Sasha Breger: How Commodities Hoarding Distorts Food Prices

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By Sasha Breger, a lecturer at the Josef Korbel School of International Studies at the University of Denver and author of the recent book Derivatives and Development. Her research includes global finance, derivatives, social policy, food, and farming. Cross posted from Triple Crisis

In my last post, I discussed the role of debt relationships and farmland acquisition in redistributing wealth from global agriculture to finance. This post discusses another mechanism for such injustice: commodity hoarding by financial firms. Over the last several years, as agricultural commodity prices rose, large financial institutions took the opportunity to speculate in both virtual commodities (via derivatives markets, to be addressed in part 3 of this post), and physical commodities. Speculating in physical commodities involves selectively storing and releasing food crops so as to profit from movements in price (and, sometimes to influence prices) over the time the crop is stored. Financial institutions factor into this dynamic in two ways: directly, as commodity hoarders; and, indirectly, as lenders to and shareholders in major global food trading companies that hoard commodities.

Despite reports that many prominent financial firms are exiting commodities markets (responding to public pressures to stop gambling on food, and higher regulatory costs), there is ample evidence to the contrary. Global metals markets illustrate some new, scary methods for institutional hoarding and spot market speculation, methods that are likely to be transferred to food commodities moving forward.

For example, in 2011, reports surfaced about Goldman Sachs’ new foray into commodities warehousing. Goldman has purchased and is operating large warehouse facilities in Detroit used primarily to store aluminum before it is redirected to end-users. Engaging in what’s called a “warehouse play”, Goldman profits in two ways from this arrangement. First, as a warehouse operator, the company earns rent from other actors who store metal in Goldman’s warehouses, an estimated $165 million a year. Second, as a commodities trader, the company makes money off rising aluminum prices, as global market supplies are reduced via warehousing. In fact, complaints surfaced in 2011 that Goldman was releasing as little aluminum as possible, allowing a backlog of delivery orders to accumulate in order to influence prices (warehousing rules set by the London Metal Exchange have made this scheme workable, at least in part). This led not only to complaints of Goldman’s conflicts of interest, but also a perverse market result in 2011—as global aluminum supplies rose, prices for end-users were also rising. Quoting market analyst Robin Bhar, Hudson notes, “I think it makes a mockery of the market. It’s a shame. This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It’s a real, genuine concern. And I think the regulators have to look at it.”

Further, Reuters reporters note that other bank activities in the aluminum market are also driving up prices—some 70% of the world’s aluminum inventory is caught up in “bank deals” in which “a bank buys aluminum from a producer, agrees to sell it at some future point at a profit, and strikes a warehouse deal to store it cheaply for an extended time period. The combination of the financing deals and the metal trapped in Detroit depots, means only a fraction of the inventories are available to the market.” Thus, consumer prices rise as finance companies earn rents and hoard commodities for speculative profit.

Even more disturbing, in December 2012 JP Morgan received approval from the SEC to launch a copper-backed fund. Shares from the fund will be backed by stores of copper, and the more shares that investors buy, the more copper will be removed from the market. Thus, as the fund becomes more successful and demand for shares rise, physical copper prices will rise, and copper producers and consumers will shoulder the cost. Linda Kahn writing for The New Republic explains, “The change may seem arcane. But long-time participants in the copper market say the effects will be immediate: Manufacturers looking to make productive use of copper will find themselves competing with speculators backed by some of the richest banks and funds in the world, raising prices for many consumer products.” Marcus Stanley, policy director for Americans for Financial Reform and quoted by Kahn, states: “It means a manufacturer won’t be able to procure copper because the copper will be tied up in somebody’s retirement fund. That’s not what commodity markets were intended for.”

Kahn further notes the future consequences of the SEC decision: “The long-term result may be even more disturbing: The SEC’s ruling all but invites bankers to increase speculation in other, even more essential goods, like grain and oil.” Funds backed by wheat, rice, corn, soy and other food crops—based on this new model—will produce much the same results as those backed by copper: reduced market supplies, more competition for food, rising prices, and a redistribution of wealth from commodity market actors to the financial system.

Not only do financial firms speculate directly in physical markets, they also speculate indirectly by financing other commodity hoarders, like major multinational food trading companies. A 2012 Oxfam report by Murphy, Burch and Clapp isolates the “ABCDs”—ADM, Bunge, Cargill and Louis Dreyfus—as the world’s largest food trading companies, controlling over 70% of the world grain market. In some cases, these firms speculate on food prices by selectively warehousing crops. The Oxfam report notes: “In many cases, it is almost impossible to know for sure the size of the commodity stocks these firms hold – much of that information is a tightly held secret. Since the elimination of most public stock-holding programmes in the big exporter countries, including the USA and the EU (a gradual process that started in the 1980s), the ABCD firms have themselves begun to hold more physical stocks. The existence and control of these physical stocks can have an important impact on grain prices…” In fact, there are lots of recent examples of the ABCDs being investigated for hoarding. In 2011, Hugo Chavez of Venezuela ordered public officials to “hunt speculators”, and Cargill was specifically singled out for hoarding food oil. Other sources report that “Many [trading companies] amass speculative positions worth billions in raw goods, or hoard commodities in warehouses and super-tankers during periods of tight supply.”

And, who finances this hoarding activity? The usual suspects—large, multinational financial institutions. ADM and Bunge are both publicly traded, and their major shareholders are virtually identical. The largest positions in both companies are held by funds like Fidelity and Vanguard (T. Rowe Price, Prudential and TIAA-CREF are also listed as major shareholders for one or the other firm). Privately owned Cargill and Louis Dreyfus are also underwritten by some of the largest financial firms in the world. For example, when Cargill’s revolving line of credit was up for renewal in 2012, Deutsche Bank, RBS, Bank of Tokyo-Mitsubishi, and Lloyd’s all ponied up to renew the financing.

Thus, it is not only debt and farmland acquisition, but also commodity hoarding arrangements that help finance suck wealth out of agriculture, to the detriment of food system participants worldwide. In the next and final post of this series, I address the role of derivative and insurance markets in redistributing wealth away from food towards finance.

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  1. F. Beard

    He who withholds grain, the people will curse him,
    But blessing will be on the head of him who sells it.
    Proverbs 11:26-26 New American Standard Bible (NASB)

  2. YankeeFrank

    Doing God’s work indeed.

    Keep up the good work Sasha. You, in fact, ARE doing God’s work.

    1. Jim Haygood

      Ol’ God’s probably having a good laff. Sasha rants on and on about the big bad wolf Goldman Sachs hoarding aluminum. The poor dear doubtless didn’t see today’s Bloomberg article about the downgrading of aluminum giant Alcoa to junk:

      Alcoa shares have declined 67 percent in the past decade, leaving the company with the lowest share price and market value in the Dow, as surging aluminum production in China led to a supply glut.

      ‘Hoarding’ is a loaded word, which always signifies someone with an ax to grind. The neutral word, storage, is a necessity in foods and grains because of seasonal production.

      Since commodities pay no yields, storing and insuring them is unprofitable unless their prices rise. How’s that been working out?

      Check out the chart of GCC, an ETF which tracks the Continuous Commodity Index. It’s actually down over the past five years. Seems like the evil hoarders got their comeuppance from Ms. Market … as is usually the case.

      1. Chris Engel

        I agree with the general tone of your comment. It’s a shame so many people jump to attack traders and business interests when there’s a lot more at work that requires some attention to the nuance.

        Often times big corporations are the culprit. And speculators can create unnecessary volatility and aritifcial price increases due to those who have no real interest in the market investing purely for the capital gain. But in this case it’s a little silly to try and say traders are hoarding agricultural commodities in hopes that they’ll get a higher gain on the supply constraint than the cost of holding.

        Anti-competitive activity in international markets really does need to be regulated more, and that’s a topic worth exploring of course.

        But too many on the left try to assign blame to multi-nationals even with incredibly specious evidence.

        There’s a lot at play here, and the Oxfam report that is cited in the article is a great place for a coherent narrative on the global ag market that doesn’t try to make weak connections between factors in the metals market and the ag market. There’s plenty of blame to go around to governments and multi-nationals. Like the issue of tax dodging, reform in the area of market manipulation or undue volatility is something that requires international cooperation and the OECD nations.

  3. charles 2

    A) it is not appropriate to extrapolate from metals to food. Food can’t be stored indefinitely, the stock has to be released some day.
    B) hoarders increase the current price of agriculture products, how is that supposed to suck wealth out of agriculture ? The EU maintained huge hoards of frozen butter some decades ago as a result of price guarantee policies. The farmers loved it…

    1. digi_owl

      But resources needed to produce said food can, impacting the cost of food by forcing up the cost to produce it.

    2. c.raghavan

      There is a difference between EU buying butter and storing it as price support for EU dairy farmers, and financial firms and commodity traders buying and hoarding. commodity traders buy at farm prices, hoard and push up prices, and when they sell the products at the higher prices, it is the consumer who pays to the benefit of the traders and financial firms backing them – not the agriculturist.

      1. Jim Haygood

        So consumers suffer when traders push up prices, but not when governments push up prices?

        Your sole objection to the traders, then, is that they don’t have stinkin’ badges.

        Duly noted. Carry on!

        1. WalrusOfDisapproval

          It is truly amazing what a fancy costume and a shiny badge can do to people’s ability to think. Perhaps a decade of indoctrination as children with “compulsory education” has something to do with it…

        2. Calgacus

          So consumers suffer when traders push up prices, but not when governments push up prices?

          The purpose of a private trader is to make money. The purpose of a commodity buffer stock program – of the kind that has existed for millennia – is not at all to make money. Governments have an infinite quantity of money. Why should they do crazy gymnastics to get what they can create at will? And it should probably “lose” money.

          Your sole objection to the traders, then, is that they don’t have stinkin’ badges.

          Yeah, well the badge is important. The badge – if it means anything – but so often in the breach rather than the observance – means that power is wielded for a common, public purpose, rather than corrupted into a narrow, private purpose.

          The very ancient and good idea is for governments to store stuff in case of famine. Sure markets & the price mechanism can be dandy. But starvation and malnourishment isn’t. The government buys when grain is plentiful and cheap and sells when it is dear, and just eats the storage costs.

          Sure consumers suffer both when the traders push up prices and when the government does so. But the government should only do so when prices are low and the suffering of the consumer is minimal, often imperceptible, while the benefit to the producer then is quite real. Traders can and will push up prices when they are already high and the suffering is enormous, which is when the government can deliver an enormous benefit to consumers for the minimal price they paid in time of plenty.

          One can see this even in recent US history. Part of the 70s inflation came from the Soviet wheat purchases and other long-forgotten agricultural catastrophes (Lester Thurow’s books are good on this.) But what made this (more) able to cause general inflation was the late 60s abandonment of New Deal era commodity buffer stock programs, in turn caused by the degeneration of economic thought and understanding.

          The famed investor & financial expert Benjamin Graham, Warren Buffett’s mentor, wrote two books on this: Storage and Stability: A Modern Ever-Normal Granary and World Commodities and World Currency and influenced Bill Mitchell’s buffer stock ideas in MMT.

          As others have observed here, food is more important and really is different. Why? Nobody ever said it better than Harry Hopkins: “People don’t eat in the long run, Senator. People eat every day.”

  4. F. Beard

    How much how hoarding is financed with credit, the unethical creation of new purchasing power for the benefit of the so-called “creditworthy”, I wonder? But I suppose food hoarders are “creditworthy” given that the operational definition is merely the perceived ability to return to the banks the purchasing power they stole.

  5. Chris Engel

    Strange article. Using examples in the aluminum and copper markets to demonstrate the effect of hoarding on commodity prices (where there’s good evidence), but then then sneaking in some shaky allegations against food traders around the world in unrelated market manipulation allegations.

    The only evidence presented seems to be that the big traders are holding more physical stock, not necessarily “hoarding”. And taking speculative positions is a way to limit risk, not just to score a profit. When you’re holding large physical stocks you’re going to be concerned about risk and making hedge plays in the market.

    Call me when the ABCDs are colluding to cap production and manipulate markets — like if they find a warehouse of rotten grains or something. But from the argument set forth here, it seems that the concern should be more in the physical goods with longer shelf-life that can be hoarded more effectively (not food) for market manipulation purposes.

    1. Yves Smith Post author

      Um, you need to review supply and demand 101.

      Inventories above what’s needed for normal market operations DO increase prices. The ultimate version of that is a market corner.

      It isn’t a strange claim at all to say that hoarding increases prices. It’s exactly what you’d expect.

      And I need to turn in, so forgive me for not tracking down the study, but you should recall that all agricultural commodities moved up together in 2008. By contrast, non-traded commodities (like cooking oil and eggplant, which are huge staples in India) did not. The study in question (might have been by the central bank of India) discussed at some length how this showed how commodities speculation did in fact increase commodities prices.

      And see this. Andrew Dittmer and I read the underlying paper pre publication and the mathematical work is solid.

      1. Chris Engel

        It isn’t a strange claim at all to say that hoarding increases prices. It’s exactly what you’d expect.

        I’m well acquainted with supply and demand and did not call into question what the effect of hoarding would have on prices.

        The strange part was the article’s title about commodity hoarding leading to higher food prices contracting with the evidence within containing examples about aluminum and copper hoarding. It’s not a coherent link from those examples to demonstrating that food prices are being manipulated by big traders hoarding them (but this implication is made with the juxtaposition of non-ag and ag commodities).

        Oxfam is great, and their report is informative, but this article misses the mark by trying to conflate non-ag commodities hoarding and then inject the Oxfam report and make claims that the prior examples are not directly related to.

        The evidence presented is that the ACDDs are holding “large physical stocks” — this is not hoarding, this is not manipulation, and there’s nothing to indicate this is, as you say “above normal market operations.”

        In fact, the Oxfam report cited only talks about the virtual manipulation of agricultural commodities:

        Holding investments in CIFs as part of a long-term passive investment strategy has, according to some analysts, the same effect as the hoarding of physical stocks, but in practice this hoarding of futures contracts is virtual. According to former hedge fund trader Michael Masters, ‘Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.’
        (page 32 describes how the manipulation really works — hint, it’s not hoarding of physical stocks as implied by this article!)

        So this has nothing to do with physical hoarding (which the aluminum and copper examples put forth ARE about), which is why this is indeed a strange article, or at the very least, a strange title for a confused article.

        And Oxfam’s report also points to evidence that governments may be responsible for physical hoarding of agricultural commodity stocks:

        A recent news article quoted Cargill CEO, Greg Page, blaming governments for recent price spikes, suggesting that they are hoarding too much grain and imposing export bans unnecessarily. Carl Hausmann, managing director, Global Government and Corporate Affairs at Bunge and a member of the International Food and Agricultural Trade Policy Council (IPC), has also been vocal on this point.

        So the evidence in the report shows that the ABCDs are manipulating the markets (duhh) — not so much by hoarding physical stocks, but with virtual manipulation of financial contracts (Oxfam’s terminology distinction, not mine). And that governments are apparently involved in hoarding that is increasing price pressure as well.

        1. nonclassical

          ..Gretchen Morgenson, NY Times Sunday business showed in June, 2004, that 6 U.S. “investment banks” controlled nearly 50% of worldwide energy (oil) “futures” market. She noted this, when Goldman-Sachs sold off 1/3 of their largest portion=13.8%. Other Wall $treet investment banks blinked, she noted.

          The reason was not at first obvious. Reading Geisst’s, “Wall $treet-A History” we find this sort of REAL LIFE manipulation occurring till FDR-Pecora Commission REGulation. Morgenson noted Goldman-Sachs attempted to alleviate angst by other banks, claiming they would “buy back in” in blended or biofuels-but instead, in July, they sold off another 1/3.

          Morgenson noted gas prices at this juncture were $4.00 per gallon range. But as all “investment banks”-$peculators sold off their “futures”, prices came down…till…(wait for it) NOVEMBER Bushitter reelections…gas prices down to just over $2.00 per gallon.

          Now, Chris Engel, rather than libertarian like ideology, please provide similar actual historical documentation of YOUR position…by the way-here’s Saudi royals telling bushitters SPECULATORS were driving prices, Iraq war years:

          (from WikiLeaks-official U.S. diplomatic cables)

          other documentation:

          1. nonclassical

   the way-it worked for Wall $treet $peculators, as “futures” were time-dated, they would simply sell said “futures” back and forth, between Wall $treet banks-driving prices at each “trade”…

            Now anti-government fundamentalists are welcome to discuss “free market should regulate itself” government blame game…but please DOCUMENT.

          2. Chris Engel

            1) your comment has nothing to do with ag commodity markets.

            2) i never said speculation wasn’t a problem and shouldn’t be regulated (i wrote the exact opposite).

            3) i’m not a libertarian

            Honestly, it gets a little teabaggerish with some of the left. When I criticize Republicans they automatically lump me into being an “Obamadrone”, and if I criticize incoherent attacks against multi-nationals that miss the mark of the true issue I’m suddenly a libertarian neoliberal bankster apologist.

            If people would stop boxing others into ideological “teams” it would be a lot easier to have discussions that focus on actual issues and not “what club are you in?”

            Your entire comment is about the manipulation of oil markets back in the 2007-8 crisis nexus — and this article was about commodity market hoarding leading to food price increases. Different but related topics that require a more intelligent look than “MULTINATIONS ARE DESTROYING MARKETS AND STARVING PEOPLE. OH AND OIL AND FOOD ARE THE SAME”

            Anyway I can’t take seriously someone who is calling me an anti-government ideologue

          3. Chris Engel

            neoclassical writes:

            Now anti-government fundamentalists are welcome to discuss “free market should regulate itself” government blame game…but please DOCUMENT.

            Amazing. Nowhere did I advocate neoliberal policies of “free market” self-regulation. The evidence is overwhelming that markets can’t be trusted to self-regulate and that anti-competitive activity is truly anti-capitalistic.

            The issue is having a coherent critique of multi-nationals in the areas of:

            1) Actual market manipulation through hoarding of commodities (where the evidence seems to be there for durable commodities like metals and even energy — BUT NOT AGRICULTURAL COMMODITIES).

            2) Speculative virtual manipulation (where there IS evidence in agricultural commodity markets and there are regulatory policy reforms aimed at addressing).

            3) Anti-competitive behavior in general

            And sometimes, as others in this thread have mentioned, there are just legitimate market forces like doughts and higher demand internationally, which can lead to higher prices in the allocation of commodities!

            What do you want if there’s a drought? The basic result will be that prices go up! Speculation isn’t always manipulation, but somtimes just foresight into market mechanics.

            You can regulate markets all you want but if there’s an explicit shortage and “not enough to go around”, then prices will go up and someone has to pay for the difference if you CONTROL the prices (like governments through subsidies).

            Food security is a serious issue, but government allocation of the resources probably wouldn’t be much better than multi-nationals. If there’s illegal anti-competitive manipulation going on, it should be controlled, but if droughts and government-hoarding or higher demand are leading to really high prices that leave poor countries food-insecure, then what would your preferred policy response be?

            If you keep the discussion fact-based and avoid ideological grouping, you’d understand the issue a lot better.

          4. skippy

            @Nonclassical you have him pegged right mate… neoliberal acolyte to the hilt.

            Monterey Institute of Technology and Higher Education is neoliberal bastion, ask From Mexico for confirmation.

            Chris is a frequent speaker at site selection and economic events and is a published writer and commentator in national and local media. He holds an economics degree from the University of Texas and has completed studies at Columbia University-New York City and the Instituto Technologico de Monterrey (ITESM).


            skippy… Pilkington had him pegged too… holy man…

      2. Chris Engel

        Oh and if it wasn’t obvious in my prior response, I’m not saying that speculation isn’t in part responsible for price increases in commodity markets.

        I was merely objecting to the strong implication in the article that food traders are hoarding ag commodities in tankers and warehouses to manipulate food prices. Oxfam’s report does not make this claim, and the Reuters news article cited is a general reference to commodites traders, not food traders. As “charles 2” wrote in an earlier comment — you can’t make the jump from metals to food in this topic.

        I found it to be a misleading juxtaposition and using the label “strange” was a kind way to put it.

        So, when someone finds tanks full of rotting ag commodities or some other evidence of blatant market manipulation beyond circumstantial evidence of virtual manipulation of contracts — then it’s something worth pointing to.

        1. Stephanie

          This sentence, in the overview of the report from the link I just provided, seems to get at what Dr. Breger is trying to say, albeit less convolutedly: “A major driver of these price spikes was rather the overwhelming market domination of financial firms over traditional traders in commodity futures markets.”

          There’s a difference in how financial firms trade vs traditional traders. Dr. Breger, I guess, was trying to illustrate that with the example of non-food commodities…? Maybe?

          1. Yves Smith Post author

            There is probably an additional issue in food. Notice how she mentions ADM. Cargill and Conagra are monster players. They own their own storage.

            You see stories about how AIG (AIG!) has moved into ag commodities, doing deals directly with farmers.

            1. Probably harder to parse where ag producers end and speculators begin, given Cargill in particular.

            2. Investment banks and other financial players are moving into commodity storage and ownership (you see this in oil and gas) so getting harder to track what they do.

            So she may have to use metals to prove the base case because she thinks it’s harder to prove cleanly in ag. Although her failure to cite some of the studies I’ve come across (just in passing) looks to be a big oversight.

        2. Stephanie

          …though I don’t think it such a big jump to think that if ‘hoarding’ is a viable way to increase profits, and that food commodities aren’t viewed any differently than, say, copper, you’d expect them to hoard as a general ‘good’ business practice.

        3. AbyNormal

          houses of the holy realize ‘silo’ hoarding is as silly as your argument…all they have to do is create market tools & opportunities

          The Great Hunger Lottery – How banking speculation causes food crises

          China dumps US soy orders, sending prices tumbling

          Chinese vitamin C maker to settle antitrust lawsuit

      3. iTradeShips

        I have yet to see anyone here even mention the real culprit for higher prices – DROUGHTS! As another poster mentioned its Economics 101…Supply and Demand! Supplies have been shrinking, in the form of decreasing carryout to use ratios, while demand for agricultural goods continues to rise. If you doubt the latter statement, then look at what’s happened to Chinese soybean imports over the past decade, or the fact they changed from a corn exporter to a corn importer.

        Of course the writer fails to even mention that the FARMER is the main beneficiary of rising prices. The multi-national horders have to pay farmers prevailing market prices in order to procure and process those grains into the products that consumers ultimately buy. And at the top of the hording list is the Argentinian farmer! Why? Because the Argentinian farmer has so little trust in his government’s management of their economy, that he chooses to withhold his production from the market as an effective hedge against peso deflation.

        The author also fails to make any reference to the fact that in today’s markets, horders lose money in the backwardation of the price curve. A bushel of corn delivered to a CBOT warehouse in July is worth $6.61 a bushel (less in-loading charges), but the person who hords it until September only receives $5.73 a bushel. So the horder takes an incredible gamble that prices will rise significantly, not only to offset the inverse in prices, but storage, interest, and possible quality discounts.

        And what about the “speculator”? In the form of investors, pension funds, university endowments, and other financial market actors that have, up until recently, blindly poured billions of dollars into commodity index fund investments that systematically choose to buy commodity futures contracts as an investment without regard to any of the underlying fundamentals of the market. Thereby further pushing up prices without any link to underlying consumption (or supply).

        And to come back to the metals examples, anyone who has horded aluminum over the last 5 years has lost over 30%, while copper horders have lost 22% over the last 3 years.

        In the end, the author’s musings are such a simplified look at the rise in commodity prices that it shows a massive lack of understanding of the issues facing commodity markets and prices.


        1. A Real Black Person

          I’ve been saying something similar for a while. Many of the contributors to the content this blog sometimes don’t understand open markets,math, or science when they don’t conform to their personal beliefts and emotions.

          At the the moment, there is enough food, but most people on this planet can’t afford it. They can’t afford the high-input agricultural products . The majority of the high-input fod has been given away in the form of humanitarian aid . There has been plenty of humaniatarian aid over the last forty years, which can be the only reasonable explanation for why population growth has and is surging in some of the poorest regions in the world. The overall increase in the global population of humans is not over the last thirty plus years is not a sign of a lack of food or hoarding of food.

        2. Nathanael

          Droughts — which are getting more and more common due to global warming — are crucial to understanding all of human society.

  6. Jim Haygood

    ‘I did not call into question what the effect of hoarding would have on prices.’

    Ah … but you could have! Actually, because commodity price trends usually are insufficient to overcome storage costs, most hoarding schemes fail.

    Take the ICO, the UN-organized International Coffee Organization. This was a multinational government scheme to hoard coffee and drive up its price. How did that work out? As the ICO rather sheepishly admits:

    The ICO operated a quota system, whereby coffee supplies in excess of consumer requirements were withheld from the market, on and off from 1962 to 1989, when the system was suspended because of failure to agree on quota distribution.

    Or to put it more succinctly, the harebrained hoarding scheme blew up in their fool faces. Coffee prices remained depressed for years afterward.

    Want to become an evil speculator yourself? I’ll share a secret. It’s the products with low carryover stocks that sometimes explode higher when supply shortages arise. Commodities with above-average stocks (a/k/a ‘supply overhang’) have little upside potential, because there’s a big seller who needs to unload.

    Supply and demand 101, as it were. Call me when you get rich!

    1. Chris Engel

      Touché Mr. Haywood.

      I guess I was referencing the basic theory of the concept that taking stocks of a good off the market is a reduction in supply which would put upward price pressure.

  7. Mcmike

    What I am trying to figure out is why we rescued these banks, and why we continue to subsidize them, so that they can continue to operate as massive players in commodity speculation.

    1. WalrusOfDisapproval

      You keep using the word “we”. I do not think it means what you think it means.

      Collectivism – the most evil, and prevalent, invention of humanity.

  8. TomDor

    “Global metals markets illustrate some new, scary methods for institutional hoarding and spot market speculation, methods that are likely to be transferred to food commodities moving forward.”

    Don’t get me wrong – the real money that implicates rising food prices is the speculative interest in driving land prices up in agricultural areas – obviously, with global competition in food pricing, the actual independent farmer is squeezed out of his profit because the wheat (or whatever) price he charges includes labor, capital and land costs (economic rent) – Now, if ya look at it – GMO seeds are more expensive to buy, unless you are the company that produces the GMO and own the farmland also (market corner approaches) – Also if ya own the distribution chain ya have advantage, particularly on a global basis. Further, if you can produce in one area cheaper than another and distribute to that more expensive place – you can grab farmland from the locals and create a dependency of that country on imports of food while driving down local supplies of a crop. (Remember Haiti used to be a net exporter of rice but, cheaper imports crashed that part of the economy and debt burdened Haiti to the point of starvation) After that little trick and a few years, you can finance that countries purchases of imports – IMF comes a knocking – hell, if things are going a little slow ya just hike food prices for that country – they will pay or starve.
    Also note that GMO products do not increase yield or nutritional content (nutritional content is down almost 40% over 30 years) – they only make it easier to reap and, produce long term storability – ie: they last longer in the distribution chain and, so, the cheaper speculative purchase can be directed toward undermining other countries food stability and economy by allowing debt slavery to develop elsewhere – ‘All famine are man-made’.
    The big investors are in on this game and profit from financing of 1) buying land on the cheap 2)lending to the farmer to buy seed and the inflated land prices 3) begin to raise distribution costs outside what is customary.

    As far as shipping goes – I think I remember reading that the Plutocrats back in the 1920’s raised the price of transportation so high on grain et al that the farmers could no longer afford to farm – this forced many acres of land into the hands of the plutocrats on the cheap that did not go into productive use until price supports were introduced and land values rose enough for the big boys to turn a tidy profit.

    Oh yea, forgot to mention – thats how oligopoly and monopoly forment.

    I could be wrong as I did not do college.

    1. TomDor

      Forgot to mention: This is how the Global finacialization game works – It basically does the same thing wars used to do…. leverage the people of a country away from ownership (sovereign ownership)of the very land they stand upon. Have not figured out where all these folks are supposed to live…ain’t no one living on the moon at present time…Oh well.
      Suppose the gods are laughing…or should I say, the self appointed representatives of god…past and present… you know – the kings, the land lords et al

  9. Garrett Pace

    So, now that TBTF’s are going to the trouble of dealing in physical assets, should we interpret this as a decoupling between the value of the asset itself and the value of the abstract financial instruments that represent them?

  10. Susan the other

    There has been no such thing as a free market for decades. It’s not a question of the commies v. the free-marketeers. Plus storage is an ancient practice. Grain keeps for hundreds of years (really) under dry, dark, worm-free conditions. The disconcerting thing is that it is Goldman Sachs and ADM who are doing the storage and fiddling the prices. And more so because production of wheat and corn is prolific. There’s too much of it. It gets stored for a good 5 years I bet before it gets sold. And who can determine the GMO content in this country? In all other countries the government does the testing and if they find it they dump it. Here not so much. So squid-control of wheat and corn is more disconcerting than eggplant and peaches. Which are perishable and less manipulable. Wheat and corn actually are more like copper and aluminum than eggplant and peaches. The government should strictly control the overproduction of wheat and corn and soy, etc. So we are not victimized by commodities traders doing God’s work. One way to do that is to allow farming to go back to less productive times and more organic methods.

    1. iTradeShips


      You have no clue what you are talking about. Grain does not store for hundreds of years. The ability of grain to last in storage is a function of the quality of the kernels prior to going into storage, that being a function of its moisture content and uniformity, whether it was entirely field dried under ideal dry warm (not hot) weather, or whether it has been run through a drier which tends to dry the outside of the kernel, but leaving the inside above the ideal moisture level. Any wetness at time of harvest has the potential to allow fungus or mold growth in storage, as does the varying humidity levels during the storage process.

      To say there is too much grain is ludicrous. The world is witnessing the tightest stock levels of global grains ever recorded. Measured as carryover stocks to use, all major sectors are set to fall to mid-single digit type levels.

      GMO grains can and are easily tested here in the US. When I was in the business, many of my customers routinely would buy non-GMO products, and could pick the laboratory of their choice to do the testing. Most foreign countries allow GMO varieties to enter without a problem. The problem with GMO varieties today is the seed companies loose control over experimental varieties not approved for release to the market (something currently causing problems in the wheat market – and something Congress unilaterally absolved Monsanto of responsibility for and protected their experimental varieties from further court review in a hidden amendment attached to the sequester bill.)

      The world is on the verge of starvation from population growth and increases in per capita food consumption in the developing economies of the world which happen to have a disproportionate share of the global population, yet they currently consume only a fraction of the world’s food compared to North America or Europe. Walk around anywhere in Asia or South America. You won’t see obesity like you have in the US. Everyone is thin. Cutting back on production will only cause food prices to soar.

      1. AbyNormal

        explain to me how traders like you would exist w/o starvation???

        The pendulum of the mind oscillates between sense and nonsense, not between right and wrong.

  11. TomDor

    A “free market” used to mean a market free of economic rent.

    So, judging by the amount of economic rent taken by the financial sector – the Market ain’t free.
    And who are the ones benefiting most by proclaiming that we should drive toward a free market – thats them financial firms and the plutocrats – they know they hoodwinked us into believing their definition of ‘Free Market’ which (they lying to your face) they use to maximize economic rent- hypocrites all I tell ya.

    Why do you suppose they spend so much energy and money – bribing politicians, setting up things like the Peterson Institute, endowing colleges, and fooling the (hack er) tea party etc. , citizens united – they do it all in an effort to redefine the origional meaning of ‘Free Market’ into a definition that is completely the opposite.

    Why do you think they try to push legislation that Tax favors their economically damaging, rent extraction and predatory behaviours? Why do they want privatization so bad? They want to further enshrine their interests which are to themselves and not to any nation or good. The predators/economic rent extractors are picking most of us clean….Tax the crap out of them – make it too taxing to continue the damage they do. Short of em with jail time or a bullet (metaphorically speaking).

  12. allcoppedout

    None of this is new. History is littered with bank involvement in monopoly hoarding and price-fixing (Corn Laws etc). In the EU we have had all kinds of hoarded food mountains, from wine through meat to butter and grain. These days no one wants to hold inventory and we run near to just-in-time.
    We have been teaching market-manipulation-fixing-creation for years in business schools. It’s basically criminal thinking and the answers lie in enforceable legislation and transparent accounting. As others have pointed out, inventory is essentially a cost, so hoping to make more than a fair return from it must rely on control fraud.
    Barings and Hope & Co tried to buy up all cochineal in the 1770s but failed to shift the price up. We can look to all kinds of historical scams to get an idea of what the banks are up to now.

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