Next Bubble to Burst: Global Food Markets

April 28, 2011

By Matt Hoffman
 
Zero Hedge posted a great article today highlighting CME’s recent increase in trading limits on corn.   ZH speculates that CME sees falling margin hikes and seeks to set ‘a bigger mousetrap’, to paint pictures of massive windfalls, and creature greater volatility (i.e. more trades….more $ for CME).  Tyler Durden warns that all other commodites (read food goods) ought to follow suit shortly.  What’s that mean for the rest of the world?
After digging around a bit, I ran in to a telling piece written by Bertrand Munier, French professor and Chief Economist of global ag think-tank Momagri.  In it, Munier takes up some misguided axioms attached to recent food price increases and he underlines the market volatility caused by ‘financialization’ as the true cause of price fluctuation.
Munier cites the “Commodity Futures Modernization Act”  as the touchstone for the change in behavior in the commodities markets.   Guess who made up President Clinton’s Presidential Working Group on Financial Markets Presidential Working Group on Financial Markets : usual suspects Larry Summers, Alan Greenspan, Arthur Levitt, and Bill Ranier. 
The French economist says that President Clinton’s last major act of market deregulation turned commodities in to an expectation game based upon “psychological attitudes”.  For example, global wheat prices shot the moon as Medved recently announced that he would limit Russian wheat exports.  Here the focus has shifted from actual supply v. demand to anticipated supply and demand. 
I’m no economist but it seems the same champions of deregulation who brought you the mortgage crisis and the bank bailouts are hard at work ensuring we see a similar volatile tone in the food goods markets.  Global hunger in the name of increased fees and earnings off commodities trades?  When moral hazard strikes the food supply, it’s akin to a declaration of war.