Thursday, June 25, 2009

Senate Finds Cause for Higher Food Prices

Senator Carl Levin
Did your pizza and PB&J sandwich really cost more because of ethanol?

No.

A US Senate subcommittee, the Permanent Subcommittee on Investigations headed by Senator Carl Levin (D-MI), has released a report finding that market speculation led to rising commodity prices last year.

Despite Big Food's attempt to blame rising food costs on corn ethanol, this new report confirms the cause for the rapid increase in the price of wheat. Followers of the food and fuel issue will recall that Big Food and the media falsely blamed rising wheat prices on corn ethanol. Campbell Soup's CEO was one of the food leaders who made this wild claim that was widely reported. (Read our rebuttal HERE)

The new report found that commodity traders bought up more than 200,000 wheat contracts by mid-2008 that fueled the record jump in prices which caused the rapid food prices for consumers.

The report found that large wheat purchases on the Chicago Mercantile Exchange (CME) drove up futures prices, disrupted the normal relationship between futures prices and cash prices for wheat, and caused farmers, grain elevators, grain processors, consumers, and others to experience significant unwarranted costs and price risks.
"It is another case of speculative money overwhelming a market, and federal regulators failing to take the steps needed to protect the market," said Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations.
Prices for most commodities soared to historic highs during the mid 2008. And the price of wheat soared to a high of $13.34 a bushel.
“The bottom line,” said Levin, “is that excessive speculation in commodity indexes has created losers throughout the wheat industry, from wheat farmers to grain elevators, grain merchants, grain processors, and grain users like bakeries and cereal companies. Those groups can’t manage their price risks through hedging, and are socked with unwarranted costs from higher margin calls and failed hedges. When those costs are passed onto consumers, the result is higher food prices.”
This report was issued earlier this week, and of course, has had little coverage by the media. But we didn't really expect to see much because it doesn't fuel the story they've already set in place.


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