Market Matters Blog

European Banks Back Away from Ags; Bernanke Rate Hints

By Katie Micik

I recently wrote about University of Illinois agriculture economist Scott Irwin’s stance towards the role of investment/other noncommercial traders in driving up commodity prices, and received a couple of very interesting comments. The debate about expanded position limits for noncommercial traders and volatility is an American one. In Europe, many banks have succumbed to pressure to close their ETF funds covering agricultural commodities, particularly soft commodities like sugar, cocoa and coffee, and food grains because of a push towards “socially responsible investing practices,” according to a recent article in the Financial Times.

An Oxfam report -- Oxfam is an international coalition dedicated to ending poverty -- accused banks that trade agriculture commodities of “speculating on hunger,” prompting more than half a dozen European banks to drop their agricultural ETF and even more to stop trading ag commodities. But that doesn’t apply to all banks. Two of Germany’s biggest banks, Deutsche Bank and Allianz, have refused to back away from ags after concluding there’s “little empirical evidence supports the idea that the growth of agricultural-based financial products provokes price increases or volatility in the food market.”…

Federal Reserve Chairman Ben Bernake told Congress and a conference hosted by the Fed that he’s got no immediate intentions of raising interest rates. When are interest rates going to start going up? I’ve heard this question multiple times during this busy conference season. Higher interest rates would have a broad effect on agriculture, certainly. But most economists I’ve spoken to agree that when interest rates rise, they won’t skyrocket like they did in the 1970s.

In Bernake’s speaking tour last week, his answers revealed that the Federal Reserve is updating its long term plan to unwind the massive liquidity injections the Fed’s put into the market, the Wall Street Journal report. Interest rates will rise from about 2% now to 4% or 5% by 2017, but adding any more detail is hard to do because of economic uncertainty. If you’re curious about interest rates, here’s a good read.…


-- USDA releases is supply and demand estimates on Friday, March 8 at 11 a.m. central time.

-- Twitter rumors that CME would announce its new trading hours on Friday were unfounded. We’ll keep our eyes out for any news to this point. CME announced it would change the hours more than a month ago, so there’s considerable anticipation that this news will be released soon.

-- Unemployment is the big topic on the economic calendar this week, with ADP releasing its payroll data on Wednesday and the Department of Labor will release nonfarm payrolls and an updated unemployment rate on Friday.


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Ric Ohge 3/5/2013 | 9:42 AM CST
Massive Liquidity Injections? Printing Money that has little but the "fresh air of faith" supporting it. Some major EU Banks are backing away from Commodity Speculation-but do Derivatives plan to go along with this. At least with the more visible "bankster" & Wall Street betting windows, we get to know who and how much-not so much with the shadowy Derivatives Market.
unknown writer 3/4/2013 | 8:03 PM CST
Katie, excellent blog again!! You really know how to keep it interesting and out did yourself again. Well done!