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The Food Bubble (2010)

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Re: The Food Bubble (2010)

#81

Post by mhb »

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,…

The governments don't need to do it. This is exactly why futures contracts exist. So that bakers who know they need wheat in six months can know today what the wheat will cost them and can price the bread with that assurance.

But maybe your point is that by doing this they would avoid the transient price spike due to the indexes rolling over in the near months. Which might make sense, but that phenomenon was noticed by traders anyway and you would expect it to be smoothed out because of that.

Re: The Food Bubble (2010)

#82

Post by Eliezer »

mchusma wrote: post #77
OstiaAntica wrote: post #43

Earlier quoted context omitted.

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.

Agreed. Price growth is natural when you increase the money supply. It's one of the reasons that the CPI index is flawed, as it does not include food costs directly.

Increases in the money supply don't reach everywhere at once; inflation is not evenly distributed. It's distributed, often, through hedge funds that can borrow large amounts of money from banks. You're looking at the effect and the mechanism of easily-borrowable-money actually being borrowed to bid up a particular sector of the economy; much as, earlier, it was borrowed to bid up real estate.

Re: The Food Bubble (2010)

#83

Post by bubbleRefuge »

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.

Disagree. The fed does not devalue currency. They set interest rate policy on reserves aka the federal funds rate. Biggest factor in supply and demand for a currency is fiscal policy. Second biggest factor is trade balance and the desirability of foreigners to save the given currency.

Re: The Food Bubble (2010)

#84

Post by justincormack »

randomdata wrote: post #78
justincormack wrote: post #47

Earlier quoted context omitted.

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

Speaking as a farmer, these are the prices required to remain profitable. I'm sure it wasn't covered here, but prior to 2008 we were seeing numerous farmer protests against the destabilization of our food sector. And then, all of a sudden, the prices rose. Maybe it was purely coincidence with investor actions, but I have always felt it was something else. Though it raises some interesting ethical questions. Is it bet…

Good point, and of course there are the government farm subsidies too, which could go to the poor instead if the farmers were profitable, certainly here in Europe the subsidies have not necessarily achieved the right goals, as there is still extensive poverty in agriculture. There are also buy side issues, such as concentration of buyers. And in the UK I see farm land prices are rising fast, which will reduce much of the potential profitability long term.

Re: The Food Bubble (2010)

#85

Post by bubbleRefuge »

lawnchair_larry wrote: post #37
tpatke wrote: post #8

Earlier quoted context omitted.

I used to work at Goldman's. This story doesn't surprise me at all. This is what all good bankers do. I think the story hasn't gotten attention because it is not a story. It is just how things work.

This comment is...amazing. Much like Paul, most actual people are genuinely shocked about this. It is one hell of a story. The general population does not understand how markets work. Billions are hungry. The streets are full of protesters worldwide. Retirement funds are gone. Markets are failing. Countries are failing. These are humans , who just want to eat . And for what? To turn $100 million into $200 million? Th…

You don't know the half of it! Huge pension funds such as CALPERs, the california public pension fund, invest large sums (go long) passive commodity instruments such as oil and agriculture. These pension funds are insured by the federal government. So the federal government is indirectly subsidizing this activity.

Re: The Food Bubble (2010)

#86

Post by thebmax »

This article omits important details and is factually wrong. In its attempt to 'blame the bankers' it glosses over the role of ethanol policy and the federal reserve on food price rises and wrongly presents the link between futures markets and actual prices.

At the end of a futures contract term, an actual delivery of physical product has to take place. "Rolling over" long futures contracts does not mean the holder can get out of physical delivery. Exchanges do not raise prices of physical products by themselves. They also provide valuable price signals for producers about expected future events.

Blaming speculators is easy, but a factually incorrect way to see the situation.

A world bank report written in July 2008 stated that "large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices responsible for 70-75% of the price rise...with higher oil prices and a weak dollar explain 25–30% of total price rise."

It is a common theme these days to blame bankers and market participants for problems created by government policies. Market actors are agnostic. Governments set the rules of the game and should be the ones held accountable.

Re: The Food Bubble (2010)

#87

Post by daniel-cussen »

Current suspected, unpopped bubbles:

Food bubble;

Commodity bubble, esp. the

Gold bubble;

Higher Education bubble, esp. the

Student loan bubble;

Health care bubble;

Tech bubble;

China bubble;

Developing world real estate bubble; and the

Luxury bubble.

Re: The Food Bubble (2010)

#88

Post by zacharyvoase »

Food prices have swelled many times in history, but Goldman Sachs wasn't to blame for those bubbles and I doubt they're at fault for these. See a short list of previous food riots which catalysed political upheavals here: http://en.wikipedia.org/wiki/Food_riot

Derivatives are actually incredibly useful tools in agriculture because they allow a farmer to embark on the long-term commitment of growing crops with the peace of mind that (s)he'll have guaranteed customers for the final product. This is why the MGEX has been running since 1883: http://en.wikipedia.org/wiki/Minneapolis_Grain_Exchange

Re: The Food Bubble (2010)

#89

Post by rajpaul »

The root cause of speculation is cheap and easy money. The cheap and easy money comes directly from the Federal Reserve. They provide it in the misguided hope that it will be put to work in the real economy.

Re: The Food Bubble (2010)

#90

Post by forensic »

edu wrote: post #52
forensic wrote: post #31

Earlier quoted context omitted.

This community is exactly the type of testosterone-driven money-obsessed community that would create a Goldman Sachs Commodity Index that will cause starvation, and then absolve themselves of responsibility due to some free market arms-length ideology. It's not a coincidence that you're disturbed by the comments. Wall Street entrepreneurs and Silicon Valley entrepreneurs are fundamentally very similar in mindset and…

The not-so-small difference is that tech-entrepreneurs (in SV or anywhere else) are creating real value and "WS entrepreneurs" (which I guess you mean brokers and similar) are just betting and not creating real value.

I said they were similar in "mindset and outlook". Would Silicon Valley hesitate to cause humanitarian crises in the name of profit? What if those crises were very only indirectly linked to their behaviour?

What if Silicon Valley discovered today that they were putting millions of low-skill Americans irreparably out of work. Would this motivate them to modify their libertarian ideology, or lobby for free educations for the poor?

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