Traders and merchants

Coffee traders and merchants move coffee from areas where it grows well (and cheaply) to places where it grows less well, or not at all. They transport coffee from surplus areas to deficit areas.  If coffee is worth more money in the US than in Brazil – and if that difference is more than the cost of shipping it (plus a little profit margin to make it worthwhile), then the trader or merchant will make it happen.

Coffee traders do not only move coffee from surplus to deficit areas. They also store and process it. They hold coffee at times when it is not needed (after the harvest) until a time it is needed (throughout the year). Coffee millers process coffee from a form in which it is not wanted into a condition in which it is wanted, transforming cherries into green beans. Roasters transform the green beans into roasted or soluble coffee.

Millers and roasters are, by definition, traders. A miller buys cherries and sells green beans, while a roaster buys green beans and sells roasted beans. Just as a trader may depend for his livelihood on his skill in buying coffee in one country and selling it in another, a roaster depends on his skill in buying coffee in one form and selling it in another. Millers and roasters are traders, and they need trading skills to perform their tasks correctly.

When you think about that a little, it becomes clear that what a trader is most interested in is not the outright price of coffee but the difference in the prices of that coffee in its different geographies, times and forms.  It is the price differential that matters, not the outright price. Traders like to limit their exposure to the outright, or flat price, of a commodity. They usually hedge their outright price risk, preferring to make their money on the differentials – the difference between the cost of the futures and the price of their particular coffee.

All traders – and that includes roasters – will try to reduce their risk of future price movements by hedging what they buy, taking an offsetting position for the same quantity in the futures market. Having purchased the physicals, a trader will sell futures as a hedge. When he sells the coffee, the trader will buy back their futures hedge; they no longer need to be protected against a move in the outright price of coffee because they don’t own it anymore.

Everyone involved in the coffee supply chain is taking and managing price risk. The farmer is perhaps taking the most significant risk by growing coffee in the first place. He may try to offset some of that risk by selling in advance – selling something that he doesn’t (yet) have.

The trader is taking a risk on the quantity that he buys but offsets that risk by hedging in the futures market. The roaster is also taking a risk; he has invested in his roasting machinery and has the risk that coffee prices will be too high to allow him to make a profit when he sells his roasted beans.

When I began my trading career with Cargill in the late 1970s, my first business card gave my title as ‘Commodity Merchandiser’.  But what is the difference between a trader and a merchandiser? Traders take positions on the markets, betting whether prices – or the differentials between prices – will rise or fall. Merchandisers move commodities along the supply chain, taking a tiny margin at each stage of its journey.

Traditional commodity merchandising has become more challenging and less profitable over time. It has become tough to make a margin just moving coffee along the supply chain.

One of the significant difficulties that merchandisers now face is that information is widely and freely available. It also travels incredibly fast. Technological change has reduced the potential for traders to arbitrage prices between geographical regions.

The other significant change is that governments and government agencies have pretty much left the coffee business. In the past, governments were often responsible for selling their country’s production, and this led to opportunities for corruption. Low-paid government officials were easy targets for unscrupulous traders; selling tenders were often rigged in favour of the traders that gave the biggest bribes. The markets have now been privatised, and this no longer happens.

In a world of instant information, it is no longer possible for merchants to take advantage of price differentials in various countries; instead, they now have to anticipate them. It is the point where a merchant becomes a trader. A trader predicts where shortages and surpluses will occur, and he takes a position in the market in anticipation of future price moves. As a result, analysis has become the lifeblood of trading.

It is not unusual for a trading company to employ more analysts than traders. Nor is it uncommon for traders to spend most of their time not on trading, but analysis. It is impossible to succeed in the commodity markets without an experienced group of traders and analysts to interpret and understand the mass of information that needs to be absorbed.

But analysis is not the only thing that you need to succeed in the physical commodity markets: you also need clients. Traders, therefore, have to keep in regular contact with their client networks, and they have to move physical coffee along the supply chain. There is now such an overlap between trading and merchandising that they are pretty much the same thing.

Merchandising coffee allows you to see the trade flows, helps with your analysis, and enables you to anticipate trading opportunities in the coffee market. But the margins on straight merchandising are now so thin – and sometimes even negative — that it is pretty much impossible for a pure coffee merchandiser to survive. The profits from trading subsidise the lack of profits, or the losses, on merchandising. In that sense, merchandising enables trading, and trading facilitates merchandising. They are mutually dependent.

© Commodity Conversations ®

This is an extract from my latest book ‘Crop to Cup – Conversations over Coffee’, available now on Amazon

A Conversation with Dave Hightower

Dave, thank you for taking the time to speak with me. You began the Hightower Report back in 1990. What are biggest changes that you have seen in the markets since then?

 When I started the company, China was relatively unimportant in the world grain markets. It is now the most important factor in terms of price and flows.

Back in 1990, the markets were still very US-focused, and still driven principally by the fundamentals of each particular commodity. Since then the markets have become global and have lost much of that focus on the US.

Globalization has also meant that markets now often move together, in unison. Ethanol has played a role in this: corn and beans are now energy commodities; there is a good correlation between the prices of crude oil, beans and corn.

Traders don’t always pay enough attention to outside markets. The price of oil is a major factor, but you also have to look at currencies and the stock market – are we, for example, going into deflation?

All this means that you can’t just look at the supply and demand of, say, beans, in isolation. You have to take into account a lot of other factors. So that has been the biggest change.

Are the fundamentals still important?

Very much so. The advent of the hedge funds has increased short-term volatility, but in the medium- to long-term, market price will always go to its fundamental value.

What are the main issues now in the grain markets?

We are coming out of a period of over-supply and going into a period of tighter supply. The trade had assumed that we would have multi-year surpluses, but we have slowly transitioned into lower stocks. In the corn market we have seen China liquidate huge strategic stocks – corn that was really old. They are now in a phase of rebuilding their stocks, and we are expecting them to hold bigger stocks than in the past, largely to protect themselves from future supply shocks, for example from a pandemic.

China has already purchased 71 percent of what they promised to buy under the first phase of their US trade deal. They will probably complete what they promised by the end of the year, but they may buy more depending on how much they want to rebuild their strategic stocks.

We are seeing China buying a lot of everything at the moment: crude; natural gas; copper; zinc etc. China’s GDP may grow 5.5 percent this year – that’s relatively slow compared to the past – but their economy is switching focus from exports to domestic consumption. That means that they will buy differently than in the past.

China is not going to buy agricultural commodities because of US pressure; China is going to buy or not buy either because they need it or because the price is attractive to them. In any case, it is not what China buys from the US that is important, it is what China buys globally.

US farmers have received record subsidies this year. Will that continue?

It will be a question of priorities. With the pandemic, there are now a lot of politically more important groups that are lobbying for financial help. The pandemic has increased the need for government spending and reprioritized where it is going. Unless crop prices fall so low that we start to see farm bankruptcies, I think that there will be less subsidies for farmers next year.

Remember that US farmers have had difficulty in promoting ethanol in the face of the oil lobby; the farmers have lost some of their political clout.

What will you be focusing on in your presentation at the Geneva Grain Conference?

I will be looking at the tail end of the Southern Hemisphere crops and then set the scene for the next cycle in the Northern Hemisphere. I will be concentrating on the fundamental S&D.

I will be very specific on the price outlook – where I believe prices will be going over the next six months to a year – and on the timing of future moves.

Thank you, Dave for your time and good luck with your presentation.

 © Commodity Conversations ®

My PC lunch

“It depends,” he said. “If they are free range then that’s OK, but if they are battery-raised then you should really not eat them.”

I was having lunch with an old friend and we were studying the menu, a three course set lunch. I had told him that I might have the quail eggs as a starter.

“You see,” he explained, “quail are wild birds that are easily startled. When they are in cages they try to fly away and can often break a wing. Chickens are different: they have been domesticated for thousands of years and are not so easily startled. We will have to ask if the quails are free range.”

“What about the octopus?” I asked.

“Can you believe that they are now starting to farm octopus?” he asked me. “It is incredibly cruel. Octopuses are intelligent creatures; they will suffer terribly in a confined pond. But they will probably learn to escape anyway.”

“I think I will have the winter salad,” I said, taking the third choice starter. But what are you having for your main course?” I asked. The choice was beef, lamb, cod or pasta.

“It’s a problem,” he replied. “I read recently that lamb can have a higher carbon footprint than beef because there is less meat on each animal, but it depends on whether the lamb is locally produced or imported from New Zealand. Do you know that imported lamb can sometimes have a lower carbon footprint that local lamb?”

“What about the beef?” I asked, ignoring his question.

It depends if it is grass-fed,” he replied.  “I am trying to cut down on meat generally. I saw that documentary the other evening, The Game Changers, about top athletes switching to vegan diets. It seems to work for them.”

“I think I will have the pasta.”

“You’re lucky,” he told me. “I am gluten intolerant—not coeliac—but if I eat wheat I blow up like a balloon. It’s most uncomfortable!”

The waitress came to take our order. She looked nervous and I guessed it might be her first day in the job.

“Do you know if the quail eggs are free-range?” my friend asked her.

“I am afraid I don’t,” she replied nervously. “But I could ask.”

“Yes please,” I replied. I didn’t much fancy the winter salad and would have preferred the eggs. The waitress disappeared for quite a while and then came back crestfallen.

“The chef doesn’t know about the eggs,” she told us sadly.

“What about the octopus?” I asked. “Is it farmed or wild?” A look of panic crossed her face. “Don’t worry,” I said, “I will have the winter salad.” She looked relieved and noted it down on her pad. My friend told her that he would have the same.

“What about the beef?” he asked her. “Where was it raised—what is its origin? You know, you really should mark on the menu where you source your meat.”

For a moment I thought she would burst into tears.

“I will ask the chef,” she told him.”

“And please ask him for the lamb as well please.”

“Yes sir,” she replied as she fled back to the kitchen.

“Are we allowed to eat cod at the moment?” I asked my friend. “I read somewhere that the cod stocks were being depleted again. It is difficult with fish—there is always a danger of overfishing.”

My friend was about to answer but we were distracted by the sound of shouting from the kitchen. Our waitress returned, looking rather flushed.

“The meat comes from the UK,” she told us rather cautiously. “The lamb is from Wales and the beef is from Scotland.” I guessed that she was making it up, or that the chef had told her to make it up.

“I will have the beef then please,” my friend told her.

“And I will have the pasta.”

“Could you please choose your deserts as well please?” our waitress asked us.

I looked at the menu and chose the cheesecake. My friend ordered the same.

“But only if it is made with Bonsucro certified sugar,” he added.

“You’re kidding me!” I exclaimed.

“Yes,” he replied with a laugh. “I am kidding you! But I am not sure about the cheese. Dairy has a high carbon footprint, you know.”

© Commodity Conversations ®

CRISPR Crisps

Grown commercially since 1997, GM (genetically modified) corn now accounts for about one third of the corn grown in the world, most of which has been genetically modified to tolerate glyphosate, sold as Roundup, a relatively inexpensive herbicide that kills all plants except those with genetic tolerance.

Monsanto released glyphosate resistant soybeans under the name Roundup Ready Soybeans in 1996 and within ten years 80 percent of all soybeans grown in the US were Roundup Ready. Roundup Ready corn received FDA approval in 1997 and it was commercially released in 1998. It used much the same technology as in soybeans, but also had built-in insect protection in the form of a Bt protein, a naturally occurring bacterium that lives in the soil and is toxic to insects.

Scientists also modified corn genes to make the crop more drought tolerance. Drought tolerant GM corn was approved by the USDA in 2011, and commercialized in 2013.

As Christine Du Bois writes in her book, “The Story of Soy,” some 80 percent of all soybeans in the world are genetically modified to be resistant to Roundup. In the Americas, that figure rises to 95-100 percent. In terms of acreage, GM soy accounts for around half of all GM crops in the world.

GM soy largely came about as a result of the introduction of Roundup in the 1970s, with Monsanto trying to find a gene that was resistant to the herbicide. They eventually one in bacteria in a Roundup factory’s waste pond, and engineered it into soy plants. The introduction of Roundup Ready soybeans allowed farmers to increase yields by planting rows closer together. Without it, farmers had to plant rows far enough apart to allow weed control by mechanical tillage.

The Monsanto Company was no stranger to controversy; it once manufactured the insecticide DDT, as well as the defoliant Agent Orange that was widely used in the Vietnam War. Bayer, a German multinational pharmaceutical and life sciences company bought Monsanto in 2018 for $66 billion. Since then Bayer has been entangled in litigation over claims that Roundup causes cancer, something that the company obviously denies.

Over the past twenty years, GM technology has revolutionised farming and transformed the seed and agricultural input business. Previously, much of a farm’s cost of production was in purchasing chemicals: fertilizers, herbicides and pesticides; chemical companies made their money selling these inputs. Now the cost is in seed development . The result has been a merging of the chemical and seed businesses: over recent years, the large chemical companies have bought up the seed companies.

Although GM technology has revolutionised the industry, its effect on yields is sometimes questioned. By one estimate, about 50 percent of yield increases since the 1920s have been the result of breeding, including genetic modification, while the other half have come from improved farming practices: better farming techniques have been just as important as genetics. However, that is hardly surprising when you consider that the primary objective of genetically modifying crops has not been to increase yield potential. The increases in yield that have come with genetically modified corn have come in the form of yield protection and stability, not actual increases in yield potential.

In Seeds of Science: Why We Got It So Wrong on GMOs, Mark Lynas, an early anti-GMO activist, admits that the scientific evidence for the safety of GMOs is robust. He writes, “I cannot deny the scientific consensus on GMOs while insisting on the strict adherence to the one on climate change, and still call myself a scientific writer.”

Meanwhile, Amanda Little, in her book “The Fate of Food: What We’ll Eat in a Bigger, Hotter, Smarter World, quotes Tamar Haspel, a journalist for the Washington Post, as saying, “The argument against GMOs has never really been about the GMOs themselves. It is about a corporate-dominated, industrialised food system for which GMOs serve as a kind of proxy.”

She argues that the public may be more accepting of the new gene editing technology, CRISPR (pronounced CRISPER). Gene editing involves the deletion, insertion, or modification of the genome at a specific site in a DNA sequence. She writes,

“CRISPR may not win minds and hearts overnight, and we still have much to study and learn about it. But here’s hoping that transparency, community involvement, and applications in the public interest will bring gene editing sceptics to the table — disbelief at least temporarily suspended — to give it a chance.”

However, as The New Food Economy argues, these new techniques are already creating a debate about what “genetic modification” really entails. Most people use the term to refer to inserting foreign DNA from one organism into another. This process, known as transgenic mutation, cannot happen on its own in nature.

CRISPR doesn’t require the insertion of foreign genetic material. The technology allows scientists to precisely edit in, or edit out, targeted traits. In this sense, CRISPR is an acceleration of traditional methods of plant and animal breeding, and not an unnatural mutation that could not occur outside of a laboratory. The United States Department of Agriculture (USDA) seems to agree, and has decided not to regulate gene-edited crops in the same way as GMOs.

Of all the new developments and new technologies in agriculture, CRISPR seems to be the one with the most potential to increase yields, something that is essential if we are to stop deforestation and biodiversity loss. But to do that, it will first have to be accepted by consumers. Fingers crossed that it is!

© Commodity Conversations ®

The History of Agriculture

My book on the grain merchants has reverted to the title I first thought of, “Alphabet Soup—The Seven Companies at the Centre of Your Food Supply.” I am still aiming for publication in early-November.

There is a saying in the book business that “the wastepaper basket is a writer’s best friend.” In putting together the first draft of my book, I deleted large chunks of what I had previously written. I have fished out some of the least bad bits, and I will share them with you over the coming weeks. This is the first:

As Richard Manning wrote in “Against the Grain: How Agriculture has Hijacked Humanity,” of the roughly 300,000 years that mankind has wandered this earth, we have spent 290,000 of those as hunter-gatherers. Agriculture is a relatively new game for us and, as you have realised when visiting your local supermarket, we still have hunter-gatherer genes.

And even during the last 10,000 years, farming has changed little. Fields were regularly left fallow, and animal manure was the sole fertiliser. It was only in the early 1800s that scientists began to understand that inorganic minerals such as nitrogen, potassium, lime, and phosphoric acid could replenish depleted soils, leading to the production of mineral fertilizers.

The search for fertiliser led merchants and scientists to the dry seabird islands off the South American and South African coasts, where immense deposits of bird droppings, rich in nitrogen and phosphorus, had accumulated over centuries. Guano mining became a profitable business. Between 1840 and 1880, guano nitrogen made a vast difference to European agriculture, but the best deposits were soon exhausted. Rich mineral nitrate deposits were found in Chile, and nitrate mines gradually took the place of guano in the late 19th century.

However, as Michael Pollen writes in The Omnivore’s Dilemma, the great turning point in the modern history of agriculture can be dated to the day in 1947 when a huge munitions plant at Muscle Shoals, Alabama, switched over from making explosives to making chemical fertilizer. He explains that at the end of World War II, the US government found itself with a surplus of ammonium nitrate, the principal ingredient in making explosives. Ammonium nitrate is an excellent source of nitrogen for plants, and the chemical fertilizer industry (along with that of pesticides, which are based on the poison gases which were also developed for war) was the product of the government’s effort to convert its war machine to peacetime purposes.

Even though the earth’s atmosphere is about 80 percent nitrogen, nitrogen atoms have to be split and joined to hydrogen atoms (“fixed”) before they can be used for fertilizer or bombs. A German Jewish chemist named Fritz Haber worked out how to do that in 1909. Before he made that discovery, all the usable nitrogen on earth had to be fixed by soil bacteria or by electrical lightning, which breaks down nitrogen bonds in the atmosphere.

In his book, Enriching the Earth: Fritz Haber, Carl Bosch and the Transformation of World Food Production, Vaclav Smil explains that “there is no way to grow crops and human bodies without nitrogen.” Without Haber’s invention, the amount of life on earth would have been limited by the small amount of nitrogen that bacteria and lightning alone could release. Mr Smil argues that as a result, the Haber-Bosch process for fixing nitrogen (Bosch commercialised Haber’s idea) was the most important invention of the 20th century. He estimates that 40 percent of the people on the earth today would not be alive if not for the invention. Without synthetic fertilizer, billions of people would never have been born.

Although Fritz Haber won the Nobel Prize in 1918 for “improving the standards of agriculture and the well-being of mankind,” he has since largely been airbrushed out of history. During World War I he helped the German war effort by making bombs from synthetic nitrate. Worse, he also developed poison gases including Zyklon B, the gas used in the Nazi concentration camps.

Michael Pollen argues that once mankind had acquired the power to fix nitrogen, the basis of soil fertility shifted from a total reliance on the energy of the sun to a new reliance on fossil fuel. The Haber-Bosch process works by combining nitrogen and hydrogen gases under immense heat and pressure, the energy supplied by electricity. The hydrogen is supplied by oil, coal or, most commonly today, natural gas.

Growing crops, which from a biological perspective had always been a process of converting sunlight into food, has become a process of converting fossil fuels into food. More than half of the world’s supply of usable nitrogen is now man-made—and more than half of all the synthetic nitrogen made today is applied to corn alone.

© Commodity Conversations ®

Commodity Conversations Weekly Press Summary

Wilmar International and Associated British Foods (ABF) announced the creation of a joint-venture in China that will produce yeast and other bakery ingredients. The partnership will build a new unit attached to a Wilmar food processing factory and take over operations from AB Mauri, an ABF subsidiary.

In order to reduce costs after a disappointing first quarter, ADM has merged two of its five businesses – the grain trading and oilseeds segments – into one operation. The group is struggling amid the bad weather in the US Midwest and trade tensions with China. This marks the second restructuring in 14 months and analysts noted that it would help streamline operations.

ADM was reportedly one of the trading groups who sold Brazilian corn to the US in recent weeks, as sources said that between 5 and 10 Brazilian corn vessels were purchased by Smithfield Food in the US, a subsidiary of China’s WH Group. Importing can save on the cost of transportation from the Corn Belt, where the bad weather is expected to delay planting and lower total corn output this year. Overall, traders estimate that the US could be due to receive 1 million mt of corn from South America. This would help Brazilian farmers, who expect to harvest a record 100 million mt of corn. Global corn supplies are also being threatened by the fall armyworm in China, usually the world’s second largest corn producer, as the pest has now affected 15 regions and should keep spreading, according to the USDA.

In Switzerland, the NGO Public Eye is asking the government to implement stricter rules on human rights violations for agricultural trading companies that operate out of the country. It estimates that 50% of global grain, 40% of global sugar and 30% of global coffee and cocoa are traded from Switzerland.

In a major but little-noticed move, the USDA officially authorised the transport of hemp and THC across US states last week. The agency said that “Congress has removed hemp from schedule I and removed it entirely from the CSA (Controlled Substances Act)”. Analysts noted that Unilever was in a good position to trial the sale of cannabidiol (CBD) products, which was legalised with hemp in the 2018 Farm Bill, thanks to its large number of brands. The group has already announced possible CBD variants for two brands: Schmidt’s Naturals, which makes natural deodorants, and Ben & Jerry’s.

The competition is increasing in the plant-based meat sector as Nestle is due to launch its Sweet Earth Awesome Burger in the US before the end of the year. While other brands like Beyond Meat and Impossible Foods are already available in many outlets, Nestle highlighted that its vegan burger is actually healthier, with more fibre and protein than its competitors. This marks the third plant-based burger offered by Nestle, along with the Garden Gourmet brand in the EU and the Incredible Burger it sells through McDonald’s in Germany.

The traditional meat market could also see some major changes, as Brazil’s chicken producer BRF SA is looking to acquire Marfrig Global Foods SA, which would create the world’s fourth-largest meat company. Protein export demand is expected to surge this year as China is due to lose 10% of its pig population to the African Swine Fever, although experts cautioned that the two groups might struggle to combine and streamline operations.

The Ecological Transition ministry in France instructed 15 fast-food chains, including McDonald’s, KFC, Burger King and Starbucks, to sort the waste at 70% of their restaurants before the end of 2019, in order to comply with a 2016 law. France is also planning to expand the ban on the destruction of food items to non-food items, like clothes sold by luxury stores or online retailers. The measures are seen as a consequence of the success of the green party during the European elections.

Lastly this week, a Californian judge agreed to overrule the decision that would have forced coffee makers to include a cancer warning label. The drawn-out legal case revolved around the trace amounts of acrylamide, a carcinogenic, found in coffee.

This summary was produced by ECRUU

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AgriCensus Report

Grain market shorts brace themselves for “history-making event”

Corn and soybean futures moved sharply higher during early trade on Tuesday as analysts warned that up to 13 million acres of area could be lost due to persistent rains across key planting areas.

By time of press the July front-month contracts on the Chicago Board of Trade were up 2.5% for corn and 1.5% for soybeans as traders rushed to buy back short positions.

“We have a true problem here, and the most aggressive price moves always occur when funds flip from net short to net long, that’s what’s happening,” said Charlie Sernatinger, a broker with ED&F Man.

Data recorded last week showed the net short position in corn has collapsed to 116,000 lots from 283,000 lots the week before, with soybeans falling to 153,000 lots from 169,000 lots over the same period.

Rain will continue to batter the Midwest this week, according to weather forecasts, although precipitation will be less intense than recent weeks.

Analysts expect some fieldwork to have been done despite the rains, although the estimates for Tuesday’s crop report vary wildly with corn plantings expected to be between 59-65% complete versus 49% a week ago and 90% by this time last year.

Soybeans are expected to be 25-36% complete versus 19% last week and 74% a year ago.

And now some analysts are saying the current crop could be the worst in more than 100 years, with more than 10% of the acreage lost due to sodden ground.

“Going forward there will be 10 million prevent plant corn acres and 3 million prevent plant soybeans. The yield is going down also. This a history making event in US crop production. Few understand the serious situation,” said Chuck Shelby, president of Risk Management Commodities.

Corn futures have rallied more than 18% in the past three weeks while soybeans have rallied just 5% over the same period.

However, with continued rain forecast, there is some concern that the corn rally could spill into soybean futures as delayed plantings expected to switch from corn to soybeans may not occur.

“The trade is focused on short covering in corn, which is lifting nearby contracts higher. Say the same planting problems arise for soybeans later this planting season, the same thing could happen to CBOT soybeans,” said Terry Reilly, an analyst at Futures International.

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Secrets and conspiracies

OK, I had to do it. I couldn’t write a book* about commodity trading without (finally) reading The Secret Club that Runs the World—Inside the Fraternity of Commodities Traders by Kate Kelly, formally a journalist with the Wall Street Journal. The book was published in June 2014, so you may ask why it took me so long to get around to reading it. The answer is that the title put me off. It reeks of a conspiracy theory; it suggests that the commodity traders work together to secretly “run the world.”

But it wasn’t just the title that put me off; it was also the advertising blurb. The publishing company writes, “… if the individual participants in the great commodities boom of the 2000s went unnoticed, their impact did not. Over several years the size of the market exploded, and so did prices for raw materials—raising serious questions about whether the big traders were intentionally jacking up the cost of gasoline, food, and other essentials bought by ordinary people around the world. What was really driving all those price spikes?”

All sensational stuff! The advertising blurb adds that the author “takes us inside this secretive inner circle that controls so many things we all depend on”.

Imagine my surprise, therefore, when I finally read the book and found that it wasn’t the conspiracy-accusing, and industry-demolishing, book that the title suggested. In fact, it was more like a cross between Gala and Vanity Fair magazines.

I recommend that you read the book if you are, for example, interested to know that the fiancée of one hedge fund manager went to Paris three times to have her wedding dress fitted, but eventually chose a dress that was off the peg. Or that the same hedge fund manager decided not to drive his Bugatti in the South of France for fear that gravel from the driveway would chip the car’s paintwork.

It is a nice book, fun and easy to read, and as entertaining as celebrity gossip always is. But I am afraid you won’t learn much about commodity trading from it. Nor will you learn anything about the secret club of commodity traders that rules the world.

So why the misleading title and advertising blurb? Probably because the publishing house knows how to sell books—and they know that everyone likes a conspiracy theory. They know that people like to believe that secret clubs—or groups of powerful, often sinister, people—control our lives, and indeed really do rule the world.

The only problem is that they don’t, and it was therefore impossible for Kate Kelly to write a book that lived up to its title.

The political scientist Michael Barkun has argued that people like conspiracy theories for three reasons. He writes,

“First, conspiracy theories claim to explain what institutional analysis cannot. They appear to make sense out of a world that is otherwise confusing. Second, they do so in an appealingly simple way, by dividing the world sharply between the forces of light, and the forces of darkness. They trace all evil back to a single source, the conspirators and their agents. Third, conspiracy theories are often presented as special, secret knowledge unknown or unappreciated by others. For conspiracy theorists, the masses are a brainwashed herd, while the conspiracy theorists in the know can congratulate themselves on penetrating the plotters’ deceptions.”

There is certainly no shortage of conspiracy theories in our commodity markets. As Dan Morgan wrote in Merchants of Grain, it explains why trading “companies…stay in the shadows most of the time. Perhaps it was the ancient nightmare of the middleman-merchant that made them all so secretive—the old fear that in moments of scarcity or famine, the people would blame them for all their misfortunes, march upon their granaries, drag them into the town square and confiscate their stocks.”

Unfortunately, there can often be an anti-Semitic element in this, particularly as many traders and financiers are Jewish. Daniel Ammann touched on this issue in his book, The King of Oil. He wrote,

“For centuries Jews in Europe had suffered from discrimination. They were unable to become farmers, as they were forbidden from owning land. As they were excluded from the craft guilds, they were unable to become craftsmen. The Catholic Lateran Council of 1215 stated that Jews were not allowed to carry out the most important economic activities of the time. They were however permitted to perform one function that was proscribed for medieval Christians: making loans with interest. Thus the Jews became moneylenders and traders in the absence of other options.

“It is one of the ironies of history that the persecution and expulsion of the Jews is what made such an efficient trading community possible. King Edward I of England expelled the Jews in 1290, and the French monarchs Philip IV and Charles VI chased them from fourteenth-century France….Sephardic Jews were forced to leave Spain in 1492. By the onset of the modern era, the Jewish Diaspora was greater than that of any other people. The scattered Jews had a trading tradition that was second to none and sufficient confidence to enable trade over large distances and periods of time.”

But I will lead the last word to Yuval Noah Harari, author of Sapiens—A brief History of Mankind. He writes,

“As a historian, I’m sceptical about conspiracy theories because the world is far too complicated to be managed by a few billionaires drinking scotch behind some closed doors.”

© CommodityConversations®

* I hope to publish Out of the Shadows: The New Merchants of Grain later this year