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Are commodity traders bidding up food, fuel prices?
Elizabeth Douglass, Nicole Gaouette and Richard Simon; Los Angeles Times
A Senate panel warns the markets’ regulator to rein in speculators.
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The record-shattering run-up in energy and food prices has put investors who buy and sell such things on the hot seat — so hot that some in Congress on Tuesday threatened action.
“The American people are about to take out pitchforks” because of the cost of groceries and gasoline, Sen. Claire McCaskill (D-Mo.) said during a Senate hearing on whether commodities are being pushed higher by investors’ high-stakes bets that prices will keep going up. Given the uproar from consumers, McCaskill warned an official from the U.S. Commodity Futures Trading Commission, “if you don’t do something, Congress will.”
… The link between soaring prices and the vast sums of money flowing through commodity markets is controversial and hard to quantify.
Economists, traders and regulators routinely dismiss the notion that excessive trading is the culprit instead of traditional market forces such as supply and demand. And they warn that increased regulation could interfere with trading programs used by airlines and others to blunt the negative effects of rising commodity prices.
… “You’ve got futures exchanges that are rife with the ability to manipulate and excessively speculate,” said Michael Greenberger, a University of Maryland law professor who spent two years in charge of the Commodity Futures Trading Commission’s trading and markets division. “Congress firmly believes that they’ve got to bring this speculation under control. And it is my thesis that if these markets were policed, the prices would drop very rapidly.”
(21 May 2008)
Are Pension Funds Fueling High Oil?
Moira Herbst, Business Week
A Senate hearing weighs charges that speculation by big investors and sovereign wealth funds is behind the rise in commodities and energy prices
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If you’re wondering why driving to work has gotten so expensive, you might want to peruse your pension fund’s investments. That’s because speculation by institutional investors pouring money into the commodities market may be largely to blame for spiking oil prices, according to testimony on May 20 before the Senate Committee on Homeland Security & Governmental Affairs. Crude oil, a so-called hard asset, is viewed as a buffer against inflation—a foe of longer-term investment returns. At the hearing, “Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?,” senators heard from those defending the role of speculators in oil and commodities markets as well as those who argue that excessive speculation is the root of global price surges.
… The explosion in the number of financial players in the energy markets has occurred particularly in the past two years—also a period of soaring energy prices. That’s why speculators are now under fire from Congress and the public as potential culprits (BusinessWeek.com, 5/15/08).
But in the hearing, Masters distinguished between traditional speculators and what he calls index speculators, or passive investors who enter the commodities markets as a long-term hedge against inflation. Commodities exchanges limit the number of positions an investor can take in the market, but Masters says the Commodity Futures Trading Commission has allowed unlimited speculation in these markets through a loophole.
(21 May 2008)
Senate takes on oil, food speculators
Ben Rooney, CNNMoney
Speculation in the commodity markets took much of the blame for skyrocketing energy and food prices at a Senate hearing Tuesday
“This unbridled growth raises justifiable concerns that speculative demand – divorced from market realities – is driving food and energy price inflation, and causing a lot of human suffering,” said Sen. Joseph Lieberman, I-Conn., chairman of the Homeland Security and Governmental Affairs committee that held the hearing.
With oil approaching $130 a barrel and a global food crisis looming, the panel heard testimony from experts about how speculative investment by institutional investors and hedge funds may be contributing to food and energy price inflation.
(20 May 2008)
Gambling with the futures (primer on futures)
Petrino DiLeo, Socialist Worker
… speculators are driving up the prices of all commodities, including wheat, corn, soy, etc., because of intense trading on what are known as futures markets.
Such markets were originally designed to help producers and users of commodities manage the risk of price fluctuations. But another aspect of futures trading has taken on greater prominence in recent years. Futures are also traded by individual investors and financial institutions, based on a gamble as to whether the price of the goods will rise or fall.
Today, traders of exchange-traded funds, hedge funds and other speculators far outstrip the actual buyers and sellers of commodities. As a result, these speculators have generated a big demand for futures contracts, therefore helping send the prices of underlying commodities upward.
Furthermore, futures markets, once heavily monitored by governments, have been–like most of the rest of the financial markets–systematically deregulated to the point that trading is going virtually unchecked.
How do we understand what’s going on with the futures market today? Here are some answers to questions about how futures function–specifically, futures in basic commodities–and what role they are playing in the current food crisis.
(May 2008)
Leftist analysis (Marxist-Leninist-Trotskyist).
