital to fund the Federal Reserve System. The banks own the Fed just as much as we own the social security system, which is to say that they are legally obligated to pay into it, and in return the government pays them a modest return on that contributed capital. But they don't own the Federal Reserve banks. Any profits the Federal Reserve System generates beyond its expenses goes to the U.S. Treasury.