Published on Pambazuka News, by Khadija Sharife, May 12, 2011.
The purpose of agricultural futures contracts is to reduce risks for farmers and the people they supply. But as speculators in search of safe investments pour capital into soft commodities markets, they are driving ‘price inflation way beyond the effects of demand and supply pressures,’ writes Khadija Sharife.
This issue of Pambazuka News carries a piece on role of speculation in the cocoa futures market. The futures market is important, chiefly because – prior to unchecked speculation, futures contracts (agreements between buyers and sellers to exchange a certain on a certain day) could be used as a vehicle to diminish risk and volatile curves, caused by lack of information, disinformation, etc across global lines. Prices then reflected several crucial elements, namely three, as regards agricultural or ’soft’ commodities: planting, availability of ‘old crop’, and demand for numerous agri-crops during different growth cycles.
‘Prices are determined the way most prices in moderately open market system through the aggregation of buyers and sellers in a market place,’ said Lincoln Ellis, managing director of the US-based Linn Group, a 35-year old clearing and trading business located at the Chicago Board of Exchange. Since inception, the company, a family-owned entity, has focused on agricultural markets, rooted in community faming and the commercial cash grain merchandising business.
According to Ellis, ‘the biggest problem facing African farmers in the US tax payer subsidies paid the US farmers,’ artificially elevated by EU and US protectionist subsidies, chiefly benefitting mega-corporations like ADM – subsidies estimated at US$1 billion per day. Volatility in the grain markets, claimed Ellis, would be five times higher were it not for futures contracts. While there is no such thing as ‘perfect information’, a regulated agricultural futures market (where weather plays a detrimental role) is one way in which buyers/sellers and importers/exporters can engage one another, accessing crucial data.
But in recent times, following the recession, volatility – playing on deregulated markets, has drastically increased thanks to the collective shift of investment capital, by monopoly interests into ’safe golden investments’ such as agri-commodities markets, increasing from US$13 billion in 2003 to US$318 billion in July 2008. Gerry Gold, editor and author of ‘A House of Cards: From Fantasy Science to Global Crash’ stated that during the first two months of 2008, markets were flooded with some US$55 billion investment. ‘A great deal of the money found its way into the commodity markets, driving price inflation way beyond the effects of demand and supply pressures,’ wrote Gold … //
… All participants – including apartheid South Africa, which exchanged uranium (earmarked by Rich for the Soviet Union) for Iranian oil that in turn was bartered for arms. Carpe diem? (full text).