The run-up in global commodity prices—notably oil, corn, and wheat—is focusing attention on the possible role of investor speculation in recent increases. While speculation in the commodities markets is nothing new, a trend that has gained attention is the increasingly significant commodity investments being carried out by pension funds, endowments, sovereign wealth funds and other institutional investors.
At the end of May, the United Nation’s Food and Agriculture Organization (FAO) released a reportquestioning institutional investors’ contribution to “turmoil in commodity markets,” going on to surmise that “A key concern now is the participation of new agents that are perceived to be motivated by risk-diversification to the exclusion of serious assessment of price levels.”
The Globe and Mail recently ran a story provocatively asking “Who is responsible for the global food crisis?” Last week, CBC’s radio program The Current took a closer look at the widespread interest in buying farmland (Part 3), while the New York Times has focused on the role these new investments may have on the farming industry.
Interest has not just been confined to news outlets. The debate has quickly become political, with a former commodity futures markets trader testifying before a U.S. Senate sub-committee on institutional investors’ role in increasing commodity prices. Subsequently, at a hearing scheduled for June 24 Senator Lieberman will reportedly be proposing to “ban large institutional investors, including index funds, from the nation’s booming commodity markets.”
Undoubtedly, there are a number of ingredients contributing to the global rise in commodity prices, and given the high public profile of the issue it is likely that investors will likely continue to face scrutiny on the issue.