London hedge fund Armajaro Asset Management has joined Kenneth Rogoff, former chief economist at the International Monetary Fund, in criticizing those who claim speculators artificially inflate commodity prices.
London hedge fund Armajaro Asset Management has joined Kenneth Rogoff, former chief economist at the International Monetary Fund, in criticizing those who claim speculators artificially inflate commodity prices.
Armajaro’s criticism, of recent comments by French president Nicolas Sarkozy, came in a week the World Bank announced a $4bn fund to help developing world farmers shield themselves against rollercoaster market prices, by using the same types of derivatives speculators employ.
Anthony Ward, co-founder of $2bn Armajaro, which is one of the world’s largest cocoa traders, said: “Sarkozy says it is [commodity traders’ fault food prices have gone up. That is a confused and wrong conclusion If there are limits on commodities, it will create a hike in prices.”
He cautioned, if trading positions were turned into inventories food prices would rise even more.
Sarkozy recently called for increased regulation of commodity trading in a speech to a European Union (EU) conference on raw materials.
He called for tougher rules, including to stop “market abuse”.
Many managers at hedge funds see in such political comments on regulation the seeds of curbs to their activity in the world’s booming commodity markets.
Rogoff told a recent DWS Investments conference: “It is nuts speculators are causing price rises, although maybe they are bringing price rises forwards. Blaming speculators [for price rises] is nuts, price rises are about China and India exploding.”
Meanwhile, the World Bank seems to be taking the approach ‘if you can’t beat them, join them’, by launching the Agriculture Price Risk Management commodity hedging product, with price protection of up to $4bn, in conjunction with J.P.Morgan.
World Bank Group president Robert Zoellick said: “With this new tool, we can help farmers, food producers, and consumers protect themselves against price swings, strengthen their credit position, and increase their access to finance.
“It shows what sensible financial engineering can do: make lives better for the poor.”
The World Bank Group’s private sector arm will commit up to $200m in credit exposure to clients, while J.P. Morgan will also take exposure.
Potential clients can include agricultural producers, consumers, aggregators, co-operatives, and local banks.
Zoellick said: “We have been in a period of extraordinary volatility in food prices, which poses a real danger of irreparable harm to the most vulnerable nations and people. High, uncertain and volatile food prices are the single gravest threat facing the most vulnerable in the developing world. People are hungry for food and for action on a global level.”
