Hedge Funds on the wrong track

The price of wheat has risen by 50% within 1 year. The high prices indicate that speculators want to profit from the uncertainty. Because since the financial crisis, investors have been looking for investments other than “classic” instruments such as shares and bonds, which have lost a lot of confidence.

Commodity markets popular with investors

investors are increasingly focusing on agricultural products, because this is reflected in continuously improved baseline values. And natural disasters obviously play into the hands of speculators, because prices rise when something happens. Take the drought and fires that threaten the wheat harvest in Russia, resulting in the Russian export ban. And such natural disasters will undoubtedly be repeated elsewhere.

Pricing is often speculation

According to analysts, every price formation in the market is partly based on speculation. Whether it concerns shares or raw materials, this is always based on the expectations of the parties. However, one must realize that the recent increase comes from a very deep and undervalued level. After two years of record harvests, the global storehouses were well stocked, which depressed wheat prices until May of this year. Unprecedented weather antics have led to a real turnaround. In particular, the heavy rains in Canada, the heat and drought in Central Europe, floods in the Ukraine and record heat and drought in Russia and Kazakhstan in combination with the aforementioned fires. But the situation is by no means dramatic: instead of further increasing surpluses, a small shortage is now expected this year, which does not pose any problem in supply due to the well-stocked warehouses.

Hedge funds on the wrong track

Why then do such dramatic price fluctuations occur?

  • An important price driving effect is caused by uncertainty . Details about the progress of crop cultivation and the impending harvest losses were scarce, according to commodity analysts.
  • Moreover, many investors were misled by the price increase. After all, hedge funds had anticipated further falling prices until June 2010 and then had to hedge against rising prices, which fueled a further rise. Price movements have therefore moved far from fundamentally justified levels.
  • And the embargo on exports from Russia further fueled panic buying . But if the rain does not arrive until the winter wheat sowing, the situation could fundamentally worsen.

Will bread become a luxury product?

However, the high price of wheat on the world market does not necessarily have to worry Dutch consumers. Our commercial bakeries use Western grain flour almost exclusively. That is why current events on the world market have not yet had any effect on the price of bread at Dutch bakeries.

Human rights against speculation

This puts our country in a privileged position. However, for many earthlings, expensive wheat poses serious livelihood problems, especially in developing countries. If high wheat prices continue for longer, certain countries such as Egypt, which import large quantities of wheat, will suffer the consequences. Human rights organizations therefore argue that raw materials for food should no longer be a playground for speculators. New and binding rules must quickly ensure that humanity’s right to food outweighs the speculative profits of hedge funds.