Volatility in food and agricultural commodities prices has become a permanent feature of global markets due to speculative trading, leaders of businesses in the sector said Nov. 13.
Food prices spiked in 2008 due to a rally in agricultural commodities, triggering riots in poor countries and panic buying in rich nations. Prices have fallen back since than but have remained volatile and are hovering well above 2006 levels.
Corn futures on the Chicago Board of Trade hit a record high of $7.65 per bushel last year before falling below $3 last December. This year, corn has traded in an historically wide range between about $3 and $4.50.
Soybeans peaked at $16.63 a bushel last year, plunged below $8 in December, and have traded between about $8.40 and $12.90 this year.
Balance between supply and demand on grain markets, which had kept prices relatively stable over the past few decades, has been upset by increased consumer demand, especially in Asia, and by growing bioenergy demand, the chairman of the world’s biggest food group, Nestlé, said.
Then speculative traders piled in and fuelled volatility, Nestle’s Peter Brabeck told reporters at a private sector conference on food security ahead of a food summit in Rome last week.
“The market has become much more volatile, because you have so much speculation in it… I think this has become a permanent shift,” Brabeck said.
Free international trade, without artificial barriers aimed at ensuring food self-sufficiency in separate countries, is the way to bring surpluses to places with food deficits, Paul Naar, vice-president of U.S. agribusiness giant Cargill told the conference.
Henri Rieux, vice-president for Corporate Affairs in Europe at agribusiness giant Bunge, said volatility “has become inherent to the markets” and some regulation could be useful to rein in speculative trade.
Nestlé’s Brabeck said it was up to politicians to work out a mechanism to stabilise agricultural commodities prices.
“It would be very difficult to find a stabilizing system that can counterweigh this enormous amount of money that is coming into the market,” he said, referring to speculative flows.
A final draft declaration, expected to be signed at the summit last week and seen by Reuters, says world leaders will “consider non market-distorting international measures to mitigate the impact of food market volatility on the poor.” It did not elaborate.
The draft says the leaders will ask international organizations to examine “whether a system of stockholding can be effective” in dealing with price volatility and humanitarian emergencies – an idea touted by G8 agriculture ministers earlier this year.
French Farm Minister Bruno Le Maire said the draft declaration was insufficient and that Paris wanted firmer proposals on regulating global agricultural markets.
He cited development of future markets for those commodities that do not already have one, as well as the creation of regional grain stocks, as possible measures.