The morality of a commodity fund
Hi! Been trading commodities for a few years now.
Have heard that futures trading has adverse effects on the developing markets where a lot of commodities are produce using labour in less than perfect condition.
Would like to know your thought on if it's morally perfect and is positive for all involved in the actual procurement of the commodities to trade commodity futures?
Can you imagine what those folks would be left to without the global reach of commodities?
Not entirely sure what you are getting at. Futures should smooth out the procurement experience which is a net positive for people working on the production size. Some research points to speculative activity in derivatives elevating price levels but the negative impact would be felt by consumers in that case.
there are no adverse effects...whoever told you that has no clue what they are talking about
Can it have an inflationary effect on the actual consumers? Due to speculative activity. Especially around crop reports.
no...futures markets and speculators provide liquidity and price discovery
imagine a world without those 2 things? everybody loses
If you want to question morality, look at the Petrodollar system which allows America to outsource its inflation to developing countries. This system is enforced by endless war in the Middle East.
It's more complicated than that due to currency. America offloads normalized depreciation of the $USD from increases in the money supply to developing countries by waging war on any ME nation that dares to sell fossil fuels in non-dollar currency.
That's more in line with what I'm curious about.
I’m assuming your view point here is comming from all the articles recently about coffee and milk producers being hurt by a slump in futures prices. In both cases that slump is caused by oversupply. The oversupply is caused by stupid government attempts to manipulate the market. So maybe instead of asking yourself if commodities are immoral you should be asking yourself if the government actions are moral.
Is that why Cafe Grumpy is always out of Oatly?
You've been speaking with Bernie?
Nah.
All joking aside, there are different studies about this topic and various publication. Speaking from my experience and point of view, we have seen in power markets how this plays in favour of consumers.
Let me explain, in European gas and power markets we have different levels of integrations, with month ahead markets more developed than day ahead. Integration in the one-month-ahead markets is mainly driven by NBP hub, acting as referential hub, which suggests price convergence driven by financial trading rather than by physical balancing On the other hand, day ahead is way more exposed to physical transmission
I think that for other commodities could be the same; ie implications related to the law of one price
TLDR, Financial derivatives are great tools in integrating markets and do not mine labour etc.
Thanks
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