Commodity speculation

Speculation on commodities futures markets

Nature

Commodity speculation may be undertaken through the buying, holding and reselling of physical commodities or through the buying and selling of commodity futures contracts - not the commodity itself. Speculators hope to make profits by anticipating price movements. If they expect the price of a commodity to go higher they buy futures contracts, which is known as taking the "long" position, whereas if they think the price will fall they will sell futures, or sell "short". Commodity markets are widely used also as a means of foreign exchange speculation for the reason that, in the case of commodities traded internationally, the effects of the exchange rate movement will be combined with the underlying shifts in the value of the commodity.

Incidence

Commodity speculation has significantly increased in recent decades, with the volume of financial transactions in commodity derivatives markets often exceeding the value of the underlying physical goods. According to the United Nations Conference on Trade and Development (UNCTAD), speculative trading accounted for up to 70% of activity in some commodity markets by 2011, contributing to heightened price volatility and uncertainty for producers and consumers worldwide.
A notable example occurred during the 2007-2008 global food crisis, when speculative investment in agricultural commodities on exchanges such as the Chicago Board of Trade was linked to sharp spikes in staple food prices, particularly affecting countries in Sub-Saharan Africa and South Asia.

Claim

Commodity speculation is a critical issue that undermines global food security and economic stability. By prioritizing profit over people, speculators drive up prices, making essential goods unaffordable for millions. This reckless gambling on commodities exacerbates poverty and hunger, particularly in vulnerable communities. We must recognize that unchecked speculation not only distorts markets but also threatens the livelihoods of farmers and consumers alike. Urgent action is needed to regulate this harmful practice and protect our future.

Counter-claim

Commodity speculation is often overstated as a problem. In reality, it plays a crucial role in market liquidity and price discovery, allowing producers and consumers to hedge against price fluctuations. The focus on speculation distracts from more pressing issues like supply chain disruptions and climate change. Instead of vilifying speculators, we should recognize their contribution to a dynamic market that ultimately benefits everyone by stabilizing prices and ensuring resource availability.