http://zmag.org/zmag/viewArticle/17820

Market Madness

How Speculators are Manipulating & Profiting from the Global Food Crisis

June, 02 2008 By A.K. Gupta

EXCERPT:

...wheat prices are up 95 percent, soybeans are up 88 percent, corn is up 66 percent, and Thai B grade rice, the world's trading benchmark, ended 2007 at about $360 a metric ton. It hit $760 at the end of March and continued its dizzying climb to $1,080 less than a month later. On top of that, crude oil futures have more than doubled since January 2007, coming within a hair of $120 a barrel this April.

One striking aspect of the rising commodity prices is that when charted, they look similar to the Internet stock mania a decade ago or the charts of soaring (and plunging) home prices of late. This is no mere coincidence. One of the main factors in accelerating commodity and food costs is financial speculation. The same Wall Street banks and hedge funds that gave us the stock bubble and the housing bubble are reportedly throwing billions of dollars at the commodity markets, betting they can make a fast buck. One analyst interviewed by the Wall Street Journal estimates that "investors have poured roughly $175 billion to $200 billion into commodity-linked index funds since 2001." The Journal explained, "As with energy markets a few years ago, pension funds and hedge funds have flocked to grain investments as the supply of farm acreage and crop output shrinks relative to the growing global population and new demands for crops for biofuels and food. Many such investors make predominantly bullish bets," that is, expecting the price to rise.

The daily fluctuations on commodity exchanges are at times greater than used to occur in an entire year. On February 25 alone, at the Minneapolis Grain Exchange, one type of wheat jumped 29 percent. On a single day in March, "the price of cotton jumped 15 percent despite reports showing cotton supplies were at near record highs," according to the Toronto Globe and Mail. During the CFTC hearings, commodity producers laid the blame for soaring prices at the speculators' door. A representative of the National Grain and Feed Association testified, "Sixty percent of the current [wheat] market is owned by an index fund. Clearly that's having an impact on the market," while a cotton producer stated, "The market is broken, it's out of whack."

If there is a main culprit, it is the market. There is a lot of talk about growing consumption and falling supplies for both food and energy, but most of the data contradicts these claims. For example, despite a drought in Australia, ice and snow storms throughout China, and a cold, wet winter in the American breadbasket, the UN Food and Agricultural Organization projects global cereal production for 2007-2008 to increase by 92 million tons to 2.102 billion tons. But almost all this increase is from a record U.S. corn harvest, which is feeding the market for biofuels.

In essence, large speculators ranging from Wall Street banks and hedge funds to oil companies and agribusiness giants are making a killing from trading commodities. Analysts say some players may be manipulating the markets, but this is extremely difficult to prove because regulatory oversight of these markets has been deliberately rolled back. Still, many sectors appear to be engaging in blatant profiteering. This includes speculators, but also extends to food retailers, food producers, and fertilizer manufacturers. One of the ironies of the current situation is that even as the revenue of farmers is increasing furiously, especially in the United States, they are losing out on profits because of the wild gyrations in the commodities markets.

Grain shortages abound because speculators' profits are literally coming at the expense of the world's poor. Food riots have occurred in Egypt, Cameroon, Burkina Faso, Mauritania, Ivory Coast, Senegal, and Ethiopia—countries where many people spend half their income or more on food (compared to less than 10 percent for Americans). The starkest indication of the deprivation is seen in countries like Haiti where, as rice prices have skyrocketed, the poor have been turning to mud cakes made with oil and sugar for sustenance.

Raj Patel, author of Stuffed and Starved, says, "It's obviously a crime against humanity that this kind of financial speculation is allowed to continue. It's one thing to have speculation on the price of widgets or car parts, but it's another thing to have speculation in the fount of human life.... This should be a wake-up call to help us realize that food isn't a commodity, it's a human right." In a speech on April 2, World Bank President Robert Zoellick noted that food prices "have jumped 80 percent" since 2005, and "33 countries around the world face potential social unrest because of the acute hike in food and energy prices." A few weeks later, the World Food Program called high food prices "a silent tsunami" that has already pushed an estimated 100 million people deeper into poverty and which threatened "to plunge more than 100 million people on every continent into hunger."

In the United States, the situation is troubling, if not as dire as the developing world. The U.S. Department of Agriculture estimates 12.1 percent of Americans, or more than 35 million people, experienced "food insecurity" in 2006. For many, this meant running out of food towards the end of the month, skipping meals, or not eating for a whole day. (Until the Bush administration changed definitions, this used to be known as "hunger.") Reports from media outlets, food banks, and soup kitchens indicate that food insecurity is increasing, caused by the leap in food and energy prices, along with the weakening economy, falling home prices, and fast-rising unemployment. Many low-income Americans, especially retirees on fixed incomes, are being forced to choose between eating, staying warm, or purchasing prescription drugs.

One of the more disturbing signs of economic desperation is that many Americans are selling off their belongings to "meet higher gas, food and prescription drug bills," according to the Associated Press. The hard evidence comes from websites like Craigslist where the number of for-sale listings from March 2008 have "more than doubled to almost 15 million from the year-ago period" and are often accompanied by pleas like, "Please buy anything you can to help out."