On Feb 24, 2011, at 11:39 AM, brad wrote:
> ...The only thing that explains all of these
> commodities moving up together is the increase in speculation through
> commodity index funds (bets on baskets of commodities)...
But what explains the "increase in speculation" (you must mean the increase in the speculative demand schedule of bulls relative to the speculative supply schedule of bears)? The bullish speculative bet is that foreseeable increase in physical demand (population+income growth) and foreseeable supply constraints (the already major, and potentially catastrophic, effects of climate change) on physical supply will have a high probability of forcing big future increases in market prices for food commodities. As long as the consensus of speculative opinion leans to the bullish side food futures will keep going up, until they reach the point (ie., overshoot) where the climate of opinion shifts to the bearish view that prices will go up less than the amount indicated by current futures prices. At which point futures prices will go down until they again overshoot and start going up again and the process starts to repeat itself. Since speculation is a zero-sum game (every bet having two sides), some speculators will make money and some will lose even more money (the bankers and brokers taking vigorish on every single bet).
Shane Mage
"All things are an equal exchange for fire and fire for all things, as goods are for gold and gold for goods."
Herakleitos of Ephesos, fr, 90