Odd Lots How Chinese Buying Is Causing a Boom in Agricultural Commodities
Feb 25, 2021
Scott Irwin, an agricultural economist at the University of Illinois, dives into the explosive surge in agricultural commodities, driven largely by China's burgeoning demand. He discusses how China is stockpiling supplies, which has led to rising prices for crops like corn and soy. Irwin explains China's introduction of live hog futures and the challenges farmers face amidst food inflation and supply chain disruptions. The conversation further explores the complexities of trading in futures markets and the impacts of U.S. agricultural policies on key commodities.
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Farm vs. Retail Prices
- Farm-level food prices don't directly translate to grocery store prices.
- Processing and other factors mean the farm's share is about 20% of the retail cost.
Who Hedges?
- Futures markets aren't used directly by most farmers for hedging.
- Instead, grain merchants handle the bulk of commercial hedging activity.
Futures Contract Success
- A successful futures contract is measured by trading volume and its ability to help discover prices.
- It should also be usable for risk management by people in the commodity sector.