A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

When fiction takes over markets…

October 7, 2013

Seven milliseconds, that is the time it took to place gold buy orders for an estimated $600 million at the Chicago Exchange this past September 14, a few milliseconds after the Fed issued, in New York, a monetary policy statement that was highly anticipated by financial markets. The statement was all the more decisive as the Fed was announcing, contrary to expectations, further cash injections in the American economy.

Due to the strategic scope of the announcement, an extremely strict procedure was implemented––the declaration was revealed in a closed session covered by accredited journalists who were required not to release it before 2PM. Yet, in spite of such precautions, this unusual transaction did take place…

Insider trading 2.0, computer bug, leaks at the highest levels of the Federal Reserve or some happy coincidence? All the theories are put forward to try to get a rational explanation for this never recorded before transaction in derivative markets. In all probability, it could have been made by companies specialized in high frequency trading, which buy and sell options very rapidly through computer-based algorithms. A significant increase in such transactions has been noticed for the past few years.

In fact, the activity of these powerful players in virtual markets is a perfect demonstration of the growing disconnection between the real world and the financial world. This is particularly true for agricultural commodities, as 75 to 85 percent of wheat transactions are not taking place on the Chicago Exchange but are occurring on OTC markets. The number of agricultural futures contracts traded daily on the Chicago Board of Trade (CBoT) has more than tripled since 2000. Although they were almost inexistent in the early 90s, the Bank for International Settlements (BIS) indicates that the value of derivatives trading reached close to $639 billion at the end of June 2012––a 16 percent increase over December 2008.

As both American and European regulatory bodies are attempting to change, such abuse comes as further proof of the opacity and faults of derivatives markets, and of behaviors that are not only contrary to ethics but also expressly harmful, especially when dealing with agricultural commodities, thus directly implicating the food security of billions of people.

So, the erratic and out of control development of OTC markets in the past 20 years resulted in excessive speculation on commodity markets––especially on agricultural commodity markets––which was reflected in the hyper-volatility of food prices causing the 2007/2008 food crisis.

No complex algorithm or invisible hand will ensure the stability of agricultural markets, especially in an unstable, volatile and unpredictable world. Yet, considering the consequences of an excessively financialized agricultural sector, there is a major likelihood of an agricultural bubble in the future... Must we reach that point to finally grasp the urgent need to reform the global financial architecture?

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Paris, 18 December 2018