FOOD COMMODITY MARKETS

Pam Grey, Connie KwanCapital Markets, May 20, 2011

AGENDA

Brief History and Set-up Why are Markets not serving all

Stakeholders? Recommendations and Action

FOOD COMMODITY MARKETS

Spot

Forward

Futures

WHAT IS CONSIDERED A COMMODITY

FOOD STAKEHOLDERS

SETTING THE STAGE

Food is a basic human right.

Sustainable food commodity markets efficiently and effectively distribute global food supply and

serve all stakeholders.

WHY ARE MARKETS NOT SERVING ALL STAKEHOLDERS?

Product Uniformity Speculation

Hoarding Biofuels

Food Commodity Markets adversely select for mono-culture crops, threatening biodiversity and ecosystem resilience.

EVALUATION OF CROPPING IN BHORAJ, INDIA

Speculative trading creates the illusion of scarcity

SPECULATION: GOOD OR EVIL?

SPECULATION IS GOOD SPECULATION IS EVIL

Provides liquidity Physical goods follow real

demand/supply pattern at final sale

Speculation in all markets within historical norms

Supporters: Sanders & Irwin - Canadian

Journal of Agricultural Economics

Pirrong - WSJ

Drives up prices to end consumer

Futures prices failed to converge with cash prices (CME, 2009)

Disrupts farmers’ and grain merchants’ confidence in futures market

Supporters: Childs & Kiawu – USDA Robles, Torero & von Braun – Intl

Food Policy Research Institute Levin – US Senate Sub-committee

HOARDING

Commodity Traders

Control the Market

Onion Futures Act

Hoarding: Limiting or banning exports can significantly affect

market prices

Biofuels divert valuable food stocks to fuel

BIOFUEL

Increased Demand

70% of the Increase

10.76 Billion Gallons

Tax Incentive

RECOMMENDATIONS

Market Changes Raising Margins Eliminating Long Contracts Increase Spot Markets Increase Grain Reserve

Actions Letter to Commodity Futures Trading

Commission (CFTC) Robin Hood Tax Social Programs

MARKET CHANGES

Market Changes Raising Margins Eliminating Long

Contracts Strengthening Spot

Markets

LETTER TO CFTC

Limit speculative activity Membership requirement for

participating

Help Senator Carl Levin support section 737 of the Dodd-Frank

ROBIN HOOD TAX

Combination Financial Transaction Tax (FTT), bank levy and The Financial Activities Tax (FAT) 0.05% from international

bankers’ transactions 0.01% from currency

transactions Raises £20 billion

annually in the UK alone

SOCIAL PROGRAMS

Group Food Fund Governments, Non-profits, Grad students! Balanced Portfolio to hedge against food

prices Insurance

Scaled deployment

Food is a basic human right.

REFERENCES