Industrial Harvest

Talking commodities at the G20 by sarah kavage

At France’s insistence, agriculture ministers of the G20 met this week for the first time ever to discuss ways to curb increasingly volatile (and ever-higher) food prices.

France was pushing pretty hard for curbing speculative activity in food commodities markets – Sarkozy and his agricultural minister were talking tough going into the negotiations, stating that France would not be backing down in these negotiations, even at the expense of getting to a deal.  As much as I admire France for taking this on, they must really relish their world role as surrender monkeys, because no matter how well intentioned the resulting “action plan”, well, it’s weak and watered down and no match for any food price crisis.   The high points of the agreement are an attempt at greater market transparency and a pilot program establishing emergency humanitarian grain reserves.  Other than some weak statements of consensus, that’s about it.  Any restrictions on / further regulation of speculation will be deferred to the G20 finance ministers, who the agriculture ministers “strongly encourage” to take action.  Pardon my cynicism for believing that the finance ministers will take that recommendation straight to the round file.


FFD protest at the CME 4/15! by sarah kavage

Come one, come all, to the Chicago Mercantile Exchange / Board of Trade building at La Salle & Jackson on Friday, April 15 (tax day): It’s time for the annual Family Farm Defenders protest!

FFD has been protesting down at the CME for several years now, and from what I’ve been told (oh, how I wish I were able to be in Chicago for this) the traders actually know about – and sort of look forward to – the protest and the discussion.  The web link above has a concise, cogent explanation of what’s wrong with the CME and what needs to change to make the institution more transparent, fair and democratic.  If you don’t live in Chicago, there’s information about who to call at the Commodity Futures Trading Commission and Senate Judiciary Committee to demand reforms.

And back to our regularly scheduled program… by sarah kavage

Over the past weeks / months, this blogspace has been largely populated by emails and a few letters from people that have done all these good deeds with the flour they’ve received from this project – bringing people together to enjoy a good meal, feeding others that are tired from work / studying, need of some inspiration, or just plain hungry.  As great as these stories are, one could look at this blog and forget the impetus behind the Industrial Harvest project, and that’s not my intent at all.

If you need a reminder as to what this project is all about, all you need to do is look at the news.  Food prices have continued to go up – right now, the price of food is higher than it’s ever been, even higher than the food price crisis in 2008.  All that unrest in Tunisia and Egypt?  It may be good for democracy, but it was largely fueled by anger at skyrocketing food prices, which in developing nations are more closely linked to commodities.  In the Middle East and North Africa, wheat is the commodity of choice – Egypt is the world’s largest wheat importer.  Algeria (the #4 global wheat importer) also saw food riots recently, along with  Jordan.  As a friend explained to me, wheat is a relatively small market (dwarfed by corn and soy) and therefore more vulnerable to price swings, and these places are highly reliant on that particular staple crop as a source of nourishment.  Big problem – regardless of the regime that’s in place.

There’s no shortage of debate as to what’s making food prices go up.  Some argue that it’s basic supply and demand:  Global population is increasing and urbanizing – and as people in developing nations gain wealth, they consume more meat and more food and more land previously used for farming (as we in the “developed” world consume boatloads of everything, like we always have).  So it is now more difficult to carry over a surplus of staples from year to year, and any uncertain weather or political event event that lowers expected yields will cause prices to spike.

Oh yeah, and those uncertain weather events?  Things like floods, cyclones, droughts, wildfires, late freezes?  There are more and more of those these days, thanks to global climate change, and they certainly impact the global food supply.  Paul Krugman and Joseph Romm at Climate Progress have articulated this argument nicely.  I can’t imagine it yields a lot of satisfaction for the climate scientists, who have been predicting these sorts of things for years, to be vindicated now.

And then there’s the price of fuel, which tracks closely with the price of food – industrially grown commodities require a large amount of energy to grow and transport.  The Peak Oil crowd points out that as oil supplies decline, the prices of both food and fuel will go up even further.  To make things worse, in our desperation for an oil substitute, we are dedicating a significant amount of food crops to producing biofuel.

Other folks point to the devaluation of the US dollar and Bernanke’s policy of “quantitative easing” as the root of the problem.  Ironically, a cheaper US dollar in relation to other currencies drives up the demand for (and subsequently the price of) commodities.

Lastly, there’s the argument that the growth in commodity speculation has played a role – the financialization and deregulation of the  commodities markets (along with the bust in the tech and mortgage derivative markets) have led to an explosion of commodity hedge funds, pension funds, index funds, derivatives, swaps, and on and on.  All that nasty stuff that got us into trouble with the credit and housing crisis is now impacting the food system.

So are Wall Streeters disrupting the food supply in their desire to make a buck?  Well, yes – I think they probably are, and yes, it’s part of the point of this whole Industrial Harvest thing.  Frederick Kaufman’s excellent article for Harpers’ in July was what personally convinced me once and for all, but Kaufman is not the only one sounding the alarm.  Some EU countries – primarily France – have recently spoken up in favor of stronger regulation of commodity markets.  France, as the leader of the G20 this year, is poised to push this issue.  The UN Food & Agricultural Organization (FAO) is right there with them.  And all of a sudden, in the midst of all the hubbub around Egypt, a few mainstream news outlets seem to be starting to pick up the story as well.  Better late than never, guys (see here, here and here).

Of course, it’s unrealistic to pretend that what’s going on with food prices is based on any single factor.  Nor can I be 100% sure what’s going on.  But, if someone asked me, I would sum up my view of the situation as increased demand and a host of other factors (climate events, biofuels, monetary policy, etc.) magnified by a pretty large and unstable speculative system, which is in turn driven by a few huge, powerful, vertically integrated corporations.  This is all exacerbated by the fact that with markets it doesn’t matter what’s actually happening – it just matters what people think is happening – and what people think people think is happening (and so on).   The fact that this house of cards could be brought down by any of, oh, 5 or 10 or 100 different and / or random events (or all of them, or some of them) is not only discomfiting.  It also makes it easy for any single party to point the finger at the others, effectively diffusing responsibility, perpetuating ignorance and causing those who should care to throw up their hands in inaction and confusion.

bread and riots by sarah kavage
September 12, 2010, 9:59 pm
Filed under: Commodities trading, project updates, the wheat market

Hey, wow, the last post was dated August 9.  Has it really been that long?  I do apologize…in the mania of leaving Chicago, going back to Seattle, alley weddings, other art installations, trying to catch some of the last summer weather, returning to Chicago, trying to set up a ton of events, and then leaving yet again to visit my folks back in Ohio (from whence this post is dispatched) – well heck, I just got sidetracked.

The food riots in Mozambique last week are a little bit of an old story by now, but the increase in wheat prices caused a 30 percent increase in the price of bread there.  Speculation on the Board of Trade is implicated in the price runup – the article above suggests that investors may have turned to commodities due to low interest rates and a volatile stock market.  The quote in the final sentence of the article  is worth a reprint:  “We are going to have much bigger fluctuations in weather and therefore the food supply than we had in the past, so we are going to have to learn how to cope with fluctuating food prices.”

The government of Mozambique coped by reducing bread prices (which are set by their government, so it’s too bad people had to riot before this happened).  The reductions in the price of bread were paid for by (among other measures) reducing compensation for the chairmen of the boards of public companies (that sentence is a grammatical nightmare, sorry).

In other news closer to home, check out the updated Industrial Harvest events listings for fall.  There’s a lot of great stuff on deck, including two weeks of programming at Mess Hall starting this Wednesday, the 14th.  There’s more that’s being added to the calendar for the weekend of the 18th too, so take another look in a couple of days – we’re working out some last scheduling details.  Hope to see you there!

The latest on the Board by sarah kavage
August 6, 2010, 7:48 am
Filed under: Commodities trading

Just a quick post to mention what the wheat markets are doing lately.  Going up, up and up – December wheat was over $8 a bushel yesterday in Chicago, due to drought in Russia, crop failures and subsequent wheat export ban.  This all makes high American wheat prices.  Also makes me wish I’d stayed in the futures market…one little taste & you get greedy.

The Bloomberg article mentions potentially higher prices for foodstuffs as a result of this price spike almost as an afterthought, but of course, price increases are a major concern in the developing world.  At the same time, I’m not sure how much high prices will benefit farmers.  From what I understand, most wheat farmers sell their wheat right after harvest, and since harvest was in July, many of them would have sold their crops already.  Although July wheat prices weren’t bad, it certainly wasn’t $8 a bushel.  Anyone out there who knows more care to comment?

“Food Bubble” interview on KUOW by sarah kavage
June 25, 2010, 11:42 am
Filed under: Commodities trading

Frederick Kaufman, the author of the Harpers’ ‘Food Bubble’ article, did an interview on KUOW (the Seattle NPR station) yesterday:

Kaufman gives a very clear and to the point explanation of how commodities trading works, what is broken in the market, what happened in the food bubble of 2008, and touches on some potential solutions that were not discussed in the article.  Check it out, especially if you haven’t read the article!   More soon…

the Greedy People Book Report by sarah kavage

During the train trip out here, I read three books about greedy people.

Leg The Spread:  A Woman’s Adventures Inside the Trillion Dollar Boys’ Club of Commodities Trading. Cari Lynn, Broadway Books, 2004.
Leg The Spread was fascinating, but not all I’d hoped.  Lynn was theoretically a clerk on the floor of the Chicago Mercantile Exchange for two years, but seemed to have gotten the gig as a favor from a trader friend in order to do research for the book.  At no point did Lynn seem to engage in any real trading activity.  So the book wasn’t really a memoir, or maybe one that was concocted for the purpose of collecting other people’s stories.  The stories are undeniably entertaining – largely about the insane things people do when they are at constant risk of losing it all or hitting the jackpot:  throwing up and/or passing out on the trading floor, blowing 20 grand on a bed frame, wearing the same “lucky” tie for years on end, punching, shoving, spitting, all kinds of nasty dude stuff.  Oh yeah, and the straight up sexual harrassment that occurs on the trading floor for the few women that can tough it out.  But still, Lynn shies away from deeper  critique of any kind and what is left is a rather random collection of others’ memories.

I.O.U.:  Why Everyone Owes Everyone and No One Can Pay. John Lanchester, Simon & Schuster, 2010.  This book was touted as a book on the financial crisis that was straightforward and funny, and while Lanchester is definitely clever, most of what he says made me too angry for any laugh out loud moments – even a chuckle seemed a little much.  It’s a great big-picture, plain English explanation of everything that went down with the whole financial crisis, though, and because Lanchester is British, we get a broader perspective.  Lanchester’s defining moment of scholarship is naming the fall of communism as the moment where the crisis began.  As he describes it, the loss of any ideological foil for the capitalist countries meant that the capitalist countries were no longer subjected to critiques by the communist regimes, and no longer had to prove themselves able to take care of those on the bottom.  As Lanchester puts it:  “the jet engine [of capitalism] was unhooked from the ox cart [of social justice] and allowed to roar off at its own speed.”

The Pit.  Frank Norris, 1903.
A few years ago I read Norris’ McTeague, a fantastic, dark novel about the San Francisco working class, which perhaps caused me to harbor higher hopes for The Pit than I should have.  Rather romantic and predictable, the novel details the rise of a self made man who begins trading in wheat, gets good at it (spoiler alert, not that you wouldn’t see it coming anyway), corners the market and then loses it all.  I probably would not have finished it were it not for my academic and historical interest in the topic, but it’s not all bad.  Norris’ descriptions of the trading pits at the Board of Trade are quite similar to Cari Lynn’s 100 years later, and Norris does have a way of capturing the mood of a place and time.  Unlike Lynn, Norris does not shy away from describing the consequences of futures trading on the people who eat the wheat, and those who grow it.  This was back before the market was a god to be obeyed, before the economists had been elevated to high priest status.  People actually questioned the ethics of such things.

Speaking of, I finally did find a copy of the long-sought after Harpers’ article (Fredrick Kaufman, July 2010:  The Food Bubble:  How Wall Street starved millions and got away with it).  It’s a must read.  Kaufman, who obviously knows his stuff, directly implicates Goldman Sachs (and other Wall Street firms, but Goldman leads the way) in the historic price run-ups in wheat and the resulting food price bubble  in 2008.  I’ve been reading about the wheat price bubble, and Kaufman’s explanation is the most cogent and detailed I’ve seen so far.  And damning.  Goldman developed the first commodities index fund, what could perhaps be described as a cousin of the derivatives that were the foundation of the mortgage crisis. Kaufman quotes several experts as saying that happened in 2008 (food price increases, starvation, food riots) will inevitably happen again.  So the same firm that was behind all these people getting kicked out of their homes is also putting the price of food out of reach for many (in the US too, not just the global south).  Why is manipulating prices of the things people need to survive (food, shelter) not criminal?

And, a postscript:  a good portion of my train trip was spent in the lounge car adjacent to a young boy and his grandmother.  The boy was pretty much a total brat, and spent much of the time yelling at his grandmother:  “Give me all your money!  All of it!  I want candy!   Give me the money!  Give me all the money!”  Funny, he didn’t look old enough to be a Goldman exec.  And yes, she did eventually relent.

All in the Family by sarah kavage
I just found out that I’m not the first person in our family to be involved with the Board of Trade.  I recently got an email from my Dad’s cousin Ted, who was a runner at the Board of Trade while going to college in Chicago back in the 60s.  I’m going to have to interrogate him further at some point, but for now here’s Ted, detailing a few vivid memories of those years in his own words (with a few edits for clarity): 

“I’ll bet you didn’t know this…I worked on that exchange for 2 years. I was a “runner” on the trading floor. The exchange was open from 9 to noon.  I went to school from 2 to 8.  It was a perfect part time job. I worked for Dean Whitter at the time.” 

“I used to ride the “L” from Logan Square to La Salle and Jackson…that was the Grain exchange stop.  At that time I was only getting 3 1/2 hrs sleep, what with working, going to DeVry, and other un-mentionable stuff.  I would fall asleep standing up on the “L.” There was not usually a problem of falling during the rapid stops between Logan Square and my stop.  The train cars were packed pretty tight in the morning and there was always somebody to land on.
On one occasion, I was really sleeping soundly in the back of the rail car and was unaware that the train passed my stop and most of the passengers cleared leaving no one to catch me.  As you might have guessed…the train hit the next stop and I slid face down over 1/2 the length of the car. So now what do I do…get up, dust myself off,  act like this happens on a regular basis and get off the train. I was just a little late for work that day.  When I put it together, I will write about getting tangled up in an old wooden revolving door.”

“I was on the trading floor when Kennedy was assassinated.  Was an interesting experience.  At that time they had 20 cent price stops on all the grains traded. It took about 10 minutes for all commodies to hit the stops after the shooting. Took abut 3 days to recover. It was an incredible panic. (Oh, a STOP was when trading stopped until the price came back up or down to the norm. The stops were reset every trading day…i.e. let’s say December wheat was selling for 230 a bushel and went to 250, then trading would stop.  The next trading day December wheat would start at 250 and could go to 270.  Probably more than you wanted to know).”

“Was the biggest legalized gambling hall I have ever seen.”

A CBOT Walking Tour with Mike Wolf by sarah kavage

Back in December, I met Mike Wolf, a talented artist and thoughtful person who has done a lot of perambulating and mulling over global institutions and big systems.  Being a bit of a perambulator myself, we hatched up a plan to go for a walk around the financial district and check out the new home of the Chicago Mercantile Exchange (otherwise known as the old home of the Chicago Board of Trade). 

Looking Down the LaSalle St. Canyon

Looking down the LaSalle St. canyon, Chicago flags flap in the wind on a bitterly cold day. The CBOT is at end of the 'canyon,' fading into the sky in this photo.

For those of you who don’t follow commodities or futures markets, up until 2007 there were TWO commodities and futures exchanges in Chicago:  the Chicago Board of Trade (the CBOT, est. 1848), which traded grains, gold and ethanol, and the Chicago Mercantile Exchange (the Merc, est. 1898), which traded butter, pork bellies, and lumber. 

The CBOT and the Merc merged in 2007 and are now known as the CME Group.  It’s pretty confusing trying to decide what to call them now – no one seems to use the term ‘CME Group’, some call it the CME and other folks still call it the Board of Trade, depending on what is being traded of course.  With the merger, the CME moved into the CBOT building; trading pits, already going out of style, were consolidated and there was apparently quite a bit of controversy around whose hand signals would be the new standard in the pits.  Yep, each exchange had its own unique signals!  Pity the poor trader that screws that one up. 

Mike speculated that the names of two of Chicago’s sports teams – the Bulls and the Bears – might be connected to the city’s financial markets.  I would guess the Bulls actually probably refers to the stockyards, but if Mike’s not right, he should be.  Although Wall Street gets all the attention, there’s a huge amount of $$$ and power rolling through Chicago’s financial district, at the heart of which is the Mercantile Exchange.  I mean the Board of Trade.  Er, no, the CME Group.  In 2008, the CME Group acquired the New York Mercantile Exchange (NYMEX), and this year bought up 90% of the Dow Jones indexes, including the ubiquitous Dow Jones Industrial Average.  That’s quite a portfolio. 

Here’s – to the degree that I’ve been able to reconstruct it – the CBOT building history.  If there are any people out there that know these dates / locations definitively, by all means tell me if these need to be corrected…I found some conflicting – or not quite clear – information. 

  First site at 105 S. Water St.
1856:  Moved to S. Water & LaSalle
1860:  Moved to temporary location on S. Water St.
1865:  Moved to LaSalle & Washington (Chamber of Commerce Building); this building was destroyed by the Chicago fire of 1871.  After the fire, the CBOT moved to the Wigwam at Washington & Market.  The Wigwam was a gigantic convention center built to house the Republication national convention that nominated Lincoln for president.  Once the Chamber of Commerce Building was re-built, the CBOT moved there until 1885, when it opened its own building, a large brick Victorian style designed by William Boyington, in the current location at LaSalle & Jackson.  The building was the tallest in Chicago for a time. 

1930:  The first LaSalle & Jackson building was replaced with the current art deco building.  It’s a beauty (although I heard somewhere that Frank Lloyd Wright poo-poohed it when it first was built) and was recently renovated back to its art deco grandeur.  Unfortunately, since 9/11 access into most of the building and to the trading floors are limited – Mike and I had to stick to the lobbies, the main hallways and the lower level restaurant Ceres.  It looks like if you go with the Chicago Architecure Foundation on a lunchtime tour you can take a peek at the trading floor. 

We also walked around the outside of the building, noting the ornamental touches:  grain motifs everywhere, the famous faceless sculpture of Ceres, goddess of grain at the top, and the gorgeous portraits to either side of the clock by Alvin Meyer – a Native American Indian woman to the left holding corn, and an Egyptian holding wheat. 

1980:  A major addition was tacked onto the existing building.  I have to say, Helmut Jahn’s postmodern rectangular steel and glass box clinging to the back of the tall and stately existing building was impressive, but lacked the grace of the original building and certainly has a tough time relating to it architecturally.  Still, it’s not as bad as the dull boxlike Chicago Board Options Exchange (CBOE) building lurking just behind it.

the CBOT's postmodern addition

the CBOT's postmodern addition

Other modern additions include a parking garage and widespread use of the CBOT octagon logo, which represents the octagonal trading ‘pits.’

CBOT parking garage, featuring octagonal 'pit' logo

CBOT parking garage, featuring octagonal 'pit' logo

A close-up of the CBOT (CME Group) logo.

A close-up of the CBOT (CME Group) logo.

Meanwhile, on the sidelines… by sarah kavage

If you follow commodities prices, you may have noticed that the they have dropped quite a bit since my last post – in fact, since I bought in the market has pretty much done little but go down.  Several days after I bought in, wheat prices started to falter, brought on by all that stuff going on in Europe with Greece needing to be bailed out, Germany balking and the Euro falling.  I sold as things began turning bearish, and am now sitting on the sidelines, waiting to jump back in the game at a point where I might recover what money I lost on the way down.  My losses didn’t add up to a lot, but they were apparently enough for me to start, as we urban planners like to say, “engaging in the process.”  I am now dilligently checking prices, trying to make some sense out of these daily market reports as they come in, and even got up a little bit early this morning so that I could call broker Jim before the trading floor opened. 

The market reports, however are full of advice like “we have no new passion for new positions” and “stay bearish.”  We seem to be in the midst of a rally in grain prices, which was why I was up out of bed before the opening bell, but when I spoke to Jim he’s convinced that the rally is unsustainable, prices are still up about 15 cents too high, and “as soon as Greece coughs, it’ll go back down.” 

This has all spurred me to think back to a conversation I had with another Jim – Jim Braun – back in Chicago in December.  For those of you who don’t know Jim, he’s an Iowa hog farmer turned advocate in favor of small farmers, local food and organic agriculture, and was one of the brains behind Illinois’ groundbreaking Food, Farms Jobs Act passed by the state legislature in 2007.  Jim pointed out to me that all these market reports continually make up reasons for why the market is moving up or down as if they know exactly what’s going on – it might be that the weather is bad, it might be that a certain country is deciding whether or not to import a bunch of grain from the US, it might be the larger economic conditions (which seems to be the consensus this week) or index fund movements driving prices – and usually all of these factors at once pushing and pulling the price around. 

Anyway, Jim’s point was that no one ever really knows what is causing the price to move, and while it could be any of these things it could also be something else entirely.  Because my day job involves social science research – trying to tease out the multiple factors that influence whether people walk, drive or take the bus – I know that people equate association with causation all the time.  Just because your statistical model says that two factors are associated, that doesn’t mean one factor is causing the other.  If carrying umbrellas is associated with traffic accidents, it doesn’t mean that umbrellas cause traffic accidents.  Rather, carrying umbrellas and traffic accidents are both associated with rain, and if you don’t pick up on this, you’re going to have a hard time getting that journal article accepted. 

The thing is that with the markets, you can do all the statistical modeling you want but ultimately it doesn’t really matter what the cause actually is, it only matters what people think the cause is, or what people think that others think the cause is (and so on, ad infinitum).  Talk about speculation!  Jim B. and I talked about the huge agricultural corporations that grow commodities on contract with farmers, own their own networks of grain elevators, trucks, barges and mills, get large payments from the government, export massive amounts of grain and also trade on the CBOT.  Surely, they wouldn’t ever take advantage of the knowledge and influence they have in order to make money as the rest of us stand on the sidelines, guessing…