The Food Bubble (2010) • Hacker News Board

Re: The Food Bubble (2010)

#41

Post by thaumaturgy » Sun, Oct 23, 2011, 9:30 AM UTC

rcthompson wrote: post #32

thaumaturgy wrote: post #21

Earlier quoted context omitted.

Frustratingly, the post you are probably thinking of was here: http://www.cpeterson.org/2011/03/10/why-gas-is-so-expensive-... (Aside: this is one reason why I have so little trust in the web as a long-term historical medium.) Although that article focused primarily on oil futures, it also discussed commodities futures, and specifically addressed the rollovers. Unfortunately, I neither understood it well enough at th…

I think that's the one I was thinking of. I guess I followed the link from that one to this one, and therefore I remembered reading this article.

Nah; the previous version of the article I linked was completely different. For some reason, the author felt the need to take it down and replace it with links to these other articles.

Re: The Food Bubble (2010)

#42

Post by hooande » Sun, Oct 23, 2011, 9:54 AM UTC

BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

I thought the human angle of the piece was far overblown. The underlying story being presented is "Goldman Sachs raises prices and people starve as a result". I think that was mostly to add a dramatic point to the article. In reality it's a "look at how all of these pieces fit together, and here's how Goldman Sachs hacked the system" story. While hackers love that kind of thing, we're a relatively small market and a story with a spin about the evil of corporations is so in right now.

The reason people aren't reacting to human suffering is because we can see that it isn't a real factor in this story. We're talking about a small change in the world's supply of food here. It would be very difficult to image (or prove) that anyone actually died of starvation as a result of this. It's more like a loaf of bread that used to cost $4.50 now costs $6.00. That extra $1.50 can be enough to make an unpleasant life significantly less pleasant (believe me, I know), but I don't think it equates to the starving human beings.

tl;dr - Capitalism is a dick move. Don't blame the flaws in the system on the people who benefit from them.

Re: The Food Bubble (2010)

#43

Post by OstiaAntica » Sun, Oct 23, 2011, 10:31 AM UTC

ramanujan wrote: post #12

I usually don't do this, but this article is long. The summary (tl; dr) is as follows: 1) Large institutional long investments in a certain type of wheat future (Chicago soft red winter) started crowding out the real customers of physical wheat, such as bakers. 2) Because wheat varieties are moderately fungible/exchangeable, the downstream bakers started to use a different brand of wheat (Minneapolis hard red spring)…

This article is basically shooting the messenger.

The roiling agricultural commodity prices in the last decade were largely the result of dollar currency devaluation by the Federal Reserve. The same patterns occurred across other global commodities like copper and oil.

Re: The Food Bubble (2010)

#44

Post by [deleted] » Sun, Oct 23, 2011, 10:51 AM UTC

OstiaAntica wrote: post #43

ramanujan wrote: post #12

I usually don't do this, but this article is long. The summary (tl; dr) is as follows: 1) Large institutional long investments in a certain type of wheat future (Chicago soft red winter) started crowding out the real customers of physical wheat, such as bakers. 2) Because wheat varieties are moderately fungible/exchangeable, the downstream bakers started to use a different brand of wheat (Minneapolis hard red spring)…

This article is basically shooting the messenger. The roiling agricultural commodity prices in the last decade were largely the result of dollar currency devaluation by the Federal Reserve. The same patterns occurred across other global commodities like copper and oil.

[deleted]

Re: The Food Bubble (2010)

#45

Post by justincormack » Sun, Oct 23, 2011, 10:54 AM UTC

thaumaturgy wrote: post #23

ramanujan wrote: post #12

I usually don't do this, but this article is long. The summary (tl; dr) is as follows: 1) Large institutional long investments in a certain type of wheat future (Chicago soft red winter) started crowding out the real customers of physical wheat, such as bakers. 2) Because wheat varieties are moderately fungible/exchangeable, the downstream bakers started to use a different brand of wheat (Minneapolis hard red spring)…

He did mention it somewhat. Since the funds were only required to store 5% of their clients' money in the actual commodity, they could stash the rest of the money somewhere else safe, and then on top of that make money on transactional costs. From another article I'd read before (which I linked to down below, and which is gone now), the funds made quite a bit of money in the rollovers by charging a fee to every inves…

People lost some money after 2008, although prices are now approaching the peak levels again. However, the key point is that your pension fund may not care, they are buying because of the negative correlation with other assets, and positive correlation with inflation, as the 2005 paper mentioned demonstrated. Pension funds are where this money is coming from now, and where the trillions of dollar figures talked about would come from, as they get persuaded that this is a real investible asset.

Re: The Food Bubble (2010)

#46

Post by JonnieCache » Sun, Oct 23, 2011, 10:56 AM UTC

rcthompson wrote: post #34

wanorris wrote: post #20

Earlier quoted context omitted.

capnrefsmmat covered the bursting of the bubble, but the positions were rolled over simply by converting the futures to their equivalent holdings in actual wheat, selling the rights to that wheat for the actual spot price, and using the proceeds to buy more futures for the next term. This doesn't actually protect the buyer. Rather, the buyer was protected (for a while) by the continuing influx of new capital into com…

I think I understand. The profit is determined by how much the spot price has increased during the term, since the futures are bought for the spot price at the beginning of the term and sold for the spot price at the end. Put that way, this looks much more like all the other bubbles we've read about. I get the feeling that there's really only one bubble, but it moves from one sector of the economy to the next, leavin…

>I get the feeling that there's really only one bubble, but it moves from one sector of the economy to the next, leaving destruction in its wake

This seems like a nice insight, can anyone with financial experience comment on it?

I'm thinking maybe if you analysed it you'd find the same subset of traders following the bubble around.

Re: The Food Bubble (2010)

#47

Post by justincormack » Sun, Oct 23, 2011, 10:57 AM UTC

capnrefsmmat wrote: post #7

te_platt wrote: post #4

Something seems wrong with this story. I understand how speculation can push the price up but if the price goes too far above the true value for too long there has to be a drop - the bubble needs to burst at some point. Has there been a drop in price since this article came out? Have farmers adjusted to grow unusual amounts of wheat? Are there parties to the events who have been shielded (bailed out) from any downtur…

According to the article, the bubble did indeed burst: > Then, like all speculative bubbles, the food bubble popped. By late 2008, the price of Minneapolis hard red spring had toppled back to normal levels, and trading volume quickly followed. Of course, the prices world consumers pay for food have not come down so fast, as manufacturers and retailers continue to make up for their own heavy losses.

Prices are back up. Not quite up to the peaks of 2008 but not far off. http://www.indexmundi.com/commodities/?commodity=wheat&m...

Re: The Food Bubble (2010)

#48

Post by JonnieCache » Sun, Oct 23, 2011, 11:00 AM UTC

indrax wrote: post #38

BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

One of the things markets are supposed to do in theory is to route resources to where they are needed, and financially punish people who move resources in stupid ways. The technical analysis I've seen here seems to hover around the question of why the investors were not automatically screwed. In a more efficient market the price collapse would have been obvious, the bubble would not have happened, and no one would ha…

>One of the things markets are supposed to do in theory is to route resources to where they are needed, and financially punish people who move resources in stupid ways.

How many more people have to die needlessly before this theory is reexamined by those who practice it?

Re: The Food Bubble (2010)

#49

Post by justincormack » Sun, Oct 23, 2011, 11:04 AM UTC

hooande wrote: post #42

BrainScraps wrote: post #22

It is a bit disconcerting to me that commenters here are fascinated by the technical analysis of this system and appear quite oblivious to the problem of starving human beings. Perhaps I am not intellectual enough to appreciate the empathy hiding behind this analytical ruminating about the problem - but I wish that I got the impression that there was more reaction happening than "Wow, what an interesting phenomenon i…

I thought the human angle of the piece was far overblown. The underlying story being presented is "Goldman Sachs raises prices and people starve as a result". I think that was mostly to add a dramatic point to the article. In reality it's a "look at how all of these pieces fit together, and here's how Goldman Sachs hacked the system" story. While hackers love that kind of thing, we're a relatively small market and a…

Food prices have tripled since 2005, roughly. That makes a huge difference in many countries, and to the poor in many more. It is a very real factor.

Re: The Food Bubble (2010)

#50

Post by justincormack » Sun, Oct 23, 2011, 11:08 AM UTC

ArchD wrote: post #36

I'm wondering if there's something preventing the government of vulnerable countries from buying futures themselves to shield their own people from violent price fluctuations like these, i.e. hedge against price increase for food commodities that need to be imported. Trading commodity futures may be inaccessible to ordinary people, but I don't see why the government of a country, even a developing one, cannot do it,…

That would make the problem worse though, by adding more demand for futures. They should sell futures to take advantage of raised prices now for future production, taking profits and driving prices down...