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Subscribe to RSSThe news Friday that American corn supplies are larger than many had expected sent corn futures prices down, which some might take to mean that at some point people get a better deal on everything from corn chips to soda.
After all, that's the basic law of supply and demand.
But these days, some say those types of assumptions are no longer applying to food.
Reuters reported Friday that the U.S. Department of Agriculture pegged U.S. corn stocks as of Sept. 1 at 1.128 billion bushels, above estimates of 964 million bushels. Although supplies are larger than expected, the corn supply is still at its lowest level since 2003.
The weather worked against farmers this year, as they grappled with an unusually wet spring followed by sweltering heat.
Earlier this month, the German news magazine Der Spiegel published an in-depth article, called "Speculating with Lives," looking at what’s driving up food prices.
The authors argue that while some of the factors we hear a lot about, such as global warming, biofuels and population growth, are small contributors to rising food prices, they aren’t the main culprit.
Instead, the article points a finger at investors who have increasingly fled the financial markets and started trading in commodities such as silver, gold and, yes, food.
The article relies heavily on recent research from the United Nations.
From the Der Spiegel story: “The fact that bread and butter are mutating into an object of speculation for Wall Street has much to do with a fundamental shift in the way the food system works, one which the United Nations Conference on Trade and Development (UNCTAD) describes in a recently published study: the metamorphosis of the food market into a financial market.”
While some fret about the effect these price spikes could have on poor people, especially in underdeveloped nations where food is the major household expense, many traders see it as capitalism at work.
"The age of cheap food is over," one trader, Alan Knuckman, told Der Spiegel. "Most Americans eat too much, anyway."
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The commodities markets across the world could use some more regulation. The whole idea of supply and demand is predicated on real demand not speculative demand.
Agreed and well said, David.
What a jerk.
Only people taking physical possession of commodities should be allowed to trade.
@jwhite: How about "The age of $100 million dollar salaries for non-producers is over."
From a song. "Weeping at the gallow's wall."
That guy is sadly mistaken, Americans don't eat too much, we eat just enough :)
All commodities are going way up not because of speculators but because Obama is purposely devaluing the dollar. That means it takes more dollars to buy something today than it did yesterday; inflation.
Since China has pegged their currency to ours, no matter how far Obama goes, he cannot price China our of our market. So, while you can buy cheap I-phones, I-pods, etc., commodities will continue to rise.
If you want food prices to stabilize, fire Obama and tell Bernake to stop the printing presses.
Valhalla Phil - lets get serious, are you a fourth generation republican?
max^108 ... interesting post ! ....
Speculation has screwed up vast areas of our markets .. is that what you want to correct by your action?
this is disgusting as can be, how low can they go, i think they hit rock bottom. The price of food is having a huge effect on regular people, if i didn't have to eat i would stop buying it! So i guess we will stop buying other things instead!
@Valhalla Phil
And, Wall Street does not print money? What do you call creating derivatives like CDS and CDOs that are not backed by real capital or real goods/services but other paper issued also by Wall Street. Yet, the financial institutions write this nonsense on their balance sheets as part of their "assets". This inflation of paper is what is driving up commodity prices.
Wall Street is just as guilty as anyone in generating the huge credit bubble that blew in 2008 and continues to ripple outward globally until today. If we did not have children in the role of adults, 2008 would never have happened.
@Larry-#1.11: Val Phil worships the Wallstreeters and their buddies in the Banking Cartels.
I have said it before and I will say it again, the best thing we can do for this economy is to collapse the commodities prices. If they only stop all margin trading in commodities and make you take possession before selling back into the market this will bring prices down by 50% in one day. Prices going up had nothing to do with supply and demand and it was all about speculation/greed.
Moonbeam - yes, limiting commodity trading to people who actually take physical possession of the goods would limit but not eliminate speculation, especially for staples like oil and food. But it is a good start. Some speculators do buy up and warehouse commodities, especially metals, but it is not yet common.
quit using all of our food inputs to produce ethanol. there are better products for that that we do not use to feed our animals and ourselves. quit the subsidies for ethanol.
How about letting herbivores be that, and not feeding them grain - something they will eat but were not meant to eat (left to themselves no animal eaten by humans would choose to eat corn laced with hormones and antibiotics). Absolutely agree with you on cutting off subsidies for ethanol.
Ethanol is an excellent example of a bloated overreaching government. Once you incentivize something you build a constituancy around it, they then organize and lobby for more so it is rare if ever that any government program even gets stalled, let alone cut.
Middleclassbanker
The corn raised to produce ethanol is unedible to humans. But unfortunately the commodities markets don't make that distinction.
@Valhalla Phil
A better and more accurate statement is that ethanol (at least in the U.S.) was an overreach of LOBBYISTS. Ethanol in Brazil (which is used to fuel millions of cars so that they are essentially oil-independent when it comes to transportation) is made from sugar cane and that process if EIGHT times as efficient as the process made from corn.
BUT, the agribusiness lobby took what was a perfectly good idea and perverted it to drive revenue for their p!mps.
@DavidMG - Agreed, it should be real demand and not speculative. Reality is that all investing these days in commodities is speculative, much of that based on fear and greed - and people's lives are in the balance.
It's insane that we allow speculation in necessities. Why should we have to pay a 5-10% (or more? The numbers are hard to pin down) markup to people on wall street every time we want to eat a meal orf fill up our cars?
As a people it's ridiculous that we allow this to happen. We need to get up off our lazy asses and make some new rules...
Scubasteve58001
"It's insane that we allow speculation in necessities. Why should we have to pay a 5-10% (or more? The numbers are hard to pin down) markup to people on wall street every time we want to eat a meal orf fill up our cars?
As a people it's ridiculous that we allow this to happen. We need to get up off our lazy asses and make some new rules..."
You naughty naughty Liberal you!! Don't you know we need to cut out the red tape on Wall Street and let the markets do their thing. That will bring down prices and improve quality and bring world peace.
Stop crippling the people who create the jobs and bring full employment to our deserving citizens! (Screw the undeserving ones!) The GOPTP will have several baggers keeping an eye on you, Socialist!
It's amazing how liberal sheeple believe anything even hinted at in print. Food has been going up for well over a year, up 30% last year alone. If a market trend is going on for over a year, that's not speculation, it's reality.
Blame the incompetent in chief if you want to blame anyone, you can't run up trillions in debt and print money like there was no tomorrow without serious consequences.
@Valhalla Phil
The TMT Bubble ran from Greenspan's speech in 1996 until it blew in Q1 2000 (4 full years). Was that not real?
The real estate bubble ran from early 2004 until it topped out in late 2006 (3 full years). Was that not real?
Don't insult my intelligence.
He finally puts Iraq on the books and republicans point to it and say he is spending too much? Pull your head out.
I am surprised that this article even got published. As with oil, speculation is rarely mentioned in the media. Confidential documents released by Bernie Sanders office showed that in 2008 30% of the rise in oil price was due to speculation.
Of course our 2 parties remain silent on this issue allowing the economic terrorists on Wall Street to continue to feed on the people of the US and the world. But as Goldman Sachs, JP Morgan etc. cocontrol Washington I doubt anything will happen to address this.
Rev
I'm guessing that the banks were aware that they were in trouble and tried to gamble their way out.
Speculators are disrupting every market beginning with oil.
I have a simple rule in mind. If you buy a commodity, you must take delivery. No exceptions.
It will change the paradigm.
Letusreason
Too late. The initial intent was to enable farmers to protect themselves financially. Now the commodity market is another "table" to gamble at; with virtually no farmers at the table.
I entirely agree with you, however, I feel that the system has been corrupted so far from its original form that it may be too late.
'Investors' in food used to be called 'speculators'. In some countries they even hanged them.
But here, a speculator can actually lose your money (savings for example) and be made whole with your money (tax dollars) If only our representatives worked as hard as they make our money work for other people.
A movement is taking place - right now.
https://occupywallst.org/
What a stupid story. And the Supply and Demand crap thrown in there too.
This traitorous Supply Side Economics is the reason for all of this mess. Profit-Profit-Profit. Not a whit of providing an excellent service at a fair pricing and fairer profit.
This SSE crap has destroyed American innovation, ingenuity, and patriotism.
Speculators? Yeah sure. But, they are all Supply Siders at heart. Their belief. What the markets will bear.
barry, barry, barry....
an excellent service at a fair pricing and fairer profit.
Are you asking more for less?
And what is a "fairer" profit?
Melvin that doesn't necessarily mean a fair price, that's just what the markets will bear. It's very difficult to have a fair price for necessities. People can't choose not to eat so they could theoretically pay up to their entire paycheck. I mean look at the third world countries population now. Some of them already use up to half their paycheck just for food. These people got hoodwinked by the US markets. We made an unspoken promise that we would supply the world with cheap food idling their (third world populace) production capabilities and now all of a sudden prices are going up drastically.
@MJ-CT: My comment was about SSE. And only SSE.
@Melvin: No. A fair price is what an item is worth.
@David: US did not make a promise. That is the problem. Profit before justice, fairness, and patriotism is the new banner.
The price of Food, Gas and other, what I call necessity commodities, are not being driven by supply and demand at all, but purely by the speculators that trade in commodities. Unfortunately, the "big speculators", the ones that really control the price of the commodity, are not guessing at price vs supply/demand as everyone is constantly being told. They are Controlling the price, and right behind them are the super-large conglomerates that produce products for us based on these commodities, and explain constantly how their prices are affected by the price of the commodity futures and supply and demand. They are, and have always been, spewing BS. They are simply manipulating the prices in order to affect change, because they already know that if the price of the commodity goes up, the price of the goods made from that commoidty go up, and if the price of the commodity goes down, the price of the goos from the commodity go down, just not as much or as quickly as they went up. Therefore, with each cycle of "Oh woe is me, something is going wrong, so the price must go up", through "times are good, price can come down", they are in fact manipualting the cost to the consumer in an upward spiral. Don't believe me? Check it out for yourself. I did some research on the price of Gasoline vs the price of Oil recently. The target marker, $89 per barrel of oil. The price of oil has hit that mark 6 times in the past 2 years, either on its way up, or down. In 2009, when it hit the mark onj the way up, the average price of gas was $2.88 per gallon. December 2010, it hit $89 again. Gas - $2.96. Feb 2011, it hit $89 on the way down. Gas - $3.10. Later in Feb it hit $89 on the way back up. Gas - $3.37. In August of this year, it hit $89 again on the way down. Avg price of gas - $3.62. Mid Sept, it hit $89 on the way up again. Gas: $3.58.
So the commodity is around the same price range that it was 2 years ago, but the cost of the by-product to the consumer is up over 25%. Yeah, it's all because of supply and demand and the ups and downs of the things that happen around the world. BS. It's people with money controlling how they can make more money. It's no more a free market than China's internet access. Someone who has not already been bought and paid for should really be looking into these commodity businesses and they'll find out there's very little "speculation". They know exactly what they are doing.
Melvin we don't all live some place where it's possible to grow a garden. Sure if you have a multi-acre home in the midwest have at it haus, but for those of us that live in large cities or apartments it's not particularly applicable advice. Also consider that the majority of the US populace now lives in high density cities.
The CFTC has been compromised by lobbyists from the trading desks. They have watered down every rule regarding capital requirements, leverage and market control of derivatives. This is the stink you smell when you fly over Washington DC these days.
"The age of cheap food is over," one trader, Alan Knuckman, told Der Spiegel. "Most Americans eat too much, anyway."
I wonder how much that a-hole eats.....
Ohhhh Gooodie....now wall streeters are impacting our food prices as well as gambling away our retirement funds. Hope they can make billions.....maybe they need a tax break to create jobs with all of the money.
One thing you can do that affects bread, livestock, and other commodities is...........STOP pissing away corn on ethanol! Use freakin kudzu if you insist on making that crap that gets minimal gas mileage and screws up engines.
Want to get rid of kudzu?? Start the rumor that it's just like marijuana. Between the dea and the users it's gone in no time.
Eat the rich!
One reason food prices are going up is due to the changing climate and the resulting droughts/floods in areas where food is produced. Last year a heat-wave in Russia which caused the mass peat-bog fires and shrouded Moscow in smoke, also caused Russia--a usual wheat exporter--to halt the exportation of wheat. All over the world, weather events are affecting the production of some type of food. This problem is only going to get worse in the future and as high as food prices are now, expect them to go even higher. Only the Recession brought food prices back down to more comfortable levels before, and even with the Recession still ongoing food prices have returned to higher levels.
Rightly Concerned
Check out the food subsidies and the control of seeds. Add those to the top of your list.
I tried to put in a link to corroborate my statement, but whoever moderates this forum/site/what-have-you would not let me. I believe in backing up your statements with facts and the link was to a piece which gave just that. Sort of disappointing to me, I know not everyone comes to this site, but at least if I could have helped inform at least one person of what they may not know I would feel like I did something--however minute.
At the same time I am happy to be directed to places where I could be further informed if one should know where to go.
I agree with you. If you enjoy research, you'll grow your argument. Just food for thought...
Speculation in any market drives prices up. When you have a group that is not the buyer or the seller wanting a piece of the pie too, the only way they can is by artificially inflating the price.
The price of food is a scam. Here in KC, food prices are OUTRAGEOUS, almost in comparison with prices in Los Angeles although we are not only the breadbasket of America, but the shipping hub as well.
A quick trip to Wisconsin (minus the lack of sales tax on groceries) prices are incredibly low, not because all the groceries come from Wisconsin, but because there isn't a complete monopoly on grocery stores in the area.
Food prices are high because they can get away with it, and they will do so at every opportunity. Check your local market to see if you are indeed stuck in a monopoly as we are here in Kansas City.
It's a scam, just like everything else...
MSNBC has run other articles regarding ethanol and food prices, and seems to avoid any connection between high food prices and ethanol production, just as the U.S. Department of Agriculture seems to be doing. I'm a farmer and the production of ethanol is absolutely asinine. The government mandates it's use, heavily subsidises it's production, and does not allow foreign competition. The production of ethanol has a higher carbon footprint than petroluem, and land that could be growing food crops is now planted in corn, and corn that could be used for food is now used for ethanol. The government has never before so heavily favored one segment of the agricultural industry over another, as it is now doing. Food prices will continue to rise in the U.S. as long as the government is in the ethanol business, and the Obama administration will continue to look for excuses, other than ethanol, for high food prices. The government needs to get out of the ethanol business now, and let's see how long the ethanol industry, and it's high priced Washington lobbyist, survive.
Kellyc
Awesome post. In addition to your points on ethanol production, don't forget the use of water. Ethanol production for fuel is bad business. Government involved in business is also bad business.
MEEEHH!!! Forget about the fact that the "president" and his criminal minions more than tripled the money supply from $978 bilion to over $3.7 TRILLION... NAAAA!!! IT COULDN'T BE THAT, COULD IT??
It must be the consumer's fault!
What a retarded piece of trash article.
You want to know why we have inflation??? FRACTIONAL RESERVE SYSTEM... PLAIN AND SIMPLE!
Buy gold... and in 5 years you won't be the one starving. You'll be the one who has the opportunity to watch all of the idiots around you drop like flies.
funkysnake
Yup, that's what the Fed took away as a history lesson from THE Great Depression. There was a limited ability to print money when we had the gold standard.
Funnysnake
Makes you wonder why the Fed stop using M3 ( M3 had included M2 plus certain accounts that are held by entities other than individuals and are issued by banks and thrift institutions to augment M2-type balances in meeting credit demands; it had also included balances in money market mutual funds held by institutional investors.) in 2006.
It's very reassuring to know that the markets are not "manipulated". (???)
Really; are people that dumb that they can't grow there own veggies,potatoes,carrots,corn,squash,wheat,oats,etc,etc..At least you know what stuff you add to the soil and don't have to worry about whats going to kill you at the Grocery Store..Also you save a lot of money and the Joy of doing your own garden..If you want to send a message to these greedy people this is the way to go..
Melvin Wilson-----The farm subsidies that we want to get rid of are the ones that go to large agribusinesses and people like Michelle Bachmann who do not need those subsidies (and then complain about the government interfering with the "free market"). Like the taste of that tea yet?
Speculation in the stock market needs simply to become illegal and those doing it need to simply be thrown in jail for all the lives they are destroying.
Again, Wall Street is out of touch with the common citizen.