Time to tackle speculators
Surely governments – which are never slow to interfere in farming and food production – can at last live up to their promises to take action against the financial institutions whose reckless speculations ever threaten to derail normally functioning economies.
Many financial institutions which were bailed out with hundreds of billions of the public’s euros and dollars in 2008 have been taking advantage of resulting huge government debt, for example, by betting against the euro, thus making economic recovery even more difficult.
Institutions which brought the global economy to the brink of the abyss have been using taxpayers’ funds to speculate on the credit-worthiness of the weaker EU member states, adding greatly to their borrowing costs, amid investor concerns about the ability of these countries to meet repayments.
Now these institutions are in a race to see how high they can lift grain future prices. As this trend feeds into the real markets, their victims will include EU livestock farmers who will have to pay more for animal feed. More importantly, the poorest people in the world will have to pay more for their daily bread.
Throughout the grain industry, there is agreement that speculation in future prices has caused them to deviate from their underlying value – the definition of an economic bubble. And like the property bubble, speculative purchasing is typically followed by speculative selling in which the price crashes.
Such volatility in the market for a vital food ingredient like wheat should be tackled more effectively by governments.
A near 80% surge in wheat futures prices since June suggests a world in panic over supplies of this main food grain. But up to last week, cash prices in the US had been at their lowest levels in nine months. A drought may have decimated a quarter of the Russian crop, but US wheat stocks are the largest in 23 years, more than double the amount of wheat estimated lost in Russia.
The price jump seems to have more to do with historically-low US interest rates fuelling massive buying in wheat futures by financial institutions.
Last Thursday, Chicago Board of Trade wheat futures equivalent to 2.5 million tonnes of wheat were purchased.
The EU animal feed sector is taking the effect of this speculation seriously. FEFAC, the European compound feed manufacturers’ federation, have requested that the EU commission release their six million tonnes of feed barley from intervention stores, in order to combat rising prices for feed ingredients.
FEFAC has warned that futures markets as they function today are not effective to assist farmers and their customers to manage increasing price volatility for essential commodities, and urged the EU Commission to reflect on how to control excessive speculation.
It is high time the economic system was overhauled, if real businesses like farms and factories cannot borrow money, while unlimited funds are available for speculators in the financial institutions to bet on imaginary prices going up and down.
