"Markets and therefore volatility in markets are still fundamentally driven," said Steve Jesse, head of agricultural commodities sales at Barclays Capital. "I think everyone is trying to put the explanation for volatility on commodity funds. In Europe it was much more trade driven than fund driven."
As the world emerges from the economic crisis, the EU would like to see more clarity and transparency in commodity dealing. But people are missing the underlying causes of the recent price hikes, warned Jesse, as he addressed the Home Grown Cereals Authority's Grain Market Outlook Conference.
Demand continues to rise but there is only a finite amount of arable land available and natural phenomena such as weather, pests and diseases cause more of the price increases than speculation, he claimed.
Carl Atkin, a partner at Bidwells Agribusiness, agreed. He said that even at the height of the financial crisis, no more than a quarter of the high price achieved by wheat in particular was the result of speculation.
Even before the bad weather in Russia and subsequent grain shortages elsewhere hit supplies, there had been a certain amount of complacency in the market, said Jesse. Early forecasts had predicted a small surplus, which meant businesses did not hedge against rising prices.
While commodity dealers might be hit by any new legislation, they are an essential part of how trade operates in the commercial world, he argued. He also said that people were trying to put an easy explanation on the complex reality of market volatility.
Grain prices are becoming inextricably linked to the energy markets not only because of fuel used for transport, but also because of the rising use of arable land to grow biofuels.
Grain producers are facing increasing difficulty in choosing between foodstuff and biofuel grains, said Agriculture & Horticulture Development Board cereal and oilseed analyst, David Eudall. This may increase price volatility further, he added.