Banks cause hunger
wdm.org.uk
wdm.org.uk
And sorry, how bad is the infographic, if the chart just says "rising food prices driven by speculation" - that is not proof, that is just a claim. Unfortunately many people will just fall for it :-(
Plus, when it comes to speculations, real world effects do have an influence but a new market of supply and demand of the speculation itself is created based on hopes, rational or otherwise, of falls or rises of prices, which is most often detached from "real reasons based on the facts on the ground".
> which is most often detached from "real reasons based on the facts on the ground".
If that was the case, then why doesn't someone with more access to "facts on the ground" make a huge profit by betting more accurately given this knowledge? Perhaps the speculative market you are talking about actually does reflect facts on the ground.
Seriously, how does it work? So you buy a certificate for 100$, giving you the right to pay a ton of wheat for 1000$. Then you buy a ton of wheat for 1000$. Then what? If nobody buys wheat for you for 2000$, you lose. Rather than throwing the wheat away, you might end up selling it for 500$. Simply by buying a future that entitles you to buy wheat for 1000$/ton doesn't change the price of wheat. In the same sense it doesn't change the price of Google stock if I decide to buy a future that entitles me to buy Google stock for 10000$/unit.
It might be a problem for the baker who wants to plan ahead and would rather like to have a guarantee that he'll get the wheat for 500$. But if the real price is actually headed for 2000$, he would not have gotten that 500$ certificate anyway. Also if he had gotten it, he would effectively have ripped off the peasants.
Also, somebody has to buy the food at those high prizes. And if prizes stay high, it would be good for peasants and they should increase production. For example it might become more profitable to plant real food instead of raw materials for ethanol.
Attempts to fix prices for food usually backfire - then producers have no incentive to produce food anymore if production costs are higher than the allowed maximum price.
Also, isn't bankers buying food futures at too high prices equivalent to abandoning food futures? It means the bakery can not afford to buy a food future anymore (because banks drove the prices for futures up too much). So they'll have to do without the futures and simply buy at market rate once they need the wheat.
The allegation is that banks would never actually buy the food they have the futures for (they don't have silos for storing the food).
So the most damage they can do is destroy the utility of food futures. I don't see how introducing laws against food futures would help against that...
If you hold the futures contract at it's expiration date, you must take delivery, so pretty much all speculators have a pressing need to offload their contracts to somebody before the due date.
It's like any other bubble - it started basically because of a lack of anywhere else to invest, and at some point it just grew because it was growing. Remember 1999?
>And sorry, how bad is the infographic, if the chart just says "rising food prices driven by speculation" - that is not proof, that is just a claim.
I thought it was common knowledge. Certainly none of the fundamentals of the market for food have changed enough to warrant price rises to that extreme, and most of the demand is being driven by the futures market, not by, say, the entire world eating 70% more food.
Also other than a failed startup, a ton of wheat still sticks around if you buy it. You can either sell it off or let it deteriorate (for a 100% loss).
Sure, you can try to artificially shorten supply and drive prices up that way. It is an age old economic strategy, but as far as I know it has never really worked before (from what I remember from economics textbooks). It would only work for a very short time. Say you hoard rice this year and sell only a little rice at exorbitant prices. Peasants the world over would increase their rice production, so next year there would be a lot more rice, plus your warehouses are already stocked to the ceiling with rice from last year. The prices will now be low - either you sell your rice for cheap, or you throw it into the river. In both cases, the attempt was not really worth it.
Because I can't be bothered?
>Sure, you can try to artificially shorten supply and drive prices up that way. It is an age old economic strategy, but as far as I know it has never really worked before (from what I remember from economics textbooks). It would only work for a very short time. Say you hoard rice this year and sell only a little rice at exorbitant prices. Peasants the world over would increase their rice production, so next year there would be a lot more rice, plus your warehouses are already stocked to the ceiling with rice from last year. The prices will now be low - either you sell your rice for cheap, or you throw it into the river. In both cases, the attempt was not really worth it.
If I'm understanding you correctly, a similar argument was made in 2007 - it's actually really expensive to hoard millions of barrels of oil (which is what was assumed if people were speculating), it wouldn't be easy to hide and nobody had really found any evidence of it. I think Paul Krugman made this argument.
Then the bubble went POP pretty spectacularly. I think Krugman eventually admitted he was wrong there.
Hoarding wasn't necessary as the price increases from the futures market were transmitted to the actual market for oil (since most oil is bought on futures anyway, very little is bought at spot price) and the speculators weren't actually taking delivery of the oil they were just rolling the contracts forward. I assume a similar dynamic is in play for wheat right now.
Unless you hold a short position in food futures, I don't think you are particularly confident in the correctness of this statement.
This is partly why bubbles form. Easier to bet on prices going up (just buy a share, downside is limited) than prices going down (you need to predict when it will go down and your downside is unlimited).
Markets can remain irrational for longer than you can remain solvent.
You'd have made a killing. This is the strategy that Burry and others took while shorting the housing bubble.
The only way this strategy would fail is if the downturn is slow and gradual (which is not characteristic of a bubble).
* population growth
* biofuels
* climate change
* increased demand for 'expensive' food such as meat
* corruption
* the effect of 'fair trade' on food prices
(fair trade wants them to go up so farmers get more)
When this occurs, we'll get poorly researched articles talking about how banks are hurting poor rural farmers.
How Goldman Sachs Created the Food Crisis
http://www.foreignpolicy.com/articles/2011/04/27/how_goldman...
The food bubble: How Wall Street starved millions and got away with it
The 1999 deregulation of the futures markets by the Commodities Futures Trading Commission for example, is missing from the World Development Movement infographic. This appears to be a critical detail that's missing.
For your second link, I hit a paywall, so here's a link to get around that: http://theglobalrealm.com/2011/02/04/the-food-bubble-how-wal...
For instance, if speculators believe there will be scarcity in 3 months (which starts gradually), the futures price will spike now. This will incentivize people to reduce consumption now, rather than when the scarcity actually manifests itself. Of course, reduced consumption now leads to greater availability later.
If we had no speculators, we'd continue overconsuming until it was too late, but there would be no sudden jump in prices.
[1] The best test case is onions vs other goods, since futures contracts for onions are illegal. http://resolutedetermination.wordpress.com/2011/05/07/oil-pr...
From June 2010 to January 2011 the cost of wheat increased by 73%, according to the World Bank. The true price of this is not only in the suffering of individual humans and their families, but in the destabilizing of governments and the revolutions seen in the Arab Spring.
This has significantly reduced the amount of US corn available for food and it also decreased the amount of other food grown as farmers switched to corn when possible.
The very briefest answer is that G.S. created a "long only" investment vehicle based on food staples with no mechanism for shorting it.
In other words, GS didn't create a mechanism for speculation....
Note that the financial industry is often trashed for shorts, as in "those folks are betting on/profiting from failure".
So, now we find that they're also wrong for not creating an opportunity for shorting.
http://www.wdm.org.uk/stop-bankers-betting-food/broken-marke...