[apologies for taking so long, just couldn't type this on my mobile during the day]
The foreign policy piece is a pretty standard "blame the speculator" article, which seems to come up any time there is a bubble in any market. That isn't to say there aren't speculators, and that isn't to say they don't affect prices...but I don't really trust anyone who tells me that they can predict market outcomes ex-post by removing (ex-post) a large number of participants of said market.
There are problems with many markets: insiders, collusion, barriers to entry and regulation and deregulation. (Dear OWS: Please look at the BNY Mellon Case, the same kind of thing goes on at just about every major FX desk out there); but a relatively open market is much better than a group of insiders controlling things.
The article suggests that things were just fine in Ye Old Market Of Futures, where bearded grain millers and farmers wearing straw hats went about their daily exchanges, all in the name of keeping stable prices for consumers. Do you believe this fairytale?
The futures market was motivated by the fact that millers want their expensive machinery to keep running and making money. A miller books a contract for physical delivery of wheat with a chosen producer (somehow I doubt that this part of the process is free of all sorts of insidious business type things), and goes long a wheat delivery contract at the futures market. In this way he "borrows" wheat, instead of borrowing money from the bank, selling flour and paying it back to the bank. Of course, he has no intention of delivering wheat to the clearing house so he rolls his contract forward.
Price movements (up or down) have complicated effects on producer margins (sometimes good sometimes bad), articles like these make it sound as if everyone just "hedges" no one has to worry about any sort of risk.
Sure you can use a futures contract to hedge risk, but that's not why futures contract came about. It would be a lot like saying people mine gold so they can hedge stock.
This is getting too long, so allow me to pick up a few key sentences where I can see that the author is trying to play the reader for a fool:
"Not only did a grain "future" help to keep the price of a loaf of bread at the bakery -- or later, the supermarket -- stable, but the market allowed farmers to hedge against lean times, and to invest in their farms and businesses. "
B.S. He even admits to a "hiccup or two"...
""I make a living off the dumb money," commodity trader Emil van Essen told Businessweek last year."
Many Wall St. traders make money of of institutional flows and overcharge many of their clients on a daily basis, this quote could have come from anyone, in fact this is why statistical arbitrage is profitable and why people spend a lot of time on execution methods. Ripping clients off isn't a unique characteristic of the financial sector, I just consider it synonymous with the word "business".
""You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture told me. In the first 55 days of 2008, speculators poured billion into commodity markets, and by July, 8 billion was roiling the markets. Food inflation has remained steady since."
Causation, correlation...it isn't easy to figure that out here. The quote is meant to suggest that there were just a bunch new dumb people that decided to buy #2 wheat....it really misrepresents the situation. How much is does one have to know about wheat in order to be able to buy a futures contract on it? Perhaps he should have a degree in wheatology?
"Not only does the world's food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures"
The article does not establish the existence of this artificial pull, and no one has to my knowledge.
"One phone call to a bona-fide hedger like Cargill or Archer Daniels Midland and one secret swap of assets, and a bank's stake in the futures market is indistinguishable from that of an international wheat buyer. "
Cargill and ADM have very sophisticated trading floors of their own (and hire many of the people that work on desks on wall st.). But we should leave the Serious Business of food to bona-fides like these good chaps, right? Watch "The Informant!".
"All the while, the index funds continue to prosper, the bankers pocket the profits, and the world's poor teeter on the brink of starvation."
As far as I know, a big chunk of the world has been teetering on starvation since time began. We could just turn the entire population of America into farmers, divert all energy to food production and give away farming technology and techniques to fix the problem for good. But we don't do that, do we? Why?