Why are food prices rising? No, weather and demand have nothing to do with it -- it's HEDGE FUNDS PLAYING THE COMMODITIES MARKETS, DRIVING UP FOOD PRICES
- From: Kickin' Ass and Takin' Names <PopUlist349@xxxxxxxxxxx>
- Date: Mon, 31 Jan 2011 23:07:15 -0500
Yet another stick in the spokes of the geopolitical world wheel! And
of course, climate change has nothing to do with the extreme weather
affecting crops around the world -- and neither does the fact that
Wall Street hedge funds have allegedly been locking up the commodities
market, driving up the costs of food. That's because we live in
America, where reporters never ask rude questions!
U.S. grain prices should stay unrelentingly high this year, according
to a Reuters poll, the latest sign that the era of cheap food has come
to an end.
U.S. corn, soybeans and wheat prices -- which surged by as much has 50
percent last year and hit their highest levels since mid-2008 -- will
dip by at most 5 percent by the end of 2011, according to the poll of
The forecasts suggest no quick relief for nations bedeviled by record
high food costs that have stoked civil unrest. It means any extreme
weather event in a grains-producing part of the world could send
prices soaring further.
[...] "Even if we have a good year, we are not going to have the
inventories we've seen before. I really do think the time of cheap
food prices is over, and that's just it," said analyst Chris Mann of
Traders Group Inc in Chicago.
"Everything is set to the point where supply equals demand right now.
But if you pull one thing out of it, or if you disrupt the equation in
some little way or tweak it, I think, with inventories as tight as
they are, it will really have an impact on prices. A drought, a flood,
anything," said Mann.
You'll notice he doesn't mention a thing about hedge funds pouring
massive amounts of money into the commodities market after the housing
market collapsed, and instead driving up food prices -- which in turn,
promote global economic and political unrest:
When this process of "hedging" was tightly regulated, it worked well
enough. The price of real food on the real world market was still set
by the real forces of supply and demand.
But all that changed in the mid-1990s. Then, following heavy lobbying
by banks, hedge funds and free market politicians in the US and
Britain, the regulations on commodity markets were steadily abolished.
Contracts to buy and sell foods were turned into "derivatives" that
could be bought and sold among traders who had nothing to do with
agriculture. In effect a new, unreal market in "food speculation" was
born. Cocoa, fruit juices, sugar, staples, meat and coffee are all now
global commodities, along with oil, gold and metals. Then in 2006 came
the US sub-prime disaster and banks and traders stampeded to move
billions of dollars in pension funds and equities into safe
commodities, and especially foods.
"We first became aware of this [food speculation] in 2006. It didn't
seem like a big factor then. But in 2007/8 it really spiked up," said
Mike Masters, fund manager at Masters Capital Management, who
testified to the US Senate in 2008 that speculation was driving up
global food prices. "When you looked at the flows there was strong
evidence. I know a lot of traders and they confirmed what was
happening. Most of the business is now speculation ? I would say
Masters says the markets are now heavily distorted by investment
banks: "Let's say news comes about bad crops and rain somewhere.
Normally the price would rise about $1 [a bushel]. [But] when you have
a 70-80% speculative market it goes up $2-3 to account for the extra
costs. It adds to the volatility. It will end badly as all Wall Street
fads do. It's going to blow up."
The speculative food market is truly vast, agrees Hilda
Ochoa-Brillembourg, president of the Strategic Investment Group in New
York. She estimates speculative demand for commodity futures has
increased since 2008 by 40-80% in agricultural futures.