News / Economy

Farm Ministers Call for Commodity Market Regulation

French leaders blame financial speculators for rise in food prices

In this July 9, 2007 photo, traders in the S&P 500 Futures trading pit watch quote boards at the Chicago Mercantile Exchange in Chicago.
In this July 9, 2007 photo, traders in the S&P 500 Futures trading pit watch quote boards at the Chicago Mercantile Exchange in Chicago.

Multimedia

Audio

Farm ministers from the G20 group of leading and emerging economies wrapped up their first-ever meeting this week with a call for better regulation of the global commodity markets.

French leaders in particular have blamed financial speculators for contributing to this year's rise in food prices and the unrest they have triggered in the Middle East, Africa and elsewhere.

But while experts agree commodity speculation has grown sharply in recent years, they do not agree how much blame it deserves for today's high and volatile food prices.

Wild swings

Woody Barth has been farming and raising cattle in North Dakota for about 30 years. He says he always looked to the commodity markets for stability. But that's changed in recent years.

"We've seen a lot of wild swings in the market," says Barth. "I mean, a day of five cents up on the corn market, 10 cents up on the wheat market, up or down, was a big day five, seven years ago, 10 years ago. But that's a quiet day nowadays."

Corn, or maize, has hit its 30-cent one-day trading limit 51 times so far this year on the major U.S. grain exchange. That's up from 36 times in all of last year.

Avoiding these wild price swings is one reason why farmers and food makers are in the commodity markets to begin with. They can set prices today for crops that are still in the ground.

Transferred risk

That lowers the risk that weather or other factors beyond their control will push prices up or down come harvest time, says economist John Anderson with the American Farm Bureau Federation.

"There are so many things we don't know. And so, the people who are involved in these markets face tremendous risk. And the whole point of these markets is to allow a way for that risk to be transferred."

Transferred to someone who is willing to gamble on what the price of a commodity will be in the future. That is what speculators do - they take on that risk because where there is risk, there may be reward.

So a certain amount of speculation is a good thing, says Michael Masters, head of the hedge fund Masters Capital Management. "You need enough liquidity from speculators to provide grease for the wheels, if you will."

Flood of new money

But something changed in the mid-2000s. Pension funds, sovereign wealth funds and other large institutional investors began looking to commodity market speculation as a way to diversify their portfolios.

Masters says investments in commodity index funds rose from $13 billion in 2003 to about $400 billion today. He says the flood of new money is helping to push prices up.

"Prices move when new money comes into a market. So if you have a house, and one buyer shows up, you may sell it at one price. On the other hand, if you have a house and five buyers show up, you're going to sell it at another price."

Masters adds that speculators used to make up about a third of the money in commodity markets. Now they dominate many of them. He says markets today are much more volatile because there is much more money reacting to good or bad news about crop supplies.

"If there's a certain amount of speculative capital, it's going to move a certain price. But if there's 20 times that amount of speculative capital, then it's going to move much more."

Push for new regulations

France has used its position as current head of the G20 to speak out against excessive speculation.

French agriculture minister Bruno Le Maire says high and unstable food prices affect the poor the most. "Nobody can accept to have speculation on the poorest countries in the world, on the people in the world."

The French have been pushing for stricter regulations on commodity speculation in their role as head of the G20. But the negotiations faced stiff opposition -- for the simple reason that many are not convinced that speculators are to blame.

"I don't think there's a very good case at all to be made for much of a speculative impact in our grain markets right now," says economist Scott Irwin at the University of Illinois, adding that most research on the subject does not show that the mere presence of more speculators pushes prices up.

And the evidence that they are adding to volatility is not conclusive.

"There's no smoking gun that clearly points towards the kind of volatility and manipulation problems," says Irwin. "If that's not there, why do you need the new regulations to begin with?"

Irwin adds that new regulations may even push out the speculators the markets need to function smoothly.

He says there is a much simpler explanation for why prices are so high and unpredictable today: supplies of many food commodities are extremely low and demand is extremely high. With such small margins of error, any little bump will send shudders through the market. And the market has taken a lot of bumps in the past year, from drought in Russia to floods in Canada to heat waves in the United States.

"We just have had a really kind-of amazing string of just plain bad luck with weather. And it just keeps accumulating recently."

Experts say it will take at least two years of good harvests to build enough stocks to buffer prices.

In the meantime, the agreement the G20 agriculture ministers reached calls for "appropriate regulation and supervision" of commodity markets. It makes some suggestions, but provides few details. And it leaves the issue to the G20 finance ministers to work out what regulations are appropriate. A G20-appointed commission is expected to deliver its recommendations in the fall.

You May Like

Multimedia Obama Defends Immigration Action

Obama says with his executive action on immigration, enforcement resources will be focused on 'felons, not families; criminals, not children' More

US-Led Airstrikes in Syria Kill Over 900: Monitoring Group

British-based Syrian Observatory for Human Rights says the toll includes more than 50 civilians, five of them women and eight of them children More

Report: Obama Broadens US Combat Role in Afghanistan

The New York Times says resident Barack Obama has signed a classified order extending the role of US troops in Afghanistan for another year More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
New Skateboard Defies Gravityi
X
November 21, 2014 5:07 AM
A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Gay Evangelicals Argue That Bible Does Not Condemn Homosexuality

More than 30 U.S. states now recognize same-sex marriages, and an increasing number of mainline American churches are blessing them. But evangelical church members- which account for around 30 percent of the U.S. adult population - believe the Bible unequivocally condemns homosexuality. VOA's Jerome Socolovsky reports that gay, lesbian, bisexual and transgender evangelicals are coming out. Backed by a prominent evangelical scholar, they argue that the traditional reading of the bible is wrong.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8050
JPY
USD
117.90
GBP
USD
0.6376
CAD
USD
1.1259
INR
USD
61.655

Rates may not be current.