From a report in the
Financial Times:
Cotton prices have spiked after India banned exports of the fibre for the second time in two years, continuing a volatile run that has roiled the savviest commodity traders. The world’s second-largest producer of cotton instituted the ban with
immediate effect on Monday. Analysts said the move was aimed at
ensuring sufficient supply of cotton for domestic textile companies,
which have been under pressure as prices have risen.
India’s last export ban, declared in 2010, helped ignite an explosive rise to record highs in cotton markets. Farmers and later mills defaulted on deliveries as prices climbed and crashed...
There's more discussion and analysis at the link. I think this sentence is particularly interesting:
India noted what it described as “a tendency of hoarding in bonded warehouses abroad”...
The implication being that recent price changes have not been a result of basic supply/demand factors, but rather that speculation is distorting the markets. That doesn't imply any illegality or immorality, but it is a reflection of how markets work. It's also interesting that the hoarding sounds like it is of physical product rather than just of futures contracts.
You can do this with oil too:
ReplyDeleteSpeaking with the Business Times, Koch executive David Chang even boasted that falling crude prices in 2008 provided an opportunity remove oil from the market for future delivery:
CHANG: The drop in crude oil prices from more than US$145 per barrel in July 2008 to less than US$35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery.
http://thinkprogress.org/romm/2011/04/13/207887/contango-koch-oil-market/?mobile=nc
I wonder how much of this is due to Monsanto's vigorous marketing of their GM cotton over traditional varieties to farmers in India. I know the crop performed dismally and many farmers are committing suicide due to the debt incurred to buy the "New, Better Seed."
ReplyDelete