Risk and Reward

Attached is a recent article from the Economist that gives a short and not totally convincing argument in favour of market speculators. However, it does give some key points regarding their activities. It discusses oil but the ideas are appilicable to soft commodities. Primarily, their involvement and effect is usually over exaggerated and they make a convenient scapegoat (especially where there is policy failure). Secondly, the benefits they provide, namely market liquidity, are usually ignored. The risks taken by speculators ensures price transparency and depth of market for those with something to sell. Without them, markets would tend to be fragmented and illiquid with prices guarded by the dominant buyers and sellers (in our case large landowners or farmers and supermarkets). This would increase profitability for those that can really manipulate markets: governments and cartels.