08-10-12, 06:05 PM #1
Should anyone be allowed to speculate on food prices?
Not just banks...I mean anyone???
Germany’s second-biggest lender, Commerzbank, says it will no longer participate in market speculation on basic food prices. The bank says it has removed all agricultural products from its funds for moral reasons.
Commerzbank of Germany confirmed on Thursday it had withdrawn from market speculation on prices for basic food items. The country’s second-largest lender said it had removed all agriculture products from its ComStage ETF CB Commodity fund.
Commerzbank stated that the move came in response to a series of international studies claiming that similar agricultural funds had played no small role in artificially pushing up food prices, contributing to widespread hunger in many parts of the world.
08-10-12, 06:42 PM #2
I think it says something about the nature of what so-called "Banking" has morphed in to. Futures were sold in Babylon 5000 years ago - you're not talking about futures are you?
08-11-12, 01:48 AM #3
As food is a requirement for existence, I agree that it should be exempt from such manipulation.
Speculation should only be permitted on non-essentials. There should be a core listing of human needs that should not be manipulated for profit.
I suppose that makes me an idealist.
08-11-12, 02:25 AM #4
And there will always be some degree of manipulation - even if it nothing more than a farmer holding his grain in storage longer hoping the price will increase.
08-11-12, 09:11 AM #5
This is only a minor improvement in the short run. Like Read-Only said, there will always be some manipulation; it's a fundamental flaw of capitalist production.
The bank deserves no accolades for this. It's hardly anything, and the world would do a lot better at addressing global hunger if we overcame capitalist production, which is highly inefficient (precisely because it does not ration).
08-11-12, 12:31 PM #6
When farmers put a crop in the ground, they are investing a lot of time and labor, and basically gambling that market prices at the time their crop finally comes to market will justify the investment.
So one thing that farmers often do to reduce risk is purchase futures contracts in which a buyer contacts to buy X amount of whatever it is on such-and-such a date at price P. That way, if the farmer can successfully produce the crop, he or she is basically guaranteed to make a profit on it. If the price is higher than P at the date the contract comes due, the farmer loses out on the difference. But if the price is less than P, the farmer avoids taking a loss.
The thing is, in order for that to work, there needs to be somebody on the other end who is willing to sell the contract. That counterparty is basically gambling that the future price will be higher than P, and that he/she is going to be getting X amount of whatever it is at less than the prevailing market price at that time.
08-11-12, 01:16 PM #7
I really don't give a damn how hard the banks and investment firms might be regulated by the government. I don't even particularly care if it caused some reprisal that affected me adversely. I wouldn't care if all commodities speculation were shut down globally, or whatever it may take to lower food prices - provided small farmers could be reasonably protected. To hell with the global agribusinesses, too.
Capitalism has it plusses, but it's not the only game in town. There are other pressures in the world. Poverty and environmental damage are the perennial concerns for anyone of conscience. There will always be a strong voice somewhere in just about every big skunkworks in the world that would agree with you, Sheh. I think it's kind of cool that these bankers did this, if anything just to raise that same voice once again.
It's sad that this is seen as idealism. The financial world needs to recalibrate. It may retain its clout but it has lost its credibility since the crash of '08. As the 60s youth culture that drew so much attention to these issues heads for the retirement communes, the RV parks and the convalescent centers, I would expect to see another surge of humanitarian themes like this. It's only natural for aging people to think about posterity and their legacy.
In closing, I offer this little reminder of humanitarianism, with a call to action: Don't Bogart that--that--well, that bushel, of course!
08-19-12, 12:52 PM #8
Yazata in post 6 noted one important function of speculators - i.e. they take some of the risk that might completely destroy a farmer - put him out of business. They will only do this if they are rewarded.
Another, perhaps more important benefit provided by speculators operating in a market economy, is to give early price signals to the market. The professional speculator tries to forecast what the price will be some months hence. To do this well, he must consider many things, even changes in tecnology that may lower production cost or energy cost trends etc. Then if that well informed view is that price of X will increase, he buys now, making greater demand that in fact raises the current price of X.
Many who produce X don´t investigate as he did - they just see price of X increasing and, if a farmer, decide to plant more of their farm in X (and less in Y) I.e. without the services of the speculator, making early price signals in the market place, the price of X would be significantly higher in the future if the producer of X did not plan for increased production of X.
Take oil as an example: With the economic crash of late 2008, oil prices were falling so speculators bought oil and stored it in smaller old oil tankers no longer used for transport. This helped hold up the price (or slowed its fall) so some marginal well continued to produce. Now with some recovery in economic activity, oil is flowing out of this "floating storage" and helping to hold the price rise in oil lower so the recovery has more chance of being real / sustained. These speculators helped society both when price was falling and now that it is rising. Without them all would be at greater risk and less willing to invest, to create jobs in a more uncertain economy.
SUMMARY: Usually speculators make prices more stable than they would be if there were no speculators. Occasionally, speculators set out to destroy the market. For example the Hunt Brothers tried to corner the silver market and drove the price to ~50 dollars per ounce. So long as there are many speculators the net effect is for greater price stability and all can plan with less uncertainty and less total risk.
08-19-12, 05:09 PM #9
I believe that humans should earn what they worked for, meaning if someone spent their days growing and picking food then they should have the choice to sell it or not, but if someone has no money and in no means cannot earn the money to get the food the provider should have some decency to some food to the person, but they aren't required to give the food. Human nature may not seem well tended to, but it is the way it is; it is the survival of the fittest situation. If you aren't willing to be fit with your needs why survive? A person cannot just keep asking for food if they don't feel like working.
08-20-12, 11:58 AM #10
All goods and services are elements in the economy. It is impossible to identify a certain set of goods or services and decree, "These will no longer be subject to the law of supply and demand, or to any of the other principles of economics."
We have seen what happens when governments think they are so big and powerful that they can override the principles of economics. Look at their foolish attempt to prevent the consumption of alcoholic beverages in the 1920s. They accomplished no such thing. The market for an extremely popular product merely shifted so that only criminals were willing to produce and sell it. This resulted in higher prices due to the risks associated with the business, in lower quality as government standards and inspections were not enforced, in disagreements being settled by violence since they could not be taken to the courts, in bribery and corruption permeating government agencies since their own employees were merely human, and in the development of a new cachet of coolness attaching to a "forbidden" commodity which brought women into taverns for the first time. One would think that they had learned their lesson, but today they are repeating the exact same folly with other types of psychoactive drugs, with exactly the same results.
That's an example of the futility of attempts to de-economize goods. The same thing happens with services. One need only compare the prostitution industry in Holland or Nevada with its counterparts in the rest of the USA.
So to say, "we have to make an exception to the fundamental rules of economics for food because food is just so dadgum important," is to fall into this same trap again. You can't change the fundamental rules of economics. The implosion of the Soviet Bloc surely must have made that clear to all of us.
08-20-12, 11:07 PM #11
A producer of food products will buy a corn futures contract, and then some time later, will take delivery of tons of corn and turn it into animal feed or taco shells or whatever.
A speculator buys the same corn futures contract, but then some time later, sells that contract, hopefully to a higher bidder to make a profit.
Its the speculative part of the futures market, and its ETF derivatives that is at question here.
08-21-12, 08:23 AM #12
The action of the German bank is irrelevant, because Europeans can still open trading accounts in the US or else and trade any types of futures, including agricultural ones...
08-21-12, 05:05 PM #13
Same thing happened in the US housing market. Interest rates were fixed artificially low, bringing large numbers of house flipping speculators into the market, and driving prices higher for those who actually wanted a place to live.
When this happens to the price of something people NEED to survive like food...it becomes an ethical issue.
08-21-12, 06:04 PM #14
08-21-12, 07:44 PM #15
Try to sell let's say 10K shares in a thinly traded stock where the daily volume is 5K and see how much your simple action effects the price. When there are more people in one market, one trade doesn't/shouldn't effect the price...
08-26-12, 06:48 PM #16
Has anyone noted the potential political power of speculation? For example, timing the speculation to coincide with a particularly sensitive election in a foreign country in hopes of swaying election results?
In theory it's possible, but I am not sure if there are any historical examples of this.
By Michael in forum Business & EconomicsLast Post: 01-20-11, 02:32 AMReplies: 6
By desi in forum World EventsLast Post: 03-19-10, 04:15 PMReplies: 47
By kmguru in forum Business & EconomicsLast Post: 05-06-08, 02:18 PMReplies: 9
By Syzygys in forum Ethics, Morality, & JusticeLast Post: 11-20-07, 10:23 PMReplies: 12
By Quantum Quack in forum Business & EconomicsLast Post: 10-05-05, 03:14 PMReplies: 11