Following “momentum driven” algorithms that automatically determine when to buy or sell commodities at the most profitable moments as their prices rise and fall, a group of 10 major hedge funds bought up huge amounts of wheat, corn and soybeans in the months leading up to the Russian invasion of Ukraine. A new report now shows that in the first three months of 2022 alone, they were rewarded for this speculation with $1.9 billion in profits as prices soared after the invasion. And this speculation then led to further price hikes.
While price inflation for wheat was rising worldwide because of supply-chain disruptions following the pandemic, it is clear that the invasion worsened this trend, as Russia and Ukraine are two of the world’s largest grain producers. But best estimates are that while the decrease in production of wheat amounted to about 1% of the global crop, its prices spiked by at least 50%. This price spike came from not only a decrease in production, but also in the buying frenzy caused by these hedge funds that then drove up prices even further. Hence, when the companies began to sell, the prices they received were much higher than that at which they purchased, making them enormous profits.
One trade analyst explained it this way: “These funds can exacerbate the moves that we’ve seen, they can pile into a trade. And because they’re buying futures contracts, because they’re buying wheat, or buying coffee or buying corn, that buying interest will drive prices higher than where they might otherwise be. So for consumers who are buying pasta, or cereal, or anything made of wheat, in the spring of 2022 – they were paying higher prices because of momentum traders.”
In other words, it wasn’t only the invasion and the following slight decrease in overall wheat production that is responsible for rising food prices worldwide. The primary cause may have been this extremely profitable speculation.
At a time when as many as 828 million people (10% of the world’s population) are unsure of where their next meal is coming from, and global warming is likely to throw many more into similar circumstances, why is this acceptable?
We have enough food on this planet to feed everyone, yet it’s not equally distributed. And it’s owned by different people and businesses along the way from the ground to our plates, with each looking to profit for their role in getting it to us.
Food should not be a commodity for sale and profit. Hedge funds shouldn’t have any role in food or who gets it. And food should be free and available to all as needed. Why do we allow this madness to continue?