Global food prices in July hit the highest levels ever recorded, with staples such as wheat and sugar a third more expensive than a year ago. In the face of the global economic slowdown, the commodity price spiral shows no signs of abating, and as policy makers seek an explanation, the derivatives market is again in the spotlight. David Wigan looks in to whether accusations that speculation pushes up prices are justified.
When food prices hit their previous peak in 2008, there were
riots on the streets of 30 countries, with the poorest
including Haiti and Bangladesh the hardest hit. With the media
blaming "speculators", the US Commodities Futures and Trading
Commission, launched an investigation into commodity traders,
aimed at measuring the impact of the so-called financialisation
of commodities trading over recent years.
In late 2009 the CFTC launched its new disaggregated measure of
traders' commitments, and the results confirmed what many had
suspected -- the number of commodity futures and futures
options contracts had grown five-fold over the previous 10
years. Financial players had become dominant traders, the CFTC
said, outnumbering traditional market users by a ratio of three
to one on exchanges, even without the larger over-the-counter
positions taken into account.
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