The IATP report, Commodities Market Speculation: The Risk to Food Security and Agriculture, concludes that US government deregulatory steps opened the door for large financial services speculators to destabilize the structure of agriculture commodity markets. According to the United Nations, global food prices rose an estimated 85% between April 2007 and April 2008. Prices rose for wheat (60%), corn (30%) and soybeans (40%) beyond what could be explained by supply, demand and other fundamental factors, says the report.
Commercial speculation in agriculture has traditionally been used by traders and processors to protect against short-term price volatility, acts as price insurance and helps set a benchmark price in the cash market. But the elimination of speculative position limits for financial speculators and the rise of the commodity index funds undermined traditional price risk management. According to the report, these funds create a constant upward pressure on commodity prices, alleviated abruptly only when fund contracts are rolled over to take profits.