While food prices continue to climb, and regular workers' wages remain stagnant, there are many reasons for the increase of those prices like demand for biofuels, a mistaken idea that does not help the environment but only adds to dangerous climate change.

 

Nothing like jumping on a bandwagon whose wheels are going to fall off to make a buck.

 

I've written before about the biofuel disaster, for example, here, here, and here.

 

But another greedy player has entered as a participant in driving up food prices: unregulated commodity trading

 

From Dollars and Sense via Cursor. org come this: "Since 2003, prices of basic agricultural commodities such as corn, wheat, soybeans, and rice have skyrocketed worldwide, threatening to further impoverish hundreds of millions of the world's poor.

"Shifts in fundamental supply and demand factors for food grains have undoubtedly contributed to higher food prices. Prominent among these shifts are the increasing diversion of food crops for biofuel production in the United States and Europe; sustained drought and water scarcity in Australia's wheat-growing regions; flooding in the U.S. grain belt; rising prices for oil and fertilizer worldwide; and the adoption of European and American meat-rich diets by the growing middle classes throughout Asia.

"Since 2001, commodity funds have gained in popularity as a mechanism for institutions and individuals to profit from increases in commodity prices. These funds purchasecommodity futures contracts in order to simulate ownership of a commodity. By periodically rolling over commodity futures contracts prior to their maturity date and reinvesting the proceeds in new contracts, the funds allow investors to gain investment returns equivalent to the change in price of a single commodity, or an "index" of several commodities (hence the name "index investor").

"Investors in these commodity index funds include public pension funds, university endowments, and even individual investors, through mutual funds, for example. Although these investors are similar to traditional commodity speculators in that both seek to profit from changes in price, traditional speculators zero in on short-term price shifts, while index investors are almost exclusively long-term buyers betting on higher commodity prices in the future.

"Some observers have argued that index investors themselves may have pushed already-high prices of commodities even higher. Hedge fund manager Michael Masters testified to the U.S. Senate that the total holdings of commodity index investors on regulated U.S. exchanges have increased from $13 billion in 2003 to nearly $260 billion as of March 2008. And as of April 2008, index investors owned approximately 35% of all corn futures contracts on regulated exchanges in the United States, 42% of all soybean contracts, and 64% of all wheat contracts, compared to minimal holdings in 2001. As Masters emphasized, these are immense commodity holdings. The wheat contracts, for example, are good for the delivery of 1.3 billion bushels of wheat, equivalent to twice the United States' annual wheat consumption.

"Commodity index investment is deeply intertwined with the growth of unregulated commodity trading authorized by the Commodity Futures Modernization Act of 2000. Before 2000, U.S. commodity futures contracts were traded exclusively on regulated exchanges under the oversight of the CFTC. Traders were required to disclose their holdings of each commodity and adhere to strict position limits, which set a maximum number of futures contracts that an individual institution could hold. These regulations were intended to prevent market manipulation by traders who might otherwise attempt to build up concentrated holdings of futures contracts in order to manipulate the price of a commodity.

"The 2000 law effectively deregulated commodity trading in the United States by exempting over-the-counter commodity trading outside of regulated exchanges from CFTC oversight. Soon after the bill was passed, several unregulated commodity exchanges opened for trading, allowing investors, hedge funds, and investment banks to tradecommodities futures contracts without any position limits, disclosure requirements, or regulatory oversight. Since then, unregulated over-thecounter commodity trading has grown exponentially. The total value of all over-the- counter commodity contracts was estimated to be $9 trillion at the end of 2007, or nearly twice the value of the $4.78 trillion in commodity contracts traded on regulated U.S. exchanges. Once these unregulated commodity markets were created, energy traders and hedge funds began to use them to place massive bets on commodity prices. Enron famously exploited deregulated electricity markets in 2001, when the firm managed to generate unheard-of profits by using its trading operations to effectively withhold electricity and charge extortionate rates from power grids in California and other western states.

"...Even though commodity market transparency and regulatory oversight will not solve the global food crisis, eliminating unregulated commodity trading can help resolve the debate over the effects of index investors on commodity prices and restore the accountability of commodity markets to the social interests they were originally established to serve."

Shades of the mortgage debacle and the gas crisis with the Bush regime and Republicans like McSame's advisor Phil Gramm's promotion and support of unregulated speculators.