Socially responsible speculator?

Speculate on food, you mess with lives
Barry Porter, Business Editor Today Online 7 Apr 08;

Several months back, a friend urged me to stock up on coffee and sugar. Not packets to mix myself endless cups of java — but literally in these two staples.

I must confess that I thought about it long and hard — but didn't call my broker.

In hindsight, I could have made quite a bit of money. But, to me, there is something morally repugnant about profiting from food prices.

During a United States Congress hearing this past week, Democrat Junior Senator Jeff Bingaman asked if oil was the new gold, given the increasing demand for crude oil purely as a financial asset.

I would argue that today, corn, wheat and rice are also "new gold" for the same reasons. These commodities are star performers and have hit all-time highs.

Rice, a staple for about 3 billion people worldwide, and which is traded on futures boards in Chicago, India and Thailand, among others, has doubled in price over the past year. In contrast, if you had invested in the Straits Times Index (STI) over the same period, you would now be 10 per cent out of pocket.

With global stock markets reeling in the wake of the US sub-prime crisis and weak US dollar, non-commercial investors are gobbling up commodities. Sure, I support a free market. But when greed takes over, we risk losing sight of what commodity markets are for.

Futures and seemingly complex financial products dealing in commodities are to help keep markets stay liquid and allow end-users to hedge against price fluctuations, thereby ensuring supplies.

But what happens when the hordes rush in?

The World Bank estimates 33 countries around the world face potential social unrest this year because of the acute hike in food prices. The Bank's president Robert Zoellick says "there is no margin for survival" for these countries.

Record food prices are stoking global inflation and forcing governments from China to India to take measures to protect supplies. If protectionism kicks in and food exports are curbed, prices could spike further. It's a vicious circle.

Prices are of course a matter of supply and demand. Yes, supply of crops has been hurt by unusual weather, the replanting of farmland for bio-fuel and the weak greenback. But it can be also be argued that widespread speculation has artificially fuelled recent demand — the same argument made to explain the spike in crude oil prices.

But I feel rice, cooking oil, wheat and corn are a different kettle of fish, so to speak. Unlike gold, diamonds and platinum, these are what I would describe as real commodities, with real humanitarian uses. Oh, and talking about fish, even sushi prices here have gone up because of more expensive corn used in fish food.

The United Nations has warned that 36 countries, including China, face food emergencies this year, as stockpiles of grains drop to a 26-year low. The Vietnam Food Association, to ensure domestic supplies, has asked its members to stop signing new rice export contracts until June. If such policies persist, prices will soar.

Some housewives in Singapore have raided supermarket shelves and started to hoard rice. So last week, the government took pains to show that supplies are aplenty in warehouses around town.

I would argue, some might say through rose-tinted glasses, that it is also time for commodities investors to be socially responsible and avoid the temptation of punting on food.