Stop bankers from betting on food and causing hunger | World Development Movement
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- Painter_Gene
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How does betting on food prices in financial markets work? How does that affect the price?
Futures contracts’ were first created in the United States in the 19th century to help farmers deal with the uncertainties involved in growing crops, such as unforeseen weather conditions. A ‘futures contract’ enables farmers to sell their crops at a future date, at a guaranteed price. This gives farmers greater certainty when choosing which crops to grow.
To buy a futures contract you do not need to buy or sell actual food and so financial players such as banks started to buy and sell these contracts which in turn undermined the system as it caused price fluctuations in real food.
Following the Wall Street Crash in the 1930s, regulations were introduced by the US government to limit speculation on food prices. But these regulations were weakened in the 1990s through corporate lobbying and so banks were able to engage in rampant betting on food markets.
Complex contracts were created called ‘derivatives’. This just means that the value of the contract is ‘derived’ from the commodity being traded. But no actual trading of the physical commodity needs to take place. Derivatives are based on the concept of a ‘futures’ contract but have become more complex.
The price of derivatives in food is affected by demand and supply. As more derivatives in a food are bought, the more the price of a derivative contract rises. This causes the ‘future’ price of food to rise. As mentioned above, this rising price of food in the future has a knock-on effect on the real price of food now.
Futures contracts’ were first created in the United States in the 19th century to help farmers deal with the uncertainties involved in growing crops, such as unforeseen weather conditions. A ‘futures contract’ enables farmers to sell their crops at a future date, at a guaranteed price. This gives farmers greater certainty when choosing which crops to grow.
To buy a futures contract you do not need to buy or sell actual food and so financial players such as banks started to buy and sell these contracts which in turn undermined the system as it caused price fluctuations in real food.
Following the Wall Street Crash in the 1930s, regulations were introduced by the US government to limit speculation on food prices. But these regulations were weakened in the 1990s through corporate lobbying and so banks were able to engage in rampant betting on food markets.
Complex contracts were created called ‘derivatives’. This just means that the value of the contract is ‘derived’ from the commodity being traded. But no actual trading of the physical commodity needs to take place. Derivatives are based on the concept of a ‘futures’ contract but have become more complex.
The price of derivatives in food is affected by demand and supply. As more derivatives in a food are bought, the more the price of a derivative contract rises. This causes the ‘future’ price of food to rise. As mentioned above, this rising price of food in the future has a knock-on effect on the real price of food now.
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- groups:
- Community
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- tags:
- Wall Street, Stock Market, World Hunger
