David Kane

Washington, DC, United States

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David Kane
Posted almost 3 years ago
Commodities Speculation: A Cause of Food Crises? A Crime Against Humanity?
Yes, the limits are too high to have much effect at all. And they put no limit on speculators as a class which is what is needed. The OTC markets are going to be put through exchanges and clearinghouses with few exceptions, so the problem of dark markets should be eased, but like you say, it will be a while before any changes actually take effect - probably not until after the next crash... It is frustrating that most of the focus has been on energy, but energy prices have a heavy effect on food prices, so it's all good. And there are already limits on many food commodities, but many exceptions were given in the 90s through No Action letters. I don't think the rule will have any effect on our divestment campaign, hopefully.
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David Kane
Posted almost 3 years ago
Commodities Speculation: A Cause of Food Crises? A Crime Against Humanity?
The rules that the CFTC approved today do deal with agriculture commodities, as well as energy and metals too (28 commodities are covered by the rules). Theoretically, it should help limit excessive speculation in all of these markets, but the limits they established (25% of deliverable supply in the month closest to delivery and 10% of the first 25,000 contracts and 2.5% thereafter) are likely too high to have much effect, though according to their calculations, 85 metal traders and 84 ag traders will be affected. They also place no limits on speculators as a class, which is what is really needed to stop excessive speculation. The new rules will only really stop market manipulation. And, as you point out, the limits do not address the problem of long-only commodity indexes and ETFs. Hopefully, once the added information starts coming in from the new swaps reporting rules, we will get better data to put in stronger limits and targeted reforms to ban or limit indexes. We are looking to expand the divestment campaign with some university campaigns next semester and will begin approaching other pension funds too. We found the CALSTRS board very open to our input and willing to make changes in their investments. These indexes and ETFs have had TERRIBLE returns due to the fact that so many commodity markets are in contango (when futures prices are higher than spot prices due to so much money going into futures months). So it is really not that hard to convince pension funds to get out of commodity derivatives. As we said in our letter to CALSTRS, if you want to take advantage of rising commodity prices, commodity equities are a far more legitimate investment and have had much higher returns than commodity derivatives.
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David Kane
Posted almost 3 years ago
Commodities Speculation: A Cause of Food Crises? A Crime Against Humanity?
Commodity markets had responsible limits on speculation from 1936 until the 1990s when deregulation mania led Congress and regulators to remove limits to speculation. This helped lead to the food and energy bubbles of 2008 and 2011. To rein in the problem, simply reinstating those limits would go a long way. Unfortunately, the CFTC is set to release new speculation limits tomorrow that will almost surely be far too weak to have any real effect. We think that commodity indexes, Exchange-Traded Funds and Exchange-Traded Notes should be banned because they are especially detrimental to the functioning of commodity markets.
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David Kane
Posted almost 3 years ago
Commodities Speculation: A Cause of Food Crises? A Crime Against Humanity?
I helped create a website specifically designed to help people understand the problem of excessive speculation in commodities - www.stopgamblingonhunger.com. There is a lot of both background and up-to-date information on the subject. I can help you find numbers that you need, etc. Also, see this page with more than 80 studies from respected institutions showing that excessive speculation is a problem: http://www2.weed-online.org/uploads/evidence_on_impact_of_commodity_speculation.pdf