Following Tunisia and Egypt, it is now Libya’s turn to face an unprecedented wave of unrest in a context of generalized crisis in the Arab world. As a result, while Libya is one of OPEC’s four key oil producers, “black gold” prices are soaring. Even more surprising, agricultural commodity prices are taking a dive at the same time.
For the first time since 2008, the price of oil climbed over the symbolic $100 per barrel, while many agricultural commodities––wheat, corn, canola, rice and soybean among others––are showing the first price turnarounds that could herald future additional drops. After recording regular and uninterrupted spikes during the past few months, wheat dropped by 15 percent and corn by close to six percent.
For some financial analysts, including Jonathon Driedger at the Canadian consultancy FarmLink Marketing Solutions, the sudden drop is tied to a financial investment trend of substitutions between various commodities, since “the Libyan situation allows market operators to take even greater risks.” In fact, it seems that speculators, who were recently lured by agricultural commodities, are now restructuring their portfolios to include energy commodities, such as oil.
We are therefore observing that financial markets are becoming increasingly “jittery”, a situation that is unlikely to subside in the coming months, due to the combination of different factors––the operations and arbitrage transactions by speculators regarding various positions, the mimetic choices of agricultural producers as a result of recent spikes recorded on some crops1, and the current talks on concrete methods to achieve commodity market regulation in the framework of the G20. These are the very features that might trigger even more instability of financialized markets.
1 Please see Momagri article of ...