Speculation and Commodity Prices

Last night, CBS’s Sixty Minutes broadcast an investigation into the wild swings of the oil prices last year rising to $147/barrel and then falling to less than $40/barrel in a short period of time. The report offers some prime evidence that investment and hedge funds were the primary movers behind these price increases and that some investment banks may actually have profited from these movements as they invested in commodities while owning oil facilities.

Much of what happened in the oil sector can also be applied to the cocoa sector. Just substitute cocoa for oil and the same logic held true for cocoa: a sharp increase in price without evidence of a shortage of beans and a subsequent decrease without any news of a large oversupply.

The report concluded with a call for more oversight and regulation, call I can only second for the cocoa markets.

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