[lbo-talk] Food Prices Again

Michael Pollak mpollak at panix.com
Thu Feb 17 09:31:25 PST 2011


On Thu, 17 Feb 2011, Doug Henwood wrote:


> I don't understand your confusion. If the futures price rises, of course
> the spot price is going to rise. It means there's someone willing to pay
> higher prices, at least for now, for the underlying commodity. Arbitrage
> will force the prices to move in tandem.

Let's say the price for wheat today is $10 a bushel. The futures price 6 months hence is $14. Arbitrage would mean that farmers or dealers store the wheat and sell it later. In that case inventories go up.

But if inventories don't go up, it means people aren't arbitraging that way, no?

And my impression is that this was the case in 2008 -- that inventories didn't go up.

Where is my mistake?

MIchael



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