Sunday, February 5, 2023
No Result
View All Result
  • Media
Support Us
Macdonald-Laurier Institute
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
No Result
View All Result
Macdonald-Laurier Institute

MLI author Larry Martin in Postmedia: Fundamentals, not speculation, drive higher commodity prices

December 10, 2012
in Agriculture and Agri-Food, Domestic Policy Program, In the Media, Latest News
Reading Time: 4 mins read
A A

December 10, 2012 – MLI author Larry Martin, a Canadian risk management expert in the agri-food sector, says fundamentals, not speculation, are responsible for higher commodity prices in an op-ed for the Vancouver Sun today. The op-ed is based on his MLI Commentary, Are Higher Commodity Prices driven by Speculation or Fundamentals?, published in November. His full op-ed is copied below and is republished in the Ottawa Citizen, Calgary Herald, Montreal Gazette, Edmonton Journal, Saskatoon’s StarPhoenix, Regina’s Leader-Post, Windsor Star, BC’s The Province, Victoria’s Times Colonist and Canada.com.

 

Fundamentals, not speculation, drive higher commodity prices

By Larry Martin, Vancouver Sun, December 10, 2012

It never fails. Each time commodity prices rise, there are calls for more curbs on speculation. Non-governmental organizations (NGOs) like UNCTAD have attributed much of the recent increase in food prices to speculation, and former French president Nicolas Sarkozy made the issue a priority for the G20 agenda in 2011. The latest instance was this summer’s run-up in food prices as a result of the severe drought in parts of North America.

While there are many factors that affect grain prices, a very basic one is the stockholding behaviour of the world grain processing industry. This industry has moved to almost exclusively receiving just-in-time shipments of their raw material: They don’t like to have capital tied up in grain storage facilities and inventory, and buy grain as needed to keep costs down.

But what happens when there is not much product in inventory and an apparent shortage? Grain processors become concerned about security of supply and buy a little extra just in case. Some may call this hoarding, but I would call it prudent risk management to make sure their plants stay open.

Whatever it is, the effect is to increase prices – and the lower the inventories and the more just-in-case buying, the higher prices will rise.

An interesting aspect of all the price spikes in recent years is they occurred during the growing season and were relatively short-lived because, invariably, the shortages turned out to be overstated. When production and inventories exceed expectations, how do the just-in-case purchasers respond? Naturally, they buy less, because they had already made their purchases and now return to their normal just-in-time behaviour. Reduced demand has the effect of lowering prices. The more they had bought ahead of the harvest, the greater the downward pressure on prices.

The same phenomenon is occurring this year. While some blame speculators, serious analysts see the market simply doing its job of rationing lower supply. Many people note commodity price volatility has risen along with more speculation, and draw a link between the two. This confuses correlation and causation.

The real reason for greater volatility in food prices is the trend toward lower grain inventories. This is caused by burgeoning demand in emerging economies as well as from bio-fuels, which farmers are struggling to keep up with.

Economists who specialize in commodities find current prices are in line with what is required to ration a very small drought-reduced crop. Markets set the price that will keep the supply from running out. While speculation can have a short-term impact on prices, the evidence is clear that fundamentals drive markets in the long run.

It is not helpful to address agricultural issues with superficial thinking. According to the simple view, curbing speculation would have avoided high prices. Exactly how would reining in speculators insulate us from the inevitable price effects of the worst drought in a century? And how are farmers going to take advantage of higher prices if there are no speculators to take the opposite side of the farmers’ or grain handlers’ hedges? They would be latent sellers left without buyers. The worst problems and the most volatility are in commodity markets with too little speculation to provide the liquidity that hedgers need.

Perhaps more importantly, what if policy-makers actually heed the argument against speculators? In a world with real problems, how much harm can be done with bad solutions – in this case, by potentially jeopardizing the liquidity needed in a well-performing market. With only two to four weeks of grain inventory and the spectre of very high food prices and starvation in vulnerable economies, the focus should be on ensuring people have enough to eat without resorting to revolution and terrorism.

Let’s try to understand the reality of the food situation and focus on what’s important.

Larry Martin is the author of the Macdonald-Laurier Institute’s report Are Higher Commodity Prices driven by Speculation or Fundamentals? and a principal in AgriFood Management Excellence Inc.

© Copyright (c) The Vancouver Sun

—-

Tags: agricultureCommentaryLarry Martin
Previous Post

MLI’s Brian Lee Crowley and Ken Coates in iPolitics – First Nations: a revolution of rising expectations

Next Post

MLI discusses US fiscal cliff on CTV and CJOB radio in Winnipeg

Related Posts

Stronger enforcement of the Competition Act is better than a dramatic overhaul
Commentary

Stronger enforcement of the Competition Act is better than a dramatic overhaul

February 2, 2023
Most Canadians think prisons should continue to house male and female prisoners separately
Releases

Most Canadians think prisons should continue to house male and female prisoners separately

February 2, 2023
Defending democracies from disinformation: A new imperative for Canada-Japan strategic cooperation
Past Events

Webinar panel video: Defending democracies from disinformation – A new imperative for Canada-Japan strategic cooperation

February 2, 2023
Next Post
MLI: A Top 20 New Think Tank Worldwide in 2010

MLI discusses US fiscal cliff on CTV and CJOB radio in Winnipeg

Macdonald-Laurier Institute

323 Chapel Street, Suite #300
Ottawa, Ontario
K1N 7Z2 Canada

613.482.8327

info@macdonaldlaurier.ca
MLI directory

Follow us on

Newsletter Signup

First Name
Last Name
Email Address

Support Us

Support the Macdonald-Laurier Institute to help ensure that Canada is one of the best governed countries in the world. Click below to learn more or become a sponsor.

Support Us

Inside Policy Magazine

  • Current Issue
  • Back Issues
  • Advertising
  • Inside Policy Blog
  • Privacy Policy

© 2021 Macdonald-Laurier Institute. All Rights reserved.

No Result
View All Result
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
    • Experts Directory
    • In Memoriam
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Innovation
      • Justice
      • Social issues
      • Telecoms
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media

© 2021 Macdonald-Laurier Institute. All Rights reserved.

IDEAS CHANGE THE WORLD!Have the latest Canadian thought leadership delivered straight to your inbox.
First Name
Last Name
Email address

No thanks, I’m not interested.