Prevalence of Undernourishment in Subsaharan Africa
In 2008 the price of food on the world market escalated to previously unheard of highs. This caused a food crisis in many of the world’s poorest countries.
John Vidal reports that the food price spike was not attributable to any reductions in the food supply. In fact, there was plenty of food to go around – prices were just too high. Vidal argues that the cause of this price inflation was rampant speculation in the commodity markets.
For some reason, the markets were spooked in 2008. This scare led traders to speculate that food would be in tight supply. The more the traders speculated, the higher the prices spiked causing a feedback loop that led to a price bubble. A bubble that was not based on any actual food shortages.
The conditions that led to the price hike in 2008 are again present in the commodity markets.
World Commodity Food Prices
With no discernible food shortages in 2008, a look at the historical trading data can show the correlation between trading volume and prices.
Since the U.S. corn market is the world’s largest, it is a good model to show the 2008 speculation at work.
The U.S. corn supply data shows a steady increase in corn supply for the last decade. Historically, an increase in supply would correlate to a decrease in price. However, the corn data shows the 2008 price spike occurred while there was substantial supply in the market.
The volatility data gives some insight into the reason for the price spike. High volatility in the market shows a high trading volume. The spike in volatility for 2008 reveals the market conditions that were at play with the record volumes of corn traded.