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| Drought map via NOAA Yellow is lower level drought, dark red is higher |
The Globe and Mail
Report on Business (01 August 2014, p B1, B8) ran a report on how
rising prices are starting to impact consumer meat choices, and how
that's affecting the bottom line of Maple Leaf Meats (who are
currently restructuring). The article points out how bacon prices are
up by about 26 percent and pork chops are up 18 percent, even though
Statistics Canada claims prices are only up 3 percent from a year
earlier.
There are a number
of reasons offered for the rise in meat prices; the arrival of a
piglet-killing virus (porcine epidemic diarrhoea) which has driven up
the cost of a pig by 24 percent, the drought of 2012 that drove up
the cost of feed and led to herd culls, and a 5 percent depreciation
of the Canadian dollar pushing prices higher north of the border. BMO
Capital Markets economist Aaron Goertzen takes the “most obvious
statement of the year” award by pointing out that consumers are
avoiding the now-pricier beef and pork by buying chicken or cheaper
kinds of protein.
But one reason for
higher prices gets no traction in the article at all—or indeed
pretty much anywhere else with the exception of the New England Complex Systems Institute (NECSI). NECSI has been warning about the
influence of futures traders in the food system for several years
now. As did Matt Taibbi in Griftopia: bubble machines, vampiresquids, and the long con that is breaking America (2010),
upon which I'm relying for for describing the system.
In
a functioning commodity market, there are three players; buyers,
sellers, and speculators called futures traders. Buyers and sellers
(farmers and food companies) can arrange contracts with each other to
guarantee the price of a commodity like wheat or corn (or pretty much
any other physical substance, like platinum or oil). A producer wants
to ensure that they get a fair price for their wheat, so they offer a
future delivery for an agreed-upon price. This works for a buyer, as
they want to have a certain and non-fluctuating price for the
commodity they need. Called physical hedging,
these contracts allow an amount of certainty in an uncertain world.
If the price of a commodity rises unexpectedly, the producer forgoes
some profit in exchange for a guaranteed price. If the price drops,
the buyer forgoes some profit in exchange for a guaranteed price.
