Oil Barons Plan to Freeze Production So That Oil Price Increases to $50 Per Barrel

Oil freeze deal will be done by March: Russia

February 21, 2016

CNBC - Consultations on a preliminary deal between leading oil producers to freeze output should be concluded by March 1 after a group led by Russia and Saudi Arabia reached a common position this week in Doha, Russia's energy minister said.

In a television interview aired on Saturday, Alexander Novak also said that the agreement announced on Feb. 16 was weighty enough.

"Those countries which have openly supported this approach are producing around 75 percent out of global (oil) export volumes. My point is that, in practice, this is enough to agree," Novak told the "Vesti on Saturday" program.

Russia, Saudi Arabia, Qatar and Venezuela said this week after talks in Doha that they were ready to freeze production at January levels if other producers do the same.

Iran welcomed the deal. But it stopped short of saying it would itself freeze production at January levels and its deputy oil minister said on Saturday it would increase production soon.

Novak said talks between Venezuela and Iran were still ongoing, and said consultations would also be held with non-OPEC countries, including Mexico and Norway.

"I believe that they (Mexico and Norway) would take a constructive stance," he said.

Oil prices have crashed more than 70 percent in the past 20 months, driven by near-record production by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, adding to one of the worst supply gluts in history.

Crisis-hit Venezuela has been pushing for an oil deal to offset a brutal recession that cost the leading Socialist Party its legislative majority in a December election.

If additional oil were not supplied to the market, then the global surplus of oil would fall by at least 1.3 million barrels per day, Novak added.

Feds Will Use the Recent Drop in Gas Prices as an Excuse for a $10-a-barrel Tax on Oil

"I would submit why would the American people believe this money would be used for infrastructure improvements. Our government is consistently using money from one program to pay for something else. If gas taxes had been used to maintain our roads as they were intended, the deterioration existing today would not be nearly as bad. Instead of always looking for somewhere to spend money, a competent local, state and federal government would have never let them get this bad to begin with. The proposed tax would not affect the U.S. too much right now, until the price of oil goes back up again. Everyone always focuses on emissions and the carbon tax. We always forget how many things use crude oil. Anything which is manufactured in the world uses a product derived from oil at one point or another. Plastic, vinyl, rubber, pvc, the majority of medications, carpet, electronics, wind turbines, solar panels, chemicals, and many more things all depend upon crude oil." - Jeffrey Hart 

Why so many economists back Obama’s idea of a tax on oil

February 8, 2016

The Washington Post - When the White House announced last week that President Obama would pursue a $10-a-barrel tax on oil to fund major transportation system reforms, there were instant denunciations from many politicians, and especially congressional Republicans.

“A $10-a-barrel tax on oil will be dead on arrival in the House,” Rep. Bill Flores (R-Tex.) said. “It is clear that in his last year in office the president is more concerned with his radical climate policies and pleasing special interest groups than providing economic stability for hardworking American families. This proposed tax will do nothing more than raise costs on consumers, who are still struggling with stagnant wages.”

These critics were, in a sense, merely reflecting public opinion at large — much research suggests that gasoline taxes (and the proposed oil tax would certainly raise the price of gasoline) are very unpopular. For instance, a 2015 study of the matter found, “large majorities of Americans (65-70%) oppose higher taxes on gasoline and electricity” (although the research found that different messages about gas taxes can reduce resistance somewhat).

But despite the lack of public support, a large number of economists are convinced that taxes on fossil fuels in general are a pretty good idea. There have long been calls by economists for putting a tax on carbon in all of its forms — not just from burning oil or gasoline. The goal is to address, in economist speak, the “market failure” that occurs in this case because of the “negative externality” that is greenhouse gas emissions.

Oil Crash Will Transfer $3 Trillion Per Year from Oil Producers to Global Consumers

BofA: The Oil Crash Is Kicking Off One of the Largest Wealth Transfers in Human History

January 31, 2016

Bloomberg - A $3 trillion shift. Economists are still hotly debating whether the oil crash has been a net positive for advanced economies.

Optimists argue that cheap oil is a good thing for consumers and commodity-sensitive businesses, while pessimists point to the hit to energy-related investment and possible spillover into the financial system.

A new note from Francisco Blanch at Bank of America Merrill Lynch, however, puts the oil move into a much bigger perspective, arguing that a sustained price plunge "will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history."

Blanch and his team already see evidence that the fall in the price of crude is having a positive impact on demand, and say that it could accelerate even further if prices don't pick up.

Source: BofA

Nuclear Deal with Iran Allowed Its Return to the Global Oil Market; the Additional 1-2 Million Barrels Per Day from Iran will Result in a Sustained Drop in the Price of Oil

“The Iran nuclear deal is a massive blow for the oil price, and we could see the crude-oil price falling to $30 very easily. This deal actually represents 1 million barrels a day of extra oil on the market, so net effect on the supply equation will be nearly 2 million [barrels a day].” - Naeem Aslam, chief market analyst at AvaTrade

Oil dives below $35, lowest in 11 years, as U.S. supply swells

January 6, 2016

Reuters - Crude oil prices plunged 6 percent on Wednesday, diving below $35 per barrel for the first time since 2004 as data showing a shockingly large build-up of U.S. gasoline supplies fed fears that a global surplus was still growing.

The sell-off, the biggest one-day drop for global benchmark Brent futures since the start of September, takes losses this year to more than 8 percent, a descent stoked by worsening Chinese economic data, the world's No. 2 oil consumer, and a fierce row between Saudi Arabia and Iran that some say may be more bearish than bullish.

The focus on Wednesday was U.S. government data showing a 10.6 million-barrel surge in gasoline supplies, the biggest build since 1993, which some traders said signaled a slow-down in demand that could prolong the global glut. The figures overshadowed a 5.1 million-barrel fall in crude stocks. [EIA/S]

"Gasoline was the sole source of strength within the complex, and that looks to have ended," said John Kilduff, a partner at energy hedge fund Again Capital [an oil speculator, see below: Behind Oil Price Rise: Peak Oil or Wall Street Speculation?].

Brent futures LCOc1 fell $2.19 to settle at $34.23 a barrel. Earlier, it fell to as low as $34.13, its lowest level since the start of July 2004.

U.S. crude futures CLc1 fell $2.00 to settle at $33.97 a barrel, its lowest close since February 2009.

Traders shrugged off rising geopolitical risks, including an apparent North Korea nuclear test. Many reckoned that the row between Saudi Arabia and Iran posed little threat to oil shipments, but made an agreement on output even less likely.

"I think we'll see a price war soon to keep market share," said Tariq Zahir, an analyst at Tyche Capital Advisors. "Prices will get lower and I think we'll hit $32 again."

Iran Nuclear Deal Likely To Cause Sustained Drop In Oil Prices 

July 16, 2015  

Americans.org - Terrible days lie ahead for oil exporters after the Iran nuclear deal opened the world to additional oil supplies from the oil rich country. Already blessed with some of the deepest oil reserves in the world, Iran’s comeback in the oil market will further tilt oil prices downward, spelling liquidity problems for exporters and greater travel options for end consumers.

Oil prices dipped on Wednesday after the news of the Iran nuclear deal hit the wires. The deal would see decades old sanctions imposed by the U.S., the E.U. and the UN, against the Middle East country eased in exchange for curbing their nuclear program. The sanctions effectively locked out a key player from international oil markets, crippling the country’s export capability and gradually reducing its contribution from over 4 million barrels per day (bpd) at its peak to only 1 million bpd.

With the sanctions lifted, oil prices face an inevitable widening glut that will most certainly mean a negative price hit and in turn a positive boost to the global economy.

The Artificially Inflated Price of Food and Gas Can Be Blamed on the Commodities Futures Modernization Act of 2000

The law was that when you bought futures, you had to take delivery. However, in 1991, Goldman Sachs' commodities subsidiary, J. Aron, asked for a waiver, and they got it. And over the years the Commodity Futures Trading Commission [CFTC] handed out 14 other similar exemptions. Then everyone got to do this under the Commodities Futures Modernization Act of 2000, which was signed into law by President Bill Clinton on December 21, 2000. Because of this act, speculators can buy and sell food and crude oil on paper without having to actually take possession of it, thus artificially inflating the price.




According to a 2009 article about the exemption for Goldman Sachs:

Investors (Many of Them Big Pension Funds Working with Wall Street Investment Banks) Poured Speculative Money into Futures Contracts for Oil and Food, Which Has Driven Up Prices Since 2002 - These Private Bets Have Amplified the Global Financial Crisis

Clinton Signs the Commodities Futures Modernization Act

2010

Felix Salmon - When it entered the world in the final days of 2000, almost no one cared a jot about the Commodity Futures Modernization Act. In hindsight, the CFMA turned out to be one of the most momentous pieces of legislation passed during the entire Clinton administration—and one of the darkest spots on the record of Treasury Secretary Lawrence Summers.

It began with a simple question: who should regulate derivatives, the Commodity Futures Trading Commission or the Securities and Exchange Commission? By answering “none of the above,” the CFMA essentially deregulated the entire derivatives market, including energy derivatives, as abused by Enron, and credit-default swaps, which allowed AIG Financial Products to binge on unlimited amounts of risk.

Enron became the largest corporate fraud in history (and any Californian will be able to tell you about the consequences for energy prices in the state, which were pegged to market prices being manipulated by Enron traders), while AIG’s bailout cost U.S. taxpayers hundreds of billions of dollars that were desperately needed elsewhere. 

But the most invidious effect of the CFMA wasn’t so much financial as political. It marked the point at which Washington became completely captured by Wall Street. Those who opposed the act were ousted; those who pushed it through, rewarded. Financial laws still can’t get passed unless and until the banks want them enacted. And we’re all suffering the consequences.

Speculators Blamed for Oil Price Spikes

July 28, 2009

McClatchy Newspapers — The chairman of the Commodity Futures Trading Commission signaled Tuesday that his agency is likely to limit financial speculators' ability to drive up prices for oil and other fuels.

Excessive speculation, suggested CFTC chief Gary Gensler, drove the price of oil to a record $147 a barrel a year ago, making it unnecessarily more expensive for Americans to heat their homes and fuel their cars.

"I believe we must seriously consider setting strict position limits in the energy markets," Gensler said at the start of a public hearing to consider limiting the number of contracts that an oil trader can hold.

Gensler's comments mark a stark shift from the Bush administration's view. When a Republican headed the CFTC last year, the agency concluded that market forces of supply and demand, not financial speculators, drove record increases in energy prices. However, Gensler and at least one other commissioner, Bart Chilton, think that speculation, at a minimum, drove the price of oil higher than it would've gotten otherwise.

Investors, many of them big pension funds working with Wall Street investment banks, poured speculative money into futures, or contracts for future delivery. This inflow, as much as $300 billion, appears to have pushed prices to record levels, and helped them rebound again during the past six months from their winter lows.

Testifying Tuesday before the CFTC, representatives from utilities, the airline industry and petroleum marketers all called on the agency to restrict Wall Street speculators to prevent a return to last year's price volatility.

Allowing such a return would have "serious impact on the national air transportation system and the economy," including airline bankruptcies or mergers, warned Ben Hirst, general counsel for Delta Airlines, testifying on behalf of the Air Transport Association.

Gensler signaled that the question of limits on speculative investment isn't a matter of if but when. "As we move forward in considering position limits, I believe that we should apply consistent, across-the-board regulations to all futures market participants," Gensler said, noting that the agency, and not individual exchanges, should set the new limits. "With competing exchanges, regulations must be applied equally to similar contracts in different markets. The CFTC is in the best position to apply limits across different exchanges, and we are most able to strike a balance between competing interests and the responsibility to protect the American public."

The CFTC is also weighing whether to take back exceptions granted over decades [see the Commodities Futures Modernization Act of 2000, signed into law by Bill Clinton on December 21, 2000, during the final days of his presidency ("Santa's secret legislation")] to big Wall Street powers such as Goldman Sachs and Morgan Stanley that allow their investments in energy contracts to be regulated as if they were airlines or refineries, free from limits on the number they can buy.

Commercial fuel users are exempt from position limits because they actually take delivery of the product. Wall Street firms, which don't take delivery, received the same exemptions, first from the CFTC and later from commodity exchanges, on the grounds that they needed to hedge against risks that they've taken through private bets on the price of oil.

These private bets are called swaps. The swaps market dwarfs the regulated futures markets. Lack of transparency in these markets, and uncertainty about who actually owes what to whom, has amplified the global financial crisis.

"It became more apparent to me today than it ever has before that the agency should be the one to grant hedge exemptions," Chilton said in an interview. He noted that exchanges have incentives to grant exemptions to big players who bring more trading volume, and thus profits, to the exchanges. "Our job is to protect consumers and ensure these markets are working effectively and efficiently."

Executives from Goldman Sachs and Morgan Stanley are slated to testify Wednesday before the CFTC. They've denied that the flood of investment they helped direct into commodities drove up oil prices, arguing that global concerns about inadequate oil supplies explain the run-up. 

Bankers, Hedge Funds and Sovereign Wealth Funds Gamble on Hunger (Food-based Commodity Derivatives) - Financial Speculators Account for More than 60% of Some Agricultural Futures and Options Markets, Compared to Just 12% 17 Years Ago, Creating Massive Inflation and Sudden Price Spikes

The Speculative Scrum Driving Up Food Prices

December 21, 2011

Guardian - Bankers, hedge funds and sovereign wealth funds are gambling on hunger by speculating on food supply. Global regulators should step in to stop them.

Last year, the price of global food floated high as ever. That's bad news for most of us, but not for those who trade commodities. In fact, 2011 was a great year for the traders, who thrive on bad news, currency woes, drought, flood, freeze, fire and all other manifestations of imminent apocalypse.

2011 was a wild ride. One spring morning, cocoa futures dropped 12% in less than a minute. Corn ascended to all-time peaks and sugar fluctuated more in one day than it used to in a month. Howard Schultz, CEO of Starbucks, railed against speculators in coffee, while PepsiCo forecast its own medium-term commodity cost increases to exceed $1bn. All of which meant a bumper crop for the world's commodity exchanges – even those that used to be backwaters, like the Kansas City Board of Trade and the Minneapolis Grain Exchange, both of which recorded their highest electronic trading volumes in history.

It was a volatile year, and the volatility posed problems for the food industry. Faced with a high-stakes game of price-shifting basic ingredients, the world's largest food processors and retailers put out the call for maths PhDs and economic modellers to theorise and implement ever-more complex risk-management strategies just so they could keep up with the second-by-second spikes and dips of grain and livestock futures. In the meantime, high-frequency traders and momentum-driven hedge funds made it their business to speculate on food.

There were plenty of ways to get in on the action, but as an increasingly complex amalgam of food-based commodity derivatives piled one on top of the other, the more difficult it became to perceive what it was that lay at the bottom of the speculative scrum. What drove the global food market in 2011 – other than those old faithfuls, fear and greed? I put in a call to Professor Yaneer Bar-Yam, of the New England Complex Systems Institute (Necsi), to see if he might have an answer.

Necsi, based in Cambridge, draws on fields as various as maths, physics and computer science to provide new perspectives on – and perhaps even solve – pressing problems in economics, healthcare, international development, and military and ethnic violence. Last year, Bar-Yam and his colleagues published a paper called The Food Crises: A Quantitative Model of Food Prices Including Speculators and Ethanol Conversion, in which the Necsi crew mathematically isolated and quantified the effects of speculation as a driving force behind the bull market in global food derivatives.

"Prices have been way out of equilibrium in 2011," Bar-Yam told me. "The bubble has not burst yet."

According to Bar-Yam, the international thirst for biofuels has put a strain on arable land previously reserved for food production. At the same time as the rise of the biofuel mandate, the rise of investable commodity indexes and other electronically traded funds has offered investors of all stripes a chance to sink their cash in a sparkling new casino of derivative products. As a result, an ever-flowing spring of speculative capital sustains the status quo.

But just as food is no ordinary widget, speculation in commodity markets is not simply a matter of financial predation.

"The high prices of food have resulted in accumulations of inventories at the same time as people can't afford food," said Bar-Yam, who noted that the Arab spring was triggered by the food-price bubble.

In fact, Necsi's quantitative model of speculation predicted the uprisings in Tunisia, Libya and Egypt, and warned that if food prices remain inflated, riots and revolutions will go global sometime between July 2012 and August 2013.

"We are at a critical point," said Bar-Yam. "We don't have a stay-the-course option right now."

He believes the time has come for global regulators to step in and manage the global market. Their first task would be to guarantee transparency and make public information previously shrouded in secrecy – such as who holds the biggest stakes in global commodities. Transparent accounting practices would have made the disappearance of $1.2bn worth of customer money from the books of MF Global less a matter of sleight of hand and more a matter of international crime.

The second part of the speculation solution hinges on a return to traditional position limits in commodities, limits enforced by international laws geared to stop bankers, hedge funds and sovereign wealth funds from going long on the world's food supply and, in effect, gambling on hunger.

Nothing influences financial regulators like equations, so the reforms we can look forward to in 2012 will ultimately depend on the numbers. Which is a mixed blessing.

"One reason people don't want to understand the math is the deafness of those who are making the money," said Bar-Yam. "But the old mathematics is manifestly wrong."

Financial Speculators Responsible for Rising Global Food Prices, Claims Report

Influence of financial players on agricultural commodity markets blamed for global food price inflation and hunger

September 13, 2011

Guardian - The activity of financial speculators is overwhelming agricultural commodities markets, fueling global food price inflation and hunger, according to new analysis from the anti-poverty group the World Development Movement (WDM).

Its report, Broken Markets, published on Tuesday, finds that financial speculators with no interest in the physical goods traded now dominate agricultural commodity markets. WDM's report coincides with news that food inflation in the UK was running at 6.2% (pdf) in August. Annual inflation on bread and cereals was even higher, at 7.1%, compared to headline inflation of 4.5%, according to figures just released by the Office for National Statistics.

WDM says the spiraling food prices are being driven by financial players taking over commodities markets. Those on low wages in the UK and the poorest in developing countries are hit hardest, since they spend a larger proportion of their income on food.

Financial speculators now account for more than 60% of some agricultural futures and options markets, compared to just 12% 15 years ago, the development group says. Those with direct commercial interests in food production used to be the main participants, but now hold less than 40% of the market compared with 88% in 1996. The result is that agricultural markets no longer respond to underlying fundamentals of supply and demand and fail to provide producers with an effective way to hedge their risks.

"Financial speculators have flooded food commodity markets, creating massive inflation and sudden price spikes. These broken markets are bad news for people in the UK, whose average annual food bills increased by £260 in one year alone. But for people in poverty in developing countries, price rises are disastrous," the report's author, Murray Worthy, said.

WDM is calling for the UK government to stop blocking proposals in Europe to reform the markets.The role of excessive financial speculation in the recent sharp rises in food prices has been controversial. The commodities exchanges and some analysts have argued that price rises and swings are the result of increasing demand and tightening supply. Christian Aid (pdf) and Oxfam have, however, also pointed to a huge rise in speculative flows as one cause of the global food crisis.

The WDM report identifies several types of investment made possible by deregulation in the past decade, each of which it believes is distorting the markets:

• Commodity index funds, which allow institutions such as pension funds to bet against movements in commodity prices. These funds are "long only", which means they only take positions speculating that prices will rise and they "roll" their positions, replacing contracts each month to maintain the same position in the market. These "massive passives" do not respond to the underlying fundamentals of supply and demand and so distort agricultural markets, WDM says.

• Computerised high-frequency trading is adding to the volatility of prices and has led to "flash crashes" in the sugar and cocoa markets. In this kind of trading, past price movements are analysed and used for algorithmic trading for very short periods of time. For example, when prices of sugar and cocoa started to fall in late 2010 and early 2011 respectively, they triggered the computerised models to sell automatically, fuelling a downward spiral that saw sugar fall by 11% and cocoa by 12.5% in a single day.

• Commodities exchanges now make their profit from the numbers of trades made, meaning they have a strong incentive to promote greater volumes of these sorts of speculative activities.

• Over-the-counter trading, which takes place outside the regulated exchanges, has boomed. At present, only commodity futures and some options are traded on exchanges. The rest of the derivatives market is traded through unregulated bilateral deals between institutions such as banks and pension funds. Over-the-counter trading bypasses the requirement on the exchanges for traders to post margins, ie put up a sum of money to cover the risk they are taking on any contract. This absence of transparent risk management creates dangerous bubbles, according to WDM.

In the past five years, the total assets of financial speculators in these markets have nearly doubled, from $65bn in 2006 to $126bn in 2011.

The largest contributions to food price inflation in the UK came from bread and cereals, meat (for which prices rose by 7.1% over the 12 months to August), mineral waters, soft drinks and juices (with a 9.4% rise), and sugar, jam, syrups, chocolate and confectionery, for which prices rose by 7.6%.

Between 2003 and 2008, the Amount of Speculative Money in Commodities Grew from $13 Billion to $317 Billion, an Increase of 2,300 Percent

We may never know for sure the combination of circumstances that brought on the energy crisis of 2008. But one factor was almost certainly the Commodity Futures Modernization Act of 2000, which allowed unprecedented levels of speculation in oil futures by investment banks and pension funds, bringing the familiar boom-bust cycle home to the gas pump. - Drill Now? Try Regulate Now., Wall Street Journal, April 7, 2010

And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed. - Matt Taibbi, The Great American Bubble Machine, Rolling Stone, July 2, 2009

We'll Make a Killing Out of Food Crisis, Glencore Trading Boss Chris Mahoney Boasts

August 23, 2012

The Independent - The United Nations, aid agencies and the British Government have lined up to attack the world's largest commodities trading company, Glencore, after it described the current global food crisis and soaring world prices as a "good" business opportunity.

With the US experiencing a rerun of the drought "Dust Bowl" days of the 1930s and Russia suffering a similar food crisis that could see Vladimir Putin's government banning grain exports, the senior economist of the UN's Food and Agriculture Organisation, Concepcion Calpe, told The Independent: "Private companies like Glencore are playing a game that will make them enormous profits."

Ms Calpe said leading international politicians and banks expecting Glencore to back away from trading in potential starvation and hunger in developing nations for "ethical reasons" would be disappointed.

"This won't happen," she said. "So now is the time to change the rules and regulations about how Glencore and other multinationals such as ADM and Monsanto operate. They know this and have been lobbying heavily around the world to water down and halt any reform."

Glencore's director of agriculture trading, Chris Mahoney, sparked the controversy when he said: "The environment is a good one. High prices, lots of volatility, a lot of dislocation, tightness, a lot of arbitrage opportunities.

"We will be able to provide the world with solutions... and that should also be good for Glencore."

Glencore announced pre-tax global profits of £1.4bn. The G20 is considering holding an emergency summit on the world food crisis.

Oxfam was scathing about Glencore's exploitation of volatile world food prices. Jodie Thorpe, from the aid agency's Grow Campaign, said: "Glencore's comment that 'high prices and lots of volatility and dislocation' was 'good' gives us a rare glimpse into the little-known world of companies that dominate the global food system."

Oxfam said companies like Glencore were "profiting from the misery and suffering of poor people who are worst hit by high and volatile food prices", adding:

"If we are going to fix the ailing food system then traders must be part of the cure."

Stephen O'Brien, Parliamentary Under Secretary of State for International Development, said:

"We know that food-price spikes hit the poorest hardest. Ensuring the poor can still access enough food is vital in times of food-price rises, which is why the UK is investing in safety nets that deliver food and cash to the poorest."

A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most."

Price of a Bushel of Corn has Risen Over 60% in the Last Couple of Months

Drowning in a Sea of Drought

August 22, 2012

empressofaiken - We just paid $2.25 more for a bag of horse feed than we did a month ago – a jump of over 25%. We weren’t happy about, but we only have three horses, so we’ll find a way to work it into the household budget.

What was hard to watch was the dairy farmer who had come to make his regular weekly purchase of 200 bags of feed for his cows. He simply didn’t have the extra $450. Over the course of a month that means another $2,000 to him. It isn’t in his budget, and he had to tell the men at the loading dock to remove some of the bags. He said that he was going home to talk to his wife about how they were going to deal with their herd. He has only two real options – sell some of his cows or slaughter them. He can’t make ends meet selling milk if feeding his cows will eat up every bit of his profit and more. He’s not the only farmer making hard decisions. It’s happening all across the country.

I think it took that scene at the supply store to make this Summer’s weather conditions a reality for me.  

There just isn’t going to be enough corn – not for us, not for livestock or poultry and not for fuel – not unless we do something about it.

In the last couple of months the price of a bushel of corn has risen over 60% from $5.51 per bushel to today’s price which is hovering around $8.40. Take a look at the agricultural commodities market and you’ll see that soybeans have risen from $10.95 to $17.34 and that wheat is up to $9.42 from $5.78.

Given the very basic and simple rules of supply and demand, this means that all of us are going to have to take a long hard look at our checkbooks. We’re going to have to find ways to pinch those pennies a little tighter while we shop for food and fill our gas tanks.

The crops for 2012 are yielding approximately 15-20% less than in previous years and they can’t be recovered. You can’t make something grow without a little help from Mother Nature, and the growing season is quickly coming to an end.

Climatologists are reporting that this is the first of many signs that global warming is a real threat to our planet. That may very well be, but it isn’t just the severe drought conditions that are driving those prices.

• Government regulations require that 40% of corn crops be converted into biofuel, forcing farmers to devote less and less land to growing other crops.
• Market speculators, seeing huge investor profits, have nearly tripled their trading in agricultural commodities, and that was only between June and July. Profit driven motives, in the world of trading, can skew everything and throw the supply and demand model right out the window.
• Fears over war between Israel and Iran, along with the ongoing fighting in Syria, have forced some of their neighbors in the Middle East to stockpile both food and oil supplies.
• China and Japan are facing their own fears and are responding by releasing some of their own grain reserves, impacting the normal flow of global exports and imports.

It has all the makings of the perfect storm for a world that is already skittish about the economic situation.

Here in the United States, there has been some talk by members of Congress about easing up on those ethanol regulations. The United Nations’ Food and Agriculture Organization has appealed for the suspension of the EPA requirements. It’s a sort of food-or-fuel debate. The problem is that it probably won’t happen until 2013, and that’s being optimistic. The ethanol and fuel oil producers have already set the wheels in motion for business as usual. To change their operations will take time.

The debate in Washington, like almost everything else there, is sharply divided and being argued in the two different languages of partisan politics, something that even a translator can’t help. We also have to take into account that we’re in an election cycle, and few candidates are willing to take on any challenge that could very well mean a loss of campaign contributions.

Groups with very diverse interests – from the National Cattlemen’s Association to the Corn Grower’s Association to myriad environmental organizations – have been whispering in the ears of lawmakers and writing checks to ensure that they can be heard.

Should those in power decide to enter into some real discussions and make actual changes to the ethanol issue, there is a very good chance that the situation could improve. Economists and experts in both the fields of energy and agriculture have offered some suggestions as to how different scenarios could work. Each variation shows what type of impact there would be given how much or how little the EPA standards are relaxed.

The other variables, according to an article presented by Purdue University, would be “the price of oil, the price of corn, the magnitude of the drought, the economics of switching away from ethanol and the technical flexibility of refiners and blenders.”

Even a compromise, from all involved, would be better than just doing nothing. These are actual ways in which the further harm to the environment would be limited, while also allowing for Americans to buy groceries and drive to work.

In the meantime, while they’re either arguing or ignoring the problem, we’ll be waiting and prices will keep going up. We might have to tighten our belts another notch, but that won’t be hard, because we’ll probably be eating less and walking more.

Food Price Spike Due to Drought Could Trigger Riots in Poorer Countries Like in 2008

World Powers Eye Emergency Food Meeting; Action Doubted

August 15, 2012

Reuters - Leading members of the Group of 20 nations are prepared to trigger an emergency meeting to address soaring grain prices caused by the worst U.S. drought in more than half a century and poor crops from the Black Sea bread basket.

France, the United States and G20 president Mexico will hold a conference call at the end of August to consider whether an emergency international meeting is required, aiming to avoid a repetition of the food price spike that triggered riots in poorer countries in 2008.

Yet even as the third grain surge in four years stirs new fears about food supply and inflation, many say the world's powers are no better prepared to rein in runaway prices. Apart from a global grain database, which has yet to be launched, and the Rapid Response Forum that authorities are considering convening for the first time, the G20 has few tools.

Instead, it must intervene through influence, perhaps urging the United States to relax its ethanol policy in response to the crisis - difficult only months before a presidential election that may be won or lost in Midwest farm states - or urging Russia not to impose an export ban, as it did two years ago.

"Beyond words, expect little from the G20 on rising food prices," said Simon Evenett, a former World Bank official who is now professor of international trade and economic development, University of St. Gallen, Switzerland.

He described the G20's record on trade as "feeble."

"With a string of broken promises on protectionism, no serious enforcement, monitoring well after the horse has bolted, and a tendency to pull their punches, any G20 promises on food trade won't be taken seriously - by the G20 themselves or by anyone else."

The group is hindered by the widely differing views of its diverse members, split between big consumers and producers.

A senior Brazilian government official said that only a major food crisis would raise pressure on the G20 to call for intervention in physical commodity markets, something countries such as the United States and Canada typically oppose.

"If we do have a meeting, I don't think we can have anything more than a recommendation coming out of it," said the official who declined to be named because he was not allowed to speak publicly. "The forum has no powers to impose certain policies or decisions on its members."

Benchmark Chicago corn rose to an all-time high on Friday after the U.S. Department of Agriculture cut its production estimate 17 percent.

The United States uses 40 percent of its corn crop to produce ethanol, drawing criticism for using food for fuel when hunger is widespread in some poorer countries.

"They (G20) might talk about the U.S. ethanol mandate requirements, but I don't see them making any massive responses at the moment. They don't have a lot of tools at their disposal," said analyst Muktadir Ur Rahman Of Capital Economics.

The U.N.'s food agency stepped up pressure on the United States on Friday to change its biofuel policies, arguing it was more important to grow crops for food rather than fuel.

The U.N. Food and Agriculture Organisation's food index jumped 6 percent in July to higher than in 2008 and the FAO warned against the kind of export bans, tariffs and buying binges that worsened the surge four years ago.

EU BIOFUELS VERSUS FOOD

The European Commission has also faced extensive criticism of its biofuel policy for using land otherwise devoted to food crops. Scientists have also argued that the policy fails to achieve its environmental goals.

A French agriculture ministry official said countries on the conference the call would decide whether to convene the first meeting of the Rapid Response Forum. The body was created last year to promote early discussion among decision-makers about abnormal market conditions, with the aim of avoiding unilateral action.

"If the situation requires it, a meeting of the Rapid Response Forum could be called as soon as the start of September," the official said, adding that the forum could hold its discussions in person or by a conference call.

A Commission spokesman said its agriculture department was "following the situation on a daily basis" and that the Commission would be involved should the G20's Rapid Response Forum decide to meet.

"Silos are full. There are absolutely no shortages in Europe," he added.

Joseph Glauber, chief economist at the U.S. Department of Agriculture, echoed this view.

"The good news is that global wheat and rice stocks are more plentiful than in 2007/08, but less corn and soybean meal means more wheat feeding (to livestock)," he said.

Glauber said there had been "discussions" about possibly convening a Forum meeting at the same time as a regularly planned gathering in October.

BIOFUEL PRESSURE RISES

Charity Oxfam is among the groups campaigning for ministers to agree on beginning to abolish mandates and targets for biofuel production both in the EU and in the United States.

"In 2011, 11 intergovernmental agencies produced a report to the G20 where it unequivocally said there was a link between increasing biofuels production and food price rises and recommended quite clearly that biofuels mandates and targets should be scrapped," said Hannah Stoddart, head of economic justice at Oxfam Great Britain.

France, the United States and Mexico will discuss a report on agricultural prices requested by France last month and compiled by the Agricultural Market Information System (AMIS). This system, created last year under France's presidency of the G20, is designed to share information on crop prices with a view to averting a repetition of the 2008 food crisis.

France currently presides over both the forum and the AMIS system, which is based at the FAO in Rome. The United States will take the reins in October.

"France ... and the United States remain attentive to any new fact that could justify a meeting of the Rapid Response Forum," French Agricultural Minister Stephane Le Foll said in a statement on Monday.

The forum has no power to impose binding decisions on member states, but it is hoped that discussion can discourage countries from taking unilateral action.

Russia banned grain exports for almost a year after a severe drought two years ago. Weather problems this year have fueled speculation it could resort to export curbs again. However, French officials have said that Russia has given reassuring indicators in contacts through the AMIS system.

"The aim is to talk about the situation and avoid measures like export embargoes, which would be damaging for everyone," the French official said.

Flashback: Food Speculation by Hedge Funds, Pension Funds and Investment Banks Prompt Further Inflation; Much Cooler-than-normal Water Temperatures in the Pacific, Which Traditionally Lead to Extreme Weather Around the World, Add to Food Price Uncertainties

The Triple Crown of Global Cooling:

1. Cooling North Pacific sea surface temperatures (Pacific Decadal Oscillation or PDO),
2. Extremely low solar activity, and
3. Increased volcanic eruptions.

Worldwide Food Crisis Looms as Forecasters Predict Record High Prices

October 29, 2010

Prevent Disease - Rising food prices and shortages could cause instability in many countries as the cost of staple foods and vegetables reached their highest levels in two years, with scientists predicting further widespread droughts and floods.

Although food stocks are generally good despite much of this year’s harvests being wiped out in Pakistan and Russia, sugar and rice remain at a record price.

Global wheat and maize prices recently jumped nearly 30% in a few weeks while meat prices are at 20-year highs, according to the key Reuters-Jefferies commodity price indicator. Last week, the US predicted that global wheat harvests would be 30m tonnes lower than last year, a 5.5% fall. Meanwhile, the price of tomatoes in Egypt, garlic in China and bread in Pakistan are at near-record levels.

“The situation has deteriorated since September,” said Abdolreza Abbassian of the UN food and agriculture organisation. “In the last few weeks there have been signs we are heading the same way as in 2008.

“We may not get to the prices of 2008 but this time they could stay high much longer.”

Former U.N. Secretary-General Kofi Annan said more protests in other developing nations appear likely.

“We are going through a very serious crisis and we are going to see lots of food strikes and demonstrations,” Annan told reporters in Geneva.

However, opinions are sharply divided over whether these prices signal a world food crisis like the one in 2008 that helped cause riots in 25 countries, or simply reflect volatility in global commodity markets as countries claw their way through recession.

“A food crisis on the scale of two or three years ago is not imminent, but the underlying causes [of what happened then] are still there,” said Chris Leather, Oxfam’s food policy adviser.

“Prices are volatile and there is a lot of nervousness in the market. There are big differences between now and 2008. Harvests are generally better, global food stocks are better.”

But other analysts highlight the food riots in Mozambique that killed 12 people last month and claim that spiraling prices could promote further political turmoil.

They say this is particularly possible if the price of oil jumps, if there are further climatic shocks – such as the floods in Pakistan or the heatwave in Russia – or if speculators buy deeper into global food markets.

“There is growing concern among countries about continuing volatility and uncertainty in food markets,” said Robert Zoellick, president of the World Bank. “These concerns have been compounded by recent increases in grain prices.

“World food price volatility remains significant and in some countries, the volatility is adding to already higher local food prices.”

The bank last week said that food price volatility would last a further five years, and asked governments to contribute to a crisis fund after requests for more than $1bn (£635m) from developing countries were made.

“The food riots in Mozambique can be repeated anywhere in the coming years,” said Devinder Sharma, a leading Indian food analyst.

“Unless the world encourages developing countries to become self-sufficient in food grains, the threat of impending food riots will remain hanging over nations.

“The UN has expressed concern, but there is no effort to remove the imbalances in the food management system that is responsible for the crisis.”

Mounting anger has greeted food price inflation of 21% in Egypt in the last year, along with 17% rises in India and similar amounts in many other countries. Prices in the UK have risen 22% in three years.

The governments of Kenya, Uganda, Nigeria, Indonesia, Brazil and the Philippines have all warned of possible food shortages next year, citing floods and droughts in 2010, expected extreme weather next year, and speculation by traders who are buying up food stocks for release when prices rise.

Food prices worldwide are not yet at the same level as 2008, but the UN’s food price index rose 5% last month and now stands at its highest level in two years.

World wheat and maize prices have risen 57%, rice 45% and sugar 55% over the last six months and soybeans are at their highest price for 16 months.

UN special rapporteur on the right to food, Olivier de Schutter, says a combination of environmental degradation, urbanization and large-scale land acquisitions by foreign investors for biofuels is squeezing land suitable for agriculture.

“Worldwide, 5m to 10m hectares of agricultural land are being lost annually due to severe degradation and another 19.5m are lost for industrial uses and urbanization,” he says in a new report.

“But the pressure on land resulting from these factors has been boosted in recent years by policies favouring large-scale industrial plantations.

“According to the World Bank, more than one-third of large-scale land acquisitions are intended to produce agrofuels.”

But the World Development Movement (WDM) in London warned that food speculation by hedge funds, pension funds and investment banks was likely to prompt further inflation.

According to the US Commodity Futures Trading Commission, speculators on the trading floor of the Chicago Exchange bought futures contracts for about 40m tonnes of maize and 6m tonnes of wheat in the summer.

Longtime hedge fund manager Mike Masters, who has worked with WDM, said:

“Because there is already much more capital available in the world than hard commodities, speculators can increase the price of consumable commodities, like foodstuffs or energy, much higher than traditional consumers and producers can react.

“When derivative markets are linked to commodity markets, this nearly unlimited capital from the financial sector can cause excessive price volatility.”

US government reports of much cooler-than-normal water temperatures in the Pacific, which traditionally lead to extreme weather around the world, last week added to food price uncertainties.

Read More...

Oil Speculators Must Be Stopped

A more likely influence on modern thinking is due to Hubbert’s Peak Oil Theory introduced in 1954. It has figured prominently in the ecological/environmental movement. In fact, the entire global warming movement indirectly sits on top of the Hubbert Peak Theory. - Carbon Currency to Replace All Paper Currencies, Limiting Manufacturing, Food Production and People Movement

Here's the problem: The investment banks (Morgan Stanley, JP Morgan, Goldman Sachs, etc.) used to lend money to Merchants Producers End Users and Speculators (companies/individuals that use the resources to make products using commodities), which allowed supply and demand to work. But in 2002 Congress passed laws that allowed the investment banks to trade commodities for themselves, so they bought warehouse storage tanks, leased ships themselves, etc. The Federal Reserve, which is owned by the banks, gave them unlimited funds with which they now control the markets. The people are getting screwed by this arrangement and it must end. THE GLASS Steagall ACT must be brought back along with contract limits on positions, and the Volker RULE must be enforced or THE BANKSTERS will rob us all. The banksters need JAIL TIME NOW. - William H., Oil Speculation Imposes “the Most Insidious Tax” on Americans

Oil Speculators Must Be Stopped and the CFTC “Needs to Obey the Law”: Sen. Bernie Sanders

April 16, 2012

The Daily Ticket - The recent rise in gasoline prices has prompted Congressional hearings and a call to federal regulators to curb what many see as the cause for the spike: oil speculators.

A House subcommittee held a hearing on "The American Energy Initiative" Wednesday morning that focused solely on rising pump prices. Seventy members of Congress signed a letter this week to regulators at the Commodity Futures Trading Commission (CFTC), urging immediate action on oil speculation by enacting "strong position limits" and to "utilize all authorities available to…make sure that the price of oil and gasoline reflects the fundamentals of supply and demand."

The CFTC was given authority in the Dodd-Frank Wall Street Reform and Consumer Protection Act to impose position caps on oil traders beginning in January 2011. These limits have not yet been implemented by the CFTC. In an interview Wednesday with The Daily Ticker, Sen. Bernie Sanders (I-VT) says the CFTC doesn't "have the will" to enact these limits and "needs to obey the law."

"What we need to do is…limit the amount of oil any one company can control on the oil futures market," says Sanders, who has long advocated limits on speculation. "The function of these speculators is not to use oil but to make profits from speculation, drive prices up and sell."

The average price of a gallon of gasoline in the U.S. has increased nearly 30 cents in one month according to the AAA's Daily Fuel Gauge Report. U.S. oil prices have jumped more than six percent since Feb. 1 even though oil demand in the U.S. is at its lowest level since April 2007. The International Energy Agency (IEA) reported that the world's oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased just 0.7 million barrels per day during that same time period.

This is not the first time oil speculators have been blamed for higher energy prices. In 2008 U.S. oil prices skyrocketed to $145 per barrel and gasoline prices averaged well above $4 per gallon. There were calls to increase domestic offshore drilling and legislation was proposed that would have required buyers of oil to physically own and store the oil barrels. Then the 2008 financial crisis hit causing oil and gasoline prices to plummet.

Blaming the speculators may seem like scapegoating to some (namely, oil traders) but speculators control more than 80 percent of the energy futures market, up from 30 percent a decade ago, and there is mounting evidence that speculation contributes to higher prices:

• At a Senate hearing last June, Rex Tillerson, the CEO of ExxonMobil, said speculation was driving up the price of a barrel of oil by as much as 40 percent.
• A study conducted by the nonpartisan consumer advocacy group Consumer Federation of America found that speculation caused the average American household to spend an additional $600 on gasoline expenditures in 2011. Moreover, the report concluded that excessive speculation (which the organization estimated added about $30 per barrel to the cost of oil in 2011) drained the U.S. economy of more than $200 billion in consumer spending in 2011.
• The St. Louis Federal Reserve has also recommended that the CFTC do more to prevent oil speculators from driving up the price of oil. Fed officials studied the effect of oil traders on the price oil over five years and determined that "speculation contributed to around 15 percent to oil prices increases."
• CFTC Chair Gary Gensler declared last year that "huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices."

There are many components reflected in the current price of oil, including old-fashioned supply and demand and geopolitical factors (such as a possible attack on Iran). Rising gasoline prices are a huge pocketbook issue for many Americans, a reason alone for politicians to focus on the role of the speculators.

President Obama Targets Oil Speculators: Another Election Ploy?

April 16, 2012

The Daily Ticker - President Obama today raised the ante on his efforts to limit the rise in oil prices. The president, joined by Treasury Secretary Tim Geithner and Attorney General Eric Holder, called on Congress to adopt tougher rules on speculators in the oil market.

"We can't afford a situation where some speculators can reap millions while millions of American families get the short end of the stick," President Obama said.

The president's $52 million proposal would stiffen penalties for firms found to manipulate markets and raise the amount of money traders would have to put up to back their positions. It would also beef up the enforcement staff of the Commodity Futures Trading Commission and increase spending on technology to oversee and monitor energy markets.

Read More...

Price of Basic Purchases, Such as Food and Fuel, Soared 43 Percent Since 2000

Utilizing the actual alternative data, prices have soared over 50% for essentials like food and gas in the last ten years. In normal times the price inflation could be ignored, as wages would adjust somewhat accordingly and employment would be plentiful. But the last decade has been anything but normal, and what’s actually happening is that our wealth is being deliberately and progressively transferred into the hands of government and the corporate elite. Most essential assets like food, firearms and tools will not only retain their value, but increase it – and if stored and maintained properly, they’ll be available for use many years down the road. So, while most Americans are scrambling to the perceived safety of things like cash, blue chip stocks and US Treasury bonds, leaving themselves at risk because those assets are denominated in dollars and require exchanges to operate, you can become your own central bank and commodities warehouse by investing in assets such as the 11 foods that last a lifetime and other post-collapse barter items and trade skills that will maintain their inherent value when other traditional assets become worthless. - Mac Slavo, We’ve Been Impoverished & It’s Only Going to Get A Whole Lot Worse, SHTFPlan.com, December 30, 2011

Bill for Basket of Essentials Soars 43 Percent in Ten Years

December 27, 2011

Daily Mail - Ordinary families have been crippled by the rocketing cost of essential goods over the past decade, a report has found.

The price of basic purchases, such as food and fuel, soared by 43 per cent over the decade from 2000.

These rising costs – far above general inflation – have already wiped out most of the gains in living standards made by families on low and modest incomes in the early 2000s, before the downturn began, according to research.

The analysis, commissioned by the Resolution Foundation think-tank, revealed the squeeze on living standards for ordinary households has been more severe than previously thought.

It found 30 per cent of working-age households now have incomes too low to afford the essential basket of goods.

It also showed that Labour’s stewardship of the economy may not have benefited ordinary families as much as the party had claimed.

Some household costs increased even more dramatically than the 43 per cent average, according to the study.

Household fuel more than doubled in price during the 2000s and water bills increased by 63 per cent, it said.

Report author Donald Hirsch, from the Centre for Research in Social Policy at Loughborough University, said:

‘This research shows the dramatic impact recent price increases have had on the ability of households to afford a minimum standard of living.

‘Of course, global pressures on prices are largely beyond our control.

‘But that makes it all the more important that we do all we can to reduce pressures in areas where we can make a difference, such as transport costs, council tax and energy prices.’

The analysis is based on the commonly accepted essential basket of goods, which includes food, fuel, public transport and very occasional treats for families with children.

The official inflation measure, the Consumer Price Index, takes into account a wider basket of goods. Over the decade to 2010, CPI was 27 per cent.

Gavin Kelly, chief executive of the Resolution Foundation, said:

‘The fact that the rising cost of essential goods and services has outstripped official measures of inflation helps explain the disconnect many hard-pressed households have long felt between their own stagnating living standards and the growing affluence they see around them.’

Meanwhile, it has emerged that demand for frozen meals has rocketed among cash-strapped Britons desperate to cut their grocery bills and produce popular family meals for less. The latest market data has revealed that the frozen food retail market has grown by 5.2 per cent since 2010, according to analysts Kantar Worldpanel. Volume sales of frozen meat and poultry are up 5.5 per cent, pizza by 3.6 per cent and frozen fish by 3.4 per cent.

Brian Young, director general of the British Frozen Food Federation, told The Grocer magazine:

‘In times of economic uncertainty choosing frozen meat and poultry allows consumers to make their favourite meals and foods at a much lower price point. ’

Higher Transportation Costs and Rising Commodity Prices Blamed for 40% Increase in Food Prices

5 Groceries Going Up In Price This Summer

As food prices continue to rise, while our salaries do not, more and more American's will feel the pinch. Next year the United States and the world need to have a bumper crop, or we could see food costs spiraling out of control and many families struggling to keep the cupboards well stocked.

July 13, 2011

Investopedia - Across the globe food prices have been rising sharply, by 37% in the past year, according to a recent Bloomberg report, and grocery prices in our stores are following suit. Higher transportation costs and rising commodity prices are being blamed for the increases in food prices that we are witnessing in our stores.

As food prices continue to rise, while our salaries do not, more and more American's will feel the pinch. We look at which items in our grocery baskets are going up in price, and wonder what is causing this dramatic spike in food costs.

1. Wheat

Wheat production is expected to be lower this year than it has been in the last two years, according to government estimates. The biggest wheat producers -- China, India and Russia -- suffered severe weather last year which damaged their crop. Russia was also devastated with fires, destroying wheat exports and prompting the country to ban exports.

The simple law of supply and demand has come into play, and at present the demand for wheat outstrips production, so the price continues to be pushed upwards.

Even Kelloggs, the cereal giant, is passing the rising raw material price onto the consumer, by bumping up its prices and says that it expects the cost of a box of cereal to continue to climb.

2. Corn

The price of corn touched a record high of almost $8 a bushel earlier this month, amid some of the tightest supply, demand conditions ever seen.

Corn has also been affected by the severe weather that has hit the wheat crops, whilst European farmers are contending with the driest growing conditions in three decades.

But it is not just weather conditions that are affecting the cost of corn; U. S. economic policies are also playing their part. About a sixth of global production of corn is now converted to ethanol -- a biofuel. The United States spends about $6 billion a year on federal support for ethanol production. Thanks to this financial assistance, one-sixth of the world's corn supply is burned in American cars. That is enough corn to feed 350 million people for an entire year.

3. Meat

Livestock is fed on a diet of corn, so the high price of corn is driving up the cost of feeding the animals, which is in turn driving up the cost of meat.

Also, cattle herd sizes in the United States are at their lowest levels in 53 years, as high feed costs led beef producers to slaughter many of their animals to take advantage of the higher prices for their produce. This creates the problem of supply and demand, especially as many farmers are seeing raising feed-costs as a big concern for the future. As long as the price for corn keeps growing, livestock farmers will be discouraged from expanding their herds.

4. Dairy

Of course, if the cost of rearing animals has risen, then by default the cost of dairy products has risen too. Wholesale cheddar cheese prices are up about 25% from the end of 2010, an increase comparable with the 23% rise in the price of crude oil. Butter has gone up even more, rising about 45% in the wholesale markets since last fall.

But there is another factor in the rising cost of our dairy goods: a 48% increase in exports in the first quarter of this year compared with the same period last year.

5. Coffee

Coffee price increases show no signs of easing in the near future due to issues on both the supply and demand sides of the equation. The price of the beans is now at a 13-year high. Colombia has had a few years of weak coffee harvests because of too much rain, which has seriously reduced the global supply.

Earlier this year even Starbucks, who had previously said they would not pass the coffee bean price-rise onto customers, have had to increase their prices. But coffee drinkers keep buying coffee, even as prices rise -- so it seems the demand is inelastic!

The Future of Food

Cutting back has become a necessity for many American families during this recession, but worryingly it seems that many American homes are struggling to cope with the rising food costs, According to Feeding America's 2010 hunger study, more than 37 million Americans are now being served by food pantries and soup kitchens.

Next year the United States and the world need to have a bumper crop, or we could see food costs spiraling out of control and many families struggling to keep the cupboards well stocked. 

Pension Funds Investing in Commodities are Fueling Food Inflation

Pension Funds Mull Ethics of Commodity Investments

June 22, 2011 

Reuters - Some pension funds are beginning to question their investments in commodities after accusations that massive flows into the sector have distorted markets, fueled food inflation and hurt poor nations.

The role of hot money in commodities has unnerved some investors following high profile campaigns by pressure groups and French President Nicolas Sarkozy linking surging grain and fuel prices to a rise in poverty in developing countries.

"The last thing they want to do is to be on the other side of a trade to a starving person in Africa," said a source in the fund management industry in London who has noted an increase in concern about the issue but declined to be named.

France is due to press for tough new regulations on commodity speculation at the first ever summit of agriculture ministers of the G20 group of top economies this week.

Many fund managers have stuck to the view that a near 40 percent rise in global food prices over the past 12 months as measured by the UN Food and Agriculture Organisation is being driven by short supplies and burgeoning demand, not speculation.

But worries are increasing that billions of dollars of fresh investment from pension and hedge funds may be exaggerating swings in prices and creating excessive volatility.

One fund concerned about a possible link between commodity investment and spiraling food prices is Dutch pension fund PME, which manages over 20 billion euros ($28.69 billion) for workers from the metal engineering sector.

"PME is thinking very seriously about the effects of its commodity investments and has to weigh different interests," a PME spokeswoman said.

"Naturally, it looks very closely at the social effects of its investments, such as the possible contribution to increased poverty. So far this effect has not been proven in our view."

According to Barclays Capital, which has been at the forefront of selling investments linked to commodities, such as index swaps and exchange traded products, total money in those type of products have ballooned to over $400 billion.

The UK's 27 billion pound ($43.82 billion) Royal Mail Pension Plan has previously considered investing in commodities, but decided to avoid the asset class for strategic reasons.

"With all the media coverage now, relating to 'cornering the market', if we had invested I am sure we would have had to consider our position," said Gerry Degaute, chief executive to the board of trustees overseeing the scheme.

GENEVA MEETING

Another sign of the growing interest was a meeting of pension funds in Geneva last week to look at ethical issues regarding investments in food and commodities, said Karina Litvack, the head of sustainable investment at fund manager Foreign & Colonial. While she does not blame speculation for high prices, Litvack said in a recent interview that there are legitimate concerns about volatility.

Fund managers that specialize in sustainable investments are probing whether they can exercise enough influence when investing in financial instruments linked to commodity funds, said Penny Shepherd, chief executive of UK Sustainable Investment and Finance.

"That's one of the dilemmas around investing in something like a commodity index compared with let's say investing in an investment opportunity like a sustainable forestry fund or a responsibly managed agriculture fund," she told Reuters.

Sharp swings in volatility that may be caused by an excess of speculative money is also an issue for long-term investors such as pension funds and ethical funds, Shepherd added.

Some pension funds flatly reject arguments that their commodity investments may be harmful.

Dutch asset manager APG, which manages the assets of the world's third-largest state pension fund ABP and other funds, said its food and energy investments did not have an upward price effect because its allocation had been stable for many years at around 4 percent of total investments. APG managed 272 billion euros at the end of 2010.

"Institutional investors often have a cushioning effect on prices, both upwards and downwards. If prices rise too strongly they are often the parties who sell on a net basis to make sure their allocation to commodities won't be too large," an APG spokesman said.

The largest U.S. pension fund, Calpers, has about $2.8 billion invested in commodities and said it may boost active investments in the sector.

"This thing surfaces every time commodities get going and prices go up... politicians get involved and they accuse investors of pumping it up," a Calpers spokesman said.

"We've actually testified on the issue, cited all kinds of reports, some of them federal reports, showing that this is a market issue, stemming mainly from supply-demand."

Finland's Keva, which manages local government pensions, said it was not worried about its commodity investments of about 220 million euros, or about 0.8 percent of total capital, because it did not regard index investments as speculation.

The UK's Universities Superannuation Scheme, with about 32 billion pounds of assets, agreed investment may push up futures prices in the short term, but argued this may be beneficial.

"This could allow producers to hedge future output at higher prices, encouraging more investment and more output, and may encourage more storage, helping to keep prices down and to dampen the effects of negative supply shocks such as drought," said Roger Gray, chief investment officer.