“We’ve seen the price of food become more expensive than ever three times in five years. Normally we’d see three price spikes in a century,” said Kaufman. “And part of the reason is this new kind of commodity speculation in food markets.”
In an article published Oct. 24 in Nature[subscription required], Kaufman describes what he calls “Wall Street’s thirst for water” — the push to turn water into a commodity like food, with the same instruments that produced the mortgage-backed security collapse and 2008 financial crisis.
Odd Crop Prices Defy Economics. For finance and economics geeks:
Could a drugstore sell two identical tubes of toothpaste, and charge 50 cents more for one of them? Of course not. But, in effect, exactly that has been happening, repeatedly and mysteriously, in trading that sets prices for corn, soybeans and wheat — three of America’s biggest crops and, lately, popular targets for investors pouring into the volatile commodities market.
The curious thing is that these price anomalies should be ripe for arbitrage. There should be no gap between the price of say, wheat in the cash market and the wheat futures contract on the day the contract expires.
posted by storybored
on Mar 30, 2008 -
I’ve discovered that typically, a farmer who grows the forbidden fruits and vegetables on corn acreage not only has to give up his subsidy for the year on that acreage, he is also penalized the market value of the illicit crop, and runs the risk that those acres will be permanently ineligible for any subsidies in the future. (The penalties apply only to fruits and vegetables — if the farmer decides to grow another commodity crop, or even nothing at all, there’s no problem.)
If you can't stop demand, curtail production. One farmer's view on the power of commodity crops.[more inside]
posted by Toekneesan
on Mar 1, 2008 -