Goldman Sachs makes $1 billion profit on food price speculation

Discussion in 'Wall St. News' started by THE-BEAKER, Jul 19, 2010.




    'Risky and secretive' gambling on the price of coffee, cocoa and wheat is leading to unstable food prices and exacerbating poverty and malnutrition but creating billions of pounds for the banking sector

    Banks such Goldman Sachs are making huge profits by gambling on the prices of key commodity crops such as coffee, cocoa and wheat, according to the campaign group the World Development Movement (WDM).

    By creating funds to allow investors to speculate on the price of food, in the same way they would invest in the shares of a company, banks are able to bet on the price of food.

    However this is leading to higher and more volatile prices which make it more difficult for farmers to plan and invest and also lead to damaging price rises - such as those witnessed in 2007/8 - which hit the poorest families in less industrialised countries hardest.

    Only last month, says WDM, the price of coffee jumped by 20 per cent in three days, after a trader called the bluff of hedge funds that had made millions by selling coffee contracts and betting on the price to fall. This left hedge funds scrambling to buy actual coffee beans, and the price shot up from the extra demand.

    'Nobody benefits from this kind of reckless gambling except a few City wheeler-dealers,' said WDM director Deborah Doane. 'British consumers suffer because it pushes up inflation, British companies suffer because of unpredictable oil and raw material prices, and the world's poorest people suffer because basic foods become unaffordable.'

    Main perpetrators

    The biggest banks involved in the trading are Bank of America, Citibank, Deutsche Bank, HSBC, Morgan Stanley and JP Morgan. Goldman Sachs alone is estimated to have made more than $1 billion from commodities trading in 2009.

    WDM's new report, 'The great hunger lottery', calls for limits to be set on the amount that bankers can bet on food prices and for an end to secretive trading. The US has recently passed tougher regulation for the financial sector but WDM says similar reforms in the EU may not be agreed because of opposition from the City of London and UK Treasury, which still denies speculation played a significant role in the 2007/8 price spikes.

    'Perhaps not coincidentally, London is host to the highest amount of commodity trading outside the United States. Recent opposition to EU regulation of hedge funds by the UK treasury shows that the UK government still gives a disproportionate voice to the financial sector at the expense of other sectors of the economy, and against the interests of citizens,' says the WDM report.
  2. Brilliant journalism and insights. Clearly the answer is to remove food from the public auction markets so price discovery is a closed-door process between the largest growers and processors.

    You should probably write to Obama and tell him yourself.
  3. Dogfish


    Wasn't the 2007/08 price spike caused by a bunch of eco hippies insisting everyone should be driving round on biofuels in the future anyway? :D

    The green movement caused it and now they complain, do they want oil slick free birds or cheap food? :confused:
  4. joneog


    Why was no one complaining when the evil speculators pushed the price down?

    So the price of Coffee and Cocoa are near multi-year highs and the price of corn is 50% below its 2008 high, wheat almost 60%, beans over 35%, rice 60%

    When sugar dropped %60 in 3 months I didn't hear anyone bitching...

    but I guess the diet of the world's poor consists solely of coffee and chocolate...
  5. S2007S


    That is one fucked up article, hearing that is just disgusting, GS is just filled with greed arent they. Just like oil went to $150 on nothing but "speculation" now they have to have there hand in food price speculation, when does it end? Oh I forgot never!!
  6. High oil prices benefited people in the middle East, Canada, Russia,...

    Aren't they entitled to a boom once in a while as well?
  7. S2007S



    Wait you are not serious are you?

    First off do you take notice of food prices or the price of a bagel, bag of chips or loaf of bread when you shop?

    Okay, now remember when wheat prices climbed to over $12 a bushel in 2008?

    Do you remember what happened to price of pizza, bagels and everything with wheat in it, they skyrocketed after wheat prices jumped to record levels in 2008, fast forward 2 years later, wheat prices have dropped over 50% however the price of pizza, bagels and all other items have remained inflated to the prices adjustment set in 2008 for the huge increase in wheat prices.

    I remember seeing news article clippings cut out and framed on counters at local pizza shops and delis saying the reason for the increase in their products was due to the increase prices of wheat, now fast forward to 2010 and walk into the same pizza shop, prices still remain high even though wheat has fallen over the last 2 years.

    Funny how quick they are to raise prices of food when commodity prices are skyrocketing but once commodity prices fall they don't even bother dropping the prices of their food whether its a bowl of pasta, quart of rice or a slice of pizza prices, have still remain high since 2008.

    Thats why no one cares when commodity prices drop because the inflated prices of everything we consume remains in an upward trend.
  8. joneog


    All of that is completely irrelevant to my post which was about speculators and commodity prices; your complaint seems to be with the food industry and those greedy bastards at your local deli/pizza place.

    Here's a chart of CPI for food - Crude foodstuffs/feedstuffs
    Here's a chart of CPI for food - Intermediate food/feed

    So I guess you should get into the business and take advantage of those margins.

    My point was don't blame speculators for pushing the raw food prices up, they can push them up as well as down. The price you pay at the store has to do with a whole host of other economic factors.

    Could it be that as the population explodes and a billion+ asians are pulled out of poverty - while the world embarks on a reflationary policy the likes of which we have never seen - food prices may rise at your local deli?
  9. ================
    Well cofee,cocoa is a luxury;
    hopefully they didnt drive up the price of wheat much .Actually wheat is quite low, but havent looked @ a wheat chart today.LOL

    Not much % on total profit;
    but $550 million/+ fine was lot on a % basis of that ''trade ''... with SEC.

    :cool:Wisdom is profitable to direct
  10. ammo


    is there a limit on the speculation, can they be long or short more wheat than whats physically expected to come to the market, i think this was the case in oil and presently the case in gold,after oil's heavy toll on the economy,i thought our fine upstanding elected officials in DC were mumbling about changing a few rules that they somehow restructured or overlooked
    #10     Jul 19, 2010