The Evil Commodity Speculators

By James Donahue

If you were in a grocery store shopping for cocoa or a chocolate cake mix lately, you may have been shocked at the price you were expected to pay. That is because there has been a manufactured shortage of cocoa on the world market.

While the cocoa crops in Africa, Asia, South America and Central America are still alive and well, certain wealthy investors appear to be buying up large quantities of cocoa and other food products, especially grains, in an obvious effort to force up the price of food.

For example, in a report recently published by the World Development Movement (WDM), a hedge fund identified as Armajaro recently took delivery of 240,000 tons of cocoa in what is described as the largest delivery on the London futures exchange in over 14 years.

A hedge fund is, in essence, a limited number of wealthy investors that have joined forces to put their money on a product, commodity or business believed to produce a healthy profit for every dollar invested.

The WDM report noted that the hedge fund “market players” are not just stopping with cocoa. The report said they “are gambling with people’s lives via their commodities trading which risk the most vulnerable in the world starving.”

The report said investment banks like Goldman Sachs are “making huge profits by gambling on the price of everyday foods.” These commodity investments are driving up the price of food at a time when a large number of people are out of work and going hungry, generating inflation, and worst of all, leaving the poorest people in the world starving.”

A report by Johann Hari in the web site Against Market Fundamentalism, American Politics, accused “some of the richest people in the world – Goldman, Deutsch Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world, just so they could make a fatter profit.”

The Hari article said food prices around the world have been on the rise, without just cause, since late 2006. It said the price of wheat went up 80 percent, maize by 90 percent and rice by 320 percent. These prices made it impossible for the poor nations of the world to buy food. “In a global jolt of hunger, 200 million people – mostly children – couldn’t afford to get food any more and sank into malnutrition or starvation.”

There were riots in over 30 countries. Then in the spring of 2008, prices strangely fell back to their previous level. Researchers were shaking their heads at first. They found that there was no shortage of grain during that period, and the world demand for grain did not rise, as some suggested. So what cause the mysterious price increase?

The Hari report said it all stems from the passage of the Financial Services Modernization Act of 1999 that abolished controls on the way big banks and lending institutions do business. The laws put in place by the Roosevelt administration in the 1930s were repealed while President Bill Clinton was in office.

Hari wrote that Goldman Sachs and others lobbied hard to get those regulations abolished. In the meantime, big grain and crop farmers were insuring their crop investments against risk by selling crops early to traders at fixed prices. This guaranteed income for the farmer and the investor gambled for a good crop that put money in his pocket too. If the crop failed, the investor took the loss.

Hari noted that when this process was regulated, and only companies with direct interest in the field getting involved, everything worked well. But after deregulation, the contracts with the farmers could be turned into derivatives that could be bought and sold among world speculators. Suddenly the hedge fund concept fell into place.

What went on in 2006 and 2007 was perhaps a test run of a new and deadly game of food speculation among the big traders. For example, a contract on a large crop of wheat from the Midwest could have been bought by Goldman Sachs at one price, then sold for twice the amount to Deutsche Bank, and then sold again for even more value to Merrill Lynch.

That experiment apparently worked so well, it appears that the hedge fund speculators are at it once again, this time playing for big bucks at the expense of everybody. If you keep an eye on the commodities markets, watch the price of cocoa, wheat, corn, rice, soybeans and coffee.

Did the bill recently signed into law by President Obama put the brakes on reckless bank trading or was it so watered down by the sold-out members of the two houses that it leaves the door wide open for more of the same? Wealth and power breeds more wealth and power. And Washington is where all of the wealth and power appears to be centered these days.

Messing with the world food supply is perhaps the most dangerous game these high rollers could be playing. As happened in 2007 when people were starving, rioting broke out on the streets. If there is anything that is going to get the people in America riled up enough to do something about the greed and corruption, it will be the act of taking away their food.