Wednesday, June 04, 2008

Strategic Speculation

Much of the rise in food prices, particularly corn, has been pushed up by heavy speculative buying on commodities markets. It strikes me that if someone wanted to kill biofuels then buying up the feed stocks and holding them would be an easy tactic. Those that are pro-biofuels need to ask such question. Yes we have drought in key agricultural areas and yes there is growing demand but neither explains why these new grain market speculators are not taking a profit by selling now that the prices are very high. However if the objective was to kill biofuels by pushing the feed stocks up and taking huge amounts of food from the market, then it is easy to see why a buy and hold position would be taken.

It also occurs to me that if you really wanted to kill biofuels you might buy up the edible by-products, dry distiller’s grains with Solubles and soy meal/ soy flour, at a price of $80 a ton and ship it to land fill. Some how somewhere we have LOST 40 million tons of DDGS and an unknown quantity of soy meal. If the Chicago board of trade listed all these by-products we would clearly see how we have not actually sacrificed any protein production capacity. If wet distiller’s grains can be made into food instead of producing DDGS, then even more edible food would be produced. In Biofuels we really can "have our cake (the fuels) and eat it" at the same time.

Who would have an interest in killing biofuels? Most of the Oil industries are just shareholder companies; Exxon Mobil has major investments in key components of lithium batteries. Shell invests in solar. They could all buy into the renewables at any time and some are.

The most likely actor in this game is Arab sympathisers with hard line Islamic (Wahhabism) extremism. If biofuels replaced oil then the spread of Wahhabist teaching, that prepares people for more extreme ideas like Al'Qaeda, would cease and Islam would be much less powerful.

A buy and hold position would also be cost free. The Middle East has ample money in its sovereign funds and private family accounts. Grain prices move slowly. They can buy, hold and as long as they eventually sell at just above the buy price, they can’t make a loss. It all looks like a normal transaction but the second attempt at replacing oil with biofuels lies in ruins.

Remember we have been here before after the first oil shock. A dozen Biofuels were researched and moved to production and at the critical point OPEC dropped the price of oil to record lows to kill everything. Hundreds of projects died, millions were lost. We are on the look out for the same tactic this time and with Russia back in the oil export game OPEC can’t kill biofuels with a simple price drop.

If the speculators are politically motivated and are trying to kill the biofuel industries what do we do? Only governments have the power to ask who these speculators are and check to see if they are likely to be engaging in an attack on the west. If this is true then laws must follow; Disclosure legislation that forces them into the light of day. Action to mandate that if food is horded via the global commodities and futures markets is remobilised. Hopefully this may not be necessary, I believe in free markets; simply naming the speculators may drive them to sell.

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