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Is the financialization of food and commodities over?

Morgan Stanley exit the oil tanker operations business in June 2019.

In 2011- 14 there was a feeling that financial players were cornering the market in food and commodities leading to a global rise in food prices. Subsequently the commodities regulator CFTC in the USA imposed position limits: a limit on how much one entity could hold in futures contracts. The limits applied for the current delivery month; and in the aggregate.

But not all ‘market cornering’ was based on financial contracts. Goldman Sachs owned warehouses where it actually stored physical aluminum. The New York Times ran an article that said you could not buy aluminum unless you had contracted it well in advance, so that anyone who needed aluminum immediately was going to have to pay a premium.

And then there is a not-so-sweet case where a commodity futures position became a warehousing operation. In 2010, it was revealed that the Amajaro hedge fund operating out of London had cornered over 10% of the world cocoa market. The Fund had cocoa futures positions. Instead of settling for the profits of its trade, it took physical delivery of over 240,000 tons of that addictive stuff. It was indicated at the time that the price of chocolates worldwide were bound to go up because of that operation.

That phase might sound like it is over with the more prominent exits of Goldman and Morgan Stanley.

However, the important point to note about Hedge Funds is: they do not follow regulations and social pressures as much as they follow profits. When profits of the scale they have enjoyed in the past return, they will be back too!

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