Gambling with the futures | SocialistWorker.org - The Diigo Meta page

• 20 May 08
  

  Arabica Robusta

  HISTORICALLY, FUTURES contracts were traded primarily between producers of commodities and consumers of commodities at large, regulated commodities exchanges. Most futures contracts eventually resulted in the actual delivery of a commodity on a set date.
  
  That's all changed in recent years. Now, the bulk of firms trading on futures exchanges are speculators with no intention of ever receiving delivery of the commodities they are trading.

  food crisis socialistworker futures speculative contracts

  • HISTORICALLY, FUTURES contracts were traded primarily between producers of commodities and consumers of commodities at large, regulated commodities exchanges. Most futures contracts eventually resulted in the actual delivery of a commodity on a set date.

     

    That's all changed in recent years. Now, the bulk of firms trading on futures exchanges are speculators with no intention of ever receiving delivery of the commodities they are trading.

  • All other things being equal, the prices of expiring futures contracts should converge with the pricing on spot markets on the date of expiration--that is, the price of oil in June should be pretty close to the price of oil futures contracts trading today that expire in June. But there are huge divergences developing.

     

    Why? Because there are too many investors chasing too few futures contracts, and this is creating demand for the underlying commodity that drives up the price of the commodity to be delivered in the future.
• 19 May 08
  

  mcurry
  • Some of this is increase is to rising demand based on the boom in the world economy in the middle of this decade, as rising incomes in China, India and other developing countries spur greater consumption of foodstuffs.    But the rising prices have encouraged speculators to move in as well. The situation has grown all the worse as other financial markets falter. With interest rates low, inflation on the increase and stock markets in turbulence, growing numbers of investors are turning to commodities futures market in search of returns.    "There is a shortage of futures for sale amid an index fund business model for carrying long positions for extended periods," Richard J. Feltes, senior vice president and director of MF Global Research, wrote in a recent note. "Wall Street money flows in the long side of market exceed influence of short hedgers by many multiples...    "The answer to the 'mystery' is that grain futures contracts for some have become investment securities--not hedging instruments that offset either cash inventories or future usage."

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