increase in the volume of agricultural commod- ity futures traded in the Chicago Board of Trade, a leading agricultural futures exchange. (Futures are contracts between a buyer and a seller that specify a current price for a commodity to be delivered on a certain date in the future. Tese contracts can themselves be traded by inves- tors who do not physically own the commod- ity or plan to take delivery of it.) From 2005 to 2006, the average monthly volume of futures trading for wheat and maize grew by more than 60 percent. In 2007, traded volumes again rose significantly for wheat, maize, rice, and soybeans. In fact, the average monthly volume of trading in soybean futures was 40 percent larger than in 2006 (Figure 4). Futures trading continued to increase during 2010–11 for all commodi- ties. Between March 2006 and December 2011, the volume of commodity index funds trading increased (in terms of the number of transactions of 5,000 bushels) by 157 percent, 200 percent, and 169 percent for maize, soybeans, and soſt wheat at the Chicago Board of Trade and by 124 percent for hard wheat at the Kansas City Board of Trade. Investors have increased their trading of food commodity futures, but only 2 percent of these futures contracts have resulted in the delivery of real goods. For maize, for exam- ple, the volume of futures traded on exchanges worldwide is more than three times greater than the global production of maize.


Changes in futures prices have been shown to


lead to changes in day-to-day, or “spot,” prices. Tis patern of increasing commodity futures trading and higher prices for commodity futures can create a vicious circle that exacerbates the volatility of spot prices for food commodities to excessive levels.7 Other factors. Today’s agricultural markets


have three characteristics that make the price responses to these challenges more extreme. First, export markets for the main staple com- modities—rice, maize, wheat, and soybeans—are either highly concentrated in a few countries or very “thin” (that is, only a small share of produc- tion is traded) (Figure 5). Given these high levels of concentration, the world’s capacity to cope with shocks is limited. Any incidence of poor weather or other production shocks in these countries will immediately affect global prices and price volatility. Similarly, any policy changes—such as trade bans, customs taxes, or other restrictions on exports—in any of the top exporters will signifi- cantly affect the levels and volatility of food prices (see Figure 6). Research suggests that such poli- cies explained almost 40 percent of the increase in the world market price for rice during the 2007–08 food price crisis.8 Second, the world’s stocks of cereals are now


at historically low levels (Figure 7). Tis situation leaves the world vulnerable to food price spikes and threatens the proper functioning of markets. Te world’s cereals stocks, measured as a ratio of stocks


FIGURE 4 Monthly volume of futures trading, 2002–11 10


0 1 2 3 4 5 6 7 8 9


2002 2003 Source: Chicago Board of Trade. 18 RIDING THE ROLLERCOASTER


Wheat Maize Soybeans


2004


2005


2006


2007


2008


2009


2010


2011


on future contracts (millions) Total number of trades


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126