Anglonautes > English vocabulary / words > Economy > Commodities

HOUSTON — Mark Juull, a construction contractor for public and residential housing, has something to be thankful for in this sluggish economy: With global commodity prices falling, he’s saving $200 a week on fuel for his three trucks and finding deals on aluminum, lumber and roof shingles, which are typically made from petroleum.

But he says he thinks prices for his raw materials could easily shoot right back up, so he is not passing any of his savings on to his customers. “When the economy hit me bad, I actually lost money,” he said. “So with prices going down, I am recouping.”

Businesses big and small are getting a break these days as the European financial crisis and slowing growth in China, India and the United States have pushed down the prices of a wide array of commodities in recent weeks. If the trend continues, businesses and consumers are likely to reap benefits through cheaper prices for goods ranging from cotton shirts to copper wiring and coffee beans. So far, however, businesses seem to be benefiting a lot more than their customers.

Over the last month, global oil prices have declined by about 12 percent, while corn, copper, lead, cocoa and coffee have all dropped by 5 percent or more. Prices of corn, cocoa, oats, cotton, rubber, coffee, aluminum, silver, zinc and nickel are all more than 20 percent lower than a year ago.

Gasoline prices are falling precipitously, too, down nearly 20 cents over the last month alone, to a national average of $3.54 a gallon on Wednesday. That is nearly 45 cents below the high for the year reached in early April. The average household consumes 1,200 gallons of gasoline a year, so every dime shaved off the price of gas translates into a $120 annual savings, according to the Oil Price Information Service.

“The world economy is in risk of a recession and on that possibility, commodity prices weaken,” said Allen L. Sinai, chief global economist for Decision Economics, a consulting firm. “Lower inflation comes with weakening economies.”

Oil is among the commodities that have fallen in price the fastest despite continuing tensions in the Middle East and the tightening sanctions on Iran. OPEC production has been soaring in recent months because of mushrooming crude exports from Iraq, an almost total resumption of exports from Libya since the fall of the Qaddafi dictatorship, and a concerted drive by Saudi Arabia to push up production. At a meeting in Vienna on Thursday, OPEC is expected to decide to keep production steady despite weakening prices.

In the United States, a glut of natural gas has led to a price drop of about 10 percent over the last month and more than 50 percent over the last year. Since much of the nation’s electricity is produced by burning natural gas, that should ease summer air-conditioning expenses for consumers. It will also help manufacturers, especially those who make plastics, fertilizers and other products that use natural gas as a feedstock.

But while consumers are pleased by lower fuel prices, they say they have yet to see much relief in the prices of other products linked to commodities.

“I don’t feel food is going down,” said Connie Shanley, a homemaker shopping at a Whole Foods store this week in West University Place, Tex. “Paper towels, deodorant, soap, cleaning products seem to be going up. The total bill seems to be more.”

Libba Letton, a Whole Foods spokeswoman, conceded that there were limited benefits for consumers in the short term.

“Typically these market fluctuations do not immediately affect Whole Foods Market because we have long-term contracts with our suppliers,” she said.

Other businesses also acknowledge that prices for raw materials go up and down far faster than the prices their customers pay for finished goods. Clothing retail executives have said they need to sell off inventory purchased when textile prices were higher before consumers can take full advantage of falling cotton prices, while car parts retailers say they are still paying high shipping costs that have not fallen along with lower fuel costs.

Paul J. Chakmak, executive vice president and chief operating officer of Boyd Gaming, a national chain of hotels and casinos, said his company was benefiting from lower jet fuel prices since it operates four weekly charter flights to shuttle tourists from Honolulu to Las Vegas. Lower natural gas prices help reduce the cost of cooking at hotel restaurants and of heating the shower water in 11,500 rooms. But he said the energy savings were marginal compared with labor and marketing costs, so customers would not see lower prices.

“It is a little soon,” Mr. Chakmak said, to predict any long-lasting impact.

More than anything else, economists say, the steep drop in prices reflects deepening worries about a global economic slowdown as Greece prepares for elections next weekend that could lead to its withdrawal from the euro currency union, with financial repercussions across Europe and beyond. A sharp drop in European consumer demand, especially in Italy and Spain, has already reduced global trade in many goods.

But economists say that while manufacturers and retailers tend to pass higher costs on to their customers, they do not always pass along their savings when wholesale prices go down.

“Producers or stores tend to keep prices the same, and take a larger profit,” said Michael P. Niemira, chief economist for the International Council of Shopping Centers.

Commodity prices are still generally high, and well above levels nearly four years ago, when the global financial panic reversed a seven-year bull market.

The decline in commodity prices varies widely depending on the raw material. Cotton prices are down nearly 50 percent over the last year, and have actually been recovering a bit in recent weeks. Copper, a metal that is viewed by many economists as a barometer for economic activity, is down by nearly 20 percent for the year. Gold, normally a commodity that soars with economic uncertainty, is higher but only by about 3 percent over the last year.

“Gold has behaved in line with risky assets, and the heightened uncertainty globally has not rallied the same support gold garnered on previous occasions,” according to a recent research note from Barclays commodities.

Some analysts say that commodities have sold off so steeply that they are bound to turn around and resume the bull market that was spurred by growing demand from emerging middle classes in the developing world.

In an investment note this week, Goldman Sachs argued that oil and some other commodities were poised for a rebound. “Although the macroeconomic backdrop still remains uncertain, particularly in Europe,” the bank said, “we believe that the price risks are now shifting more to the upside.”

Some analysts note that China is still growing and importing large amounts of oil, and can be expected to be a steady importer of raw materials.

“The fact that China is moving from an export model to an internal consumption model may be positive for some commodities such as energy and agricultural products,” said Nelson Louie, global head of commodities at Credit Suisse’s asset management division.

Economy’s Mixed Blessing: Commodity Prices Fall,
NYT,
13.6.2012,
http://www.nytimes.com/2012/06/14/
business/economy/weak-economys-mixed-blessing-
falling-commodity-prices.html

Companies Raise Prices

as Commodity Costs Jump

February 14, 2011
The New York Times
By STEPHANIE CLIFFORD,
MOTOKO RICH
and WILLIAM NEUMAN

This article is by Stephanie Clifford, Motoko Rich
and William Neuman.

A package of Oscar Mayer cold cuts. A pair of Nine West boots. A Whirlpool washing machine.

By the fall, people will most likely be paying more for each of them, as rising prices hit most consumer goods, say retailers, food companies and manufacturers of consumer products.

Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running.

“There are cost pressures from virtually everywhere,” said Wesley R. Card, the chief executive of the Jones Group, whose brands include Nine West and Anne Klein. After trying to keep retail prices flat or even lower during the recession, Jones says prices for its brands will climb 15 to 20 percent by autumn.

When commodity prices started to rise last summer, many manufacturers and retailers absorbed the costs, worried that shoppers would not pay higher prices during the competitive holiday season or while the economy was still fragile.

Many big companies, including Kraft, Polo Ralph Lauren and Hanes, say they cannot hold off any longer and must raise prices to protect some profits.

Whether shoppers will pay is unclear. “Consumers are not exactly in the frame of mind or economic circumstances to say ‘Oh, pay whatever they ask,’ ” said Joshua Shapiro, chief United States economist at MFR Inc. “There’s going to be pushback.”

Economists say the increases may eventually show up as inflation, though they are not yet projecting rates that would set off alarms. Despite some fears, inflation has been extremely low, at a rate of just 1.4 percent annually in December. Data for January will be released Thursday, but economists expect inflation will run about 2.5 percent this year.

Some do see the creeping signs of higher inflation, and warn that the Federal Reserve will need to raise interest rates or at least stop pumping more money into the economy. Others argue that such moves would choke off economic growth sorely needed to get companies hiring again.

For consumers, higher prices in stores means there will be a little less extra cash to spend. For companies, profits may be squeezed, making them a little less likely to invest in equipment or to hire aggressively.

“One has to think about these higher prices not as a reason for economic activity to get derailed,” said John Ryding, chief economist at RDQ Economics, “but as a reason why the recovery is slower than might otherwise be the case.”

Given that the price of a gallon of gas is now well over $3 on average, Americans may feel that they are already dealing with higher prices.

Adding to the cost of food won’t greatly distort most household budgets. Food, gas, clothing, personal care products and cleaning and laundry supplies make up less than a quarter of household spending in the United States, according to government data.

People at the bottom of the income scale struggle more as these prices rise, of course, because a larger share of their spending is on such essentials.

To some, the prospect of modestly higher prices is no reason to worry. In fact, rising prices can indicate improving economic conditions. Greater demand from fast-growing countries like China has helped push up the costs of many raw materials — though officials there are worried about inflationary pressures, as are some officials in Europe.

In the United States, the willingness of companies to raise prices shows they are feeling better about the domestic recovery.

The sharp rise in commodity prices since last year has not translated into all new records. Food commodity prices are about 8 percent below the high in the summer of 2008, while energy prices are less than half their zenith. Prices of a basket of other commodities are about 4 percent below the heights of mid-2008.

The cost of raw materials accounts for a small portion of the cost of most consumer goods, as labor, processing and packaging tend to make up a larger share of the price at the cash register. Foods like coffee, meat and milk, which are closer to raw materials, will probably show some of the biggest price jumps.

Companies that try to pass on all their costs could meet resistance. Although consumer spending has risen, unemployment remains at 9 percent, and average hourly earnings are up less than 2 percent over the last year.

“These companies are constantly walking a tightrope on how far do I go,” said Jack Russo, a consumer goods analyst at Edward Jones. “Do I offset with price or other cost cuts, or do I just take it and have it eat into my profit margins?”

Already, rising raw material costs have cut into corporate profits. Kimberly-Clark, which makes Kleenex tissues and Huggies diapers, said fiber- and oil-based products had contributed to a small dip last quarter. Procter & Gamble said earnings fell slightly in the division that makes Crest toothpaste, as well as in its household brands unit, which makes Tide and Cascade.

Plenty of companies are indicating they will push up retail prices. Kraft, the largest United States food manufacturer with brands like Oscar Mayer, Velveeta and Ritz crackers, said it would raise prices on many products this year without saying which ones or how much.

Soaring prices for coffee have pushed up costs at the coffee shop. Starbucks said last fall that it would raise some prices. Sara Lee, which sells Hillshire Farms meat and Senseo coffee, said that it would, too, on many items.

Restaurants, which resisted raising prices to keep customers coming through the doors last year, are also fretting. They may take other steps too, like lowering thermostats, shrinking packaging or reducing portion sizes to minimize the sticker shock.

Meat prices have surged because of the cost of feed, a decision by farmers to raise fewer cattle and pigs, and strong demand worldwide as living standards rise. An epidemic of foot-and-mouth disease that devastated South Korean hog farms has led to a recent surge in orders for American pork.

This year, “you’re going to have to raise prices to stay in business,” said Len M. Steiner, owner of the Steiner Consulting Group, which works with restaurant companies on ingredient purchasing.

Whirlpool says consumers can expect to pay 8 to 10 percent more for its products starting April 1. Apparel companies like Polo Ralph Lauren and Brooks Brothers said they would raise prices this year. Hanes Brands, which has already done so, said prices on cotton-heavy products would rise again at the end of summer. If cotton costs stay high, Hanes products could have a cumulative 30 percent increase.

Some companies don’t think they can get away with charging more. PepsiCo, which makes soft drinks and snacks, like Fritos, said it would be cautious.

Victoria’s Secret is nudging prices ever so slightly, with panties rising from five for $25 to five for $25.50.

John D. Morris, an analyst with BMO Capital Markets, said retailers would probably try to manage costs in myriad ways.

Prices rose significantly in the apparel sector from 1972 to 1974, driven by labor costs and commodity prices, he said.

“The retailers went on to have a pretty good year in ’73,” Mr. Morris said. “Sales were up, gross margins were flat, and profit margins were up a little bit. Retailers found a way.”

Companies Raise Prices as Commodity Costs Jump, NYT, 14.2.2011,
http://www.nytimes.com/2011/02/15/business/15prices.html

Droughts, Floods and Food

February 6, 2011
The New York Times
By PAUL KRUGMAN

We’re in the midst of a global food crisis — the second in three years. World food prices hit a record in January, driven by huge increases in the prices of wheat, corn, sugar and oils. These soaring prices have had only a modest effect on U.S. inflation, which is still low by historical standards, but they’re having a brutal impact on the world’s poor, who spend much if not most of their income on basic foodstuffs.

The consequences of this food crisis go far beyond economics. After all, the big question about uprisings against corrupt and oppressive regimes in the Middle East isn’t so much why they’re happening as why they’re happening now. And there’s little question that sky-high food prices have been an important trigger for popular rage.

So what’s behind the price spike? American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve, with at least one commentator declaring that there is “blood on Bernanke’s hands.” Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of “extortion and pillaging.”

But the evidence tells a different, much more ominous story. While several factors have contributed to soaring food prices, what really stands out is the extent to which severe weather events have disrupted agricultural production. And these severe weather events are exactly the kind of thing we’d expect to see as rising concentrations of greenhouse gases change our climate — which means that the current food price surge may be just the beginning.

Now, to some extent soaring food prices are part of a general commodity boom: the prices of many raw materials, running the gamut from aluminum to zinc, have been rising rapidly since early 2009, mainly thanks to rapid industrial growth in emerging markets.

But the link between industrial growth and demand is a lot clearer for, say, copper than it is for food. Except in very poor countries, rising incomes don’t have much effect on how much people eat.

It’s true that growth in emerging nations like China leads to rising meat consumption, and hence rising demand for animal feed. It’s also true that agricultural raw materials, especially cotton, compete for land and other resources with food crops — as does the subsidized production of ethanol, which consumes a lot of corn. So both economic growth and bad energy policy have played some role in the food price surge.

Still, food prices lagged behind the prices of other commodities until last summer. Then the weather struck.

Consider the case of wheat, whose price has almost doubled since the summer. The immediate cause of the wheat price spike is obvious: world production is down sharply. The bulk of that production decline, according to U.S. Department of Agriculture data, reflects a sharp plunge in the former Soviet Union. And we know what that’s about: a record heat wave and drought, which pushed Moscow temperatures above 100 degrees for the first time ever.

The Russian heat wave was only one of many recent extreme weather events, from dry weather in Brazil to biblical-proportion flooding in Australia, that have damaged world food production.

The question then becomes, what’s behind all this extreme weather?

To some extent we’re seeing the results of a natural phenomenon, La Niña — a periodic event in which water in the equatorial Pacific becomes cooler than normal. And La Niña events have historically been associated with global food crises, including the crisis of 2007-8.

But that’s not the whole story. Don’t let the snow fool you: globally, 2010 was tied with 2005 for warmest year on record, even though we were at a solar minimum and La Niña was a cooling factor in the second half of the year. Temperature records were set not just in Russia but in no fewer than 19 countries, covering a fifth of the world’s land area. And both droughts and floods are natural consequences of a warming world: droughts because it’s hotter, floods because warm oceans release more water vapor.

As always, you can’t attribute any one weather event to greenhouse gases. But the pattern we’re seeing, with extreme highs and extreme weather in general becoming much more common, is just what you’d expect from climate change.

The usual suspects will, of course, go wild over suggestions that global warming has something to do with the food crisis; those who insist that Ben Bernanke has blood on his hands tend to be more or less the same people who insist that the scientific consensus on climate reflects a vast leftist conspiracy.

But the evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.

Droughts, Floods and Food, NYT, 6.2.2011,
https://www.nytimes.com/2011/02/07/
opinion/07krugman.html

Food Prices Worldwide

Hit Record Levels,

Fueled by Uncertainty, U.N. Says

February 3, 2011
The New York Times
By NEIL MacFARQUHAR

UNITED NATIONS — Global food prices are moving ever higher, hitting record levels last month as a jittery market reacted to unpredictable weather and tight supplies, according to a United Nations report released Thursday.

It was the seventh month in a row of food price increases, according to the United Nations Food and Agriculture Organization, which put out the report. And with some basic food stocks low, prices will probably continue reaching new heights, at least until the results of the harvest next summer are known, analysts said.

“Uncertainty itself is a new factor in the market that pushes up prices and will not push them down,” said Abdolreza Abbassian, an economist and the grain expert at F.A.O. “People don’t trust anyone to tell them about the harvest and the weather, so it has to await harvest time.”

Scattered bright spots in the report led experts to suggest that a repeat of the 2008 food riots stemming from similar sharp price increases might not be imminent. Rice was slightly cheaper and meat prices stable, they noted. But the overall uncertainty and inflation could eventually make the situation worse than three years ago, they said.

Riots and demonstrations erupting across the Middle East are not directly inspired by rising food prices alone, experts noted, but that is one factor fueling the anger directed toward governments in the region. Egypt was among more than a dozen countries that experienced food riots in 2008.

The F.A.O. price index, which tracks 55 food commodities for export, rose 3.4 percent in January, hitting its highest level since tracking began in 1990, the report said. Countries not dependent on food imports are less affected by global volatility. Still, food prices are expected to rise 2 percent to 3 percent in the United States this year.

Four main factors are seen as driving prices higher: weather, higher demand, smaller yields and crops diverted to biofuels. Volatile weather patterns often attributed to climate change are wreaking havoc with some harvests. Heavy rains in Australia damaged wheat to the extent that much of its usually high-quality crop has been downgraded to feed, experts noted.

This has pushed the demand and prices for American wheat much higher, with the best grades selling at 100 percent more than they were a year ago, Mr. Abbassian said. The autumn soybean harvest in the United States was poor, so strong demand means stocks are at their lowest level in 50 years, he said.

Brokers are waiting to see how acreage in the United States will be divided between soybeans, corn and cotton, with cotton fetching record prices, Mr. Abbassian said.

Sugar prices are also at a 30-year high, he said. Prices for cereals are rising but still below their April 2008 peak. Oils and fats are up and close to their 2008 level, and dairy is higher but still below its 2007 peak, the report said. Even positive news, like good rains in Argentina and a strong harvest in Africa, has failed to keep prices from rising.

“Food prices are not only rising, but they are also volatile and will continue this way into the future,” said Ngozi Okonjo-Iweala, the World Bank managing director.

Changing diets around the world stemming from higher incomes, especially in places like China and India, mean a greater demand for meat and better grains. Although it takes time for that to translate into higher prices globally, it does buoy demand, the experts said.

In 2009, the richest nations pledged more than $20 billion to aid agriculture in developing countries, including $6 billion for a food security fund housed at the World Bank. Just $925 million of those pledges has been paid, Ms. Okonjo-Iweala noted, because of financial problems in the donor countries. That will bring consequences, she said, as one billion people already go without sufficient food daily.

Derek Headey, an economist with the International Food Policy Research Institute, noted that in 2007 and 2008 many African countries were hit hard by soaring import bills, as were nations spread across the world, like Afghanistan, Pakistan and Ecuador.

But some of the world’s largest and poorest countries experienced rapid economic growth and only modest food inflation, so the number of people facing food insecurity in nations like China, India, Indonesia and Vietnam actually went down at that time, he said.

“This time around there is still strong economic growth in these countries, but inflation is much more of a problem,” he said. “So it is possible that the impact could be worse in 2011, especially if food prices stay high.”

It will take some months for those figures to emerge, he added.

    Food Prices Worldwide Hit Record Levels,
    Fueled by Uncertainty, U.N. Says, NYT, 3.2.2011,
    http://www.nytimes.com/2011/02/04/world/04food.html

Agriculture Futures Fall on the CBOT

January 29, 2009
Filed at 11:30 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

CHICAGO (AP) -- Agriculture futures were lower midday Thursday on the Chicago Board of Trade.

Wheat for March delivery dropped 11.25 cents to $5.84 a bushel; March corn fell 5.5 cents to $3.79 a bushel; March oats lost 1 cent to $2.13 a bushel; and March soybeans sank 16.5 cents to $9.66 a bushel.

Beef futures fell and pork futures traded higher on the Chicago Mercantile Exchange.

April live cattle slipped 0.32 cent to 84.1 cents a pound; March feeder cattle fell 0.52 cent to 90.05 cents a pound; February lean hogs gained 0.18 cent to 56.9 cents a pound; and February pork bellies advanced 0.3 cent to 78.8 cents a pound.

    Agriculture Futures Fall on the CBOT, 29.1.2009,
    http://www.nytimes.com/aponline/2009/01/29/business/
    AP-Board-of-Trade.html

Agriculture Futures

Mostly Higher on Chicago BOT

December 17, 2008
Filed at 11:13 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

CHICAGO (AP) -- Agriculture futures were mostly higher in midday trading Wednesday on the Chicago Board of Trade.

Wheat for March delivery rose 9 cents to $5.53 a bushel, while March corn lost 1 cent to $3.93 a bushel, and March oats added 4 cents to $2.30 a bushel. January soybeans rose 5.5 cents to $8.64 a bushel.

Meanwhile, beef and pork futures mostly rose on the Chicago Mercantile Exchange.

February live cattle traded up 0.40 cent to 87.20 cents a pound, while January feeder cattle added 1.48 cents to 92.60 cents a pound. February lean hogs lost 0.35 cent to 62.10 cents a pound, but February pork bellies added 1.03 cents to 85 cents a pound.

    Agriculture Futures Mostly Higher on Chicago BOT, NYT, 17.12.2008,
    http://www.nytimes.com/aponline/2008/12/17/business/
    AP-Board-of-Trade.html

Food Prices

Expected to Keep Going Up

November 27, 2008
The New York Times
By ANDREW MARTIN

For more than a year, food manufacturers have been shaving package sizes and raising prices, declaring that they had little choice because of unprecedented increases in the cost of raw ingredients like corn, soybeans and wheat.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants.

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.

The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.

Some economists project even steeper increases next year. For instance, Bill Lapp, principal at Advanced Economic Solutions in Omaha, said he expected food prices to jump 7 to 9 percent next year.

“For the last 21 months, food manufacturers, restaurants and livestock producers have been absorbing significant costs that in my view are likely to be passed on to consumers in 2009 and beyond,” said Mr. Lapp, a former chief economist at ConAgra Foods.

While predicting future food prices is an inexact science, data released by the Labor Department last week suggested the forecasters might be right.

Overall consumer prices recorded the biggest drop in the history of the Consumer Price Index, but food prices continued to inch upward, albeit at a slower pace than in previous months. The C.P.I. showed that grocery prices rose 0.1 percent in October.

Some of the more visible items on grocery shelves, including produce and dairy products, dropped sharply in recent weeks, but not enough to offset the general trend of rising prices. Restaurant prices rose 0.5 percent in October.

Commodity prices began climbing rapidly in the fall of 2007, and food companies were hit hard by the increases. They tried to slow eroding profit margins by cutting operating costs, making packages smaller and raising prices.

Some companies, like Kellogg and Heinz, have managed to offset the higher ingredient costs and post robust profits by using shrewd commodity hedges and by raising prices without losing many customers. They also benefited from a trend of consumers eating out less and buying more groceries.

But other food companies have struggled. Hershey, for instance, locked in high cocoa prices this year only to see prices drop this fall, analysts say. And meat and poultry companies have been hit by higher feed costs and a limited ability to charge higher prices, at least in the short term.

Now, even though costs for ingredients like corn and wheat have dropped, meat and poultry providers say they still have not raised prices enough to cover their increased costs. And packaged food manufacturers are unlikely to lower prices because commodity costs remain relatively high and they are still trying to rebuild eroded margins.

Michael Mitchell, a spokesman for Kraft Foods, said that the company’s food ingredient costs this year were running $2 billion higher than in 2007, a 13 percent increase, but that the company had raised its overall prices by only 7 percent.

William P. Roenigk, senior vice president and chief economist for the National Chicken Council, said his industry had been losing money for more than a year. Chicken producers are now trying to recover those costs by reducing production, which will eventually alter the balance between supply and demand. “The time is coming when we’re going to see a very significant increase in the retail price of chicken,” he said.

The restaurant industry, which has been battered by a sharp drop in customers, also says it has not been able to raise prices enough to keep pace with the cost of ingredients.

People in the restaurant business said they did not like raising prices during an economic downturn. “If anything in this environment, one would be looking at the ability to offer much greater emphasis on value pricing in restaurant menus,” said Hudson Riehle, chief economist of the National Restaurant Association. “In contrast, exactly the opposite is happening. Our operators are being forced to raise menu prices at the highest rate since 1990.”

Predictions about food prices are subject to change because commodity prices are unpredictable. Ephraim Leibtag, an economist for the Agriculture Department, said food inflation would slow by the middle of next year if commodity prices remained low. “Right now the forecast is about 4 percent, but that would be lowered if we do not see any surge in commodity costs over the next few months,” he said.

A reason that overall food prices are expected to continue increasing is the lag between price increases for basic commodities and for finished food products in the grocery store, particularly for meat and processed foods. Consider the price of corn, an ingredient in things like cereal and breaded shrimp. It was not too long ago that corn hovered around $2 or $3 a bushel.

But corn prices began climbing last fall and peaked around $8 a bushel in June. They have since dropped to about $3.50 a bushel, still above the historical norm. Some food manufacturers locked in prices for corn and other commodities in the spring and summer, fearing that prices could go even higher. But prices fell instead, and they are now stuck with the higher prices until their contracts expire.

When costs go up for livestock producers, they are often unable to immediately raise prices because those prices are set on the open market, which is dictated by supply and demand. Instead, they begin reducing the size of their herds or flocks, which eventually leads to less meat on the market and higher prices. But reducing livestock production can take months to years, and in the interim it can actually suppress prices as breeding animals are slaughtered to reduce production.

The prospect of more food inflation is inflaming a debate over its causes. Many food manufacturers and economists maintain that one culprit is government policies promoting the use of ethanol fuel made from corn.

About a third of the corn crop is used for ethanol, putting ethanol producers in competition with livestock farmers and food manufacturers. The result, they contend, is that prices for corn are now higher and more volatile.

“The connection of oil prices to agricultural commodities is new as of 2007, and it’s a major game changer for those in the food production business,” said Thomas E. Elam, president of FarmEcon, a consulting firm.

But ethanol advocates counter that the food industry’s arguments have been proved false, saying that corn prices have declined as ethanol production is increasing. Matt Hartwig, spokesman for the Renewable Fuels Association, an ethanol industry group, said food companies were “very quick to tell the American public that they had to raise food prices because corn was so expensive, and that the reason corn was so expensive was corn-based ethanol.”

Mr. Hartwig added: “Now, clearly, we know that relationship doesn’t exist. If ethanol isn’t the reason, what is the real reason for food prices going up?”

Food Prices Expected to Keep Going Up, NYT, 27.11.2008,
http://www.nytimes.com/2008/11/27/business/27food.html

The Food Chain

Fields of Grain and Losses

November 21, 2008
The New York Times
By DAVID STREITFELD

WALTERS, Okla. — The farmers said it would not last, and they were right.

When the price of wheat, corn, soybeans and just about every other food grown in the ground began leaping skyward two years ago, farmers were pleased, of course. But generally they refused to believe that the good times would be permanent. They had seen too many booms that were inevitably followed by busts.

Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.

The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.

In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year’s winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.

This looming loss sharpens their regret that they did not unload more of this year’s crop back when they harvested it in May. They knew the boom would end, but not so soon.

“I waited all my life for wheat to go from $4 to $5,” said Jimmy Wayne Kinder, a fourth-generation farmer. “Then it hit $10, and we were all asking, ‘What are we going to do?’ ”

Mr. Kinder, who farms about 5,000 acres with his father, James Kinder Jr., and his brother, Kevin, held onto much of his wheat, hoping that prices would go still higher. Instead, they plunged. “I lay in bed at night kicking myself,” Mr. Kinder said.

The farmers in Walters still have to worry about drought and floods and grain bugs and army worms, as they have for decades, but they have new anxieties beyond their control: Manic commodity markets. A rising dollar that makes their crops more expensive overseas. And — an urgent new concern this fall — the solvency of their banks.

In September, when banks began failing at the height of the credit crisis, Mr. Kinder called Mickey Harris, his banker at the First State Bank of Temple. “Are we going to be O.K.?” he asked.

Mr. Harris offered reassurances that the privately owned, one-location bank was fine, but he feels the fate of farmers, until recently one of the strongest sectors in a slumping economy, is less certain.

Unless wheat stages an unexpected recovery, Mr. Harris said, “a year from now these farmers’ net worth will surely be less.”

Oklahoma exports two-thirds of its wheat, more than the country as a whole. That worked to the state’s advantage in 2007 and the first half of 2008, as a combination of bad harvests in Australia, the cheap dollar and rising Asian consumption created intense international demand.

The state’s farmers responded, naturally enough, by ramping up production. Because of better weather and therefore a better yield, 166.5 million bushels of wheat were harvested in Oklahoma this spring, a 10-year high. And because of the high prices, the crop was valued for the first time at more than $1 billion, nearly twice as much as 2007 and nearly three times as much as 2006.

“They made a killing,” said Kim Anderson, a grain economist at Oklahoma State University.

Assuming, that is, they sold. The farmers who cashed in at the right moment are acquiring legendary status. “I know a fellow that sold some wheat for $12 a bushel. That was almost beyond belief,” said James Kinder, 74.

But his son suspects that most were like the Kinder family: they either did not sell or did not sell enough.

The Kinders still have about 40 percent of their wheat, stored on the farm and in commercial grain facilities. “Farmers are terrible marketers,” said Jimmy Wayne Kinder, 50. “We fall in love with our crop.”

It was the same misguided optimism that caused homeowners to think their houses would always keep increasing at a 20 percent annual clip. Farmers across the country fell prey to it.

David Kanable at the Oregon Farm Center, a mill near Madison, Wis., was paying $7.25 a bushel for corn in June. “We never had a farmer lock in at that price. They wanted $8,” Mr. Kanable said. On Thursday, the mill was paying $3.17 a bushel.

When commodity prices were feverish, the price of good farmland exploded, too. Cropland values rose about 20 percent in the Midwest farm belt last year, capping a multiyear rise, according to the Agriculture Department. Walters and other areas southern Oklahoma, where the land is not as rich and the crops have to be coaxed from the soil, were swept up in the excitement.

The previous land boom around Walters was in the late 1970s, a reaction to the high commodity prices of that era. Land went for as much as a thousand dollars an acre.

“Doctors and lawyers were buying the land from farmers,” said the senior Mr. Kinder. “Then prices fell, and those same doctors and lawyers were begging the farmers to take it off their hands.”

Prices dropped to $500 an acre. Only in the last few years did they begin to approach the records set three decades ago.

On a recent sparkling Saturday morning, two dozen farmers showed up for an auction of 160 acres owned by a Kansas woman whose family had held it for decades. The farmer who worked the land, Russ Scherler, brought his checkbook but little hope that he would be top bidder.

Rick High, the auctioneer, chatted up the farmers from the back of his pickup, saying that credit was tight but land was a safe haven. His opening demand: $150,000. Not a farmer moved. “How about 120?” Mr. High asked. No luck. And so the price sank to $60,000, where the first bid was made.

From there, it slowly climbed back up, finally going for $122,000 — about $760 an acre — to a farmer who had sold some land earlier and now needed to buy to avoid tax charges.

Mr. Scherler was disappointed, but not surprised. “Missed me by about $30,000,” he said.

A half-mile up the road, a parcel the same size that was deemed slightly inferior had sold a few weeks earlier for $128,000. The market for land is definitely weakening.

One reason is that the investors and part-time farmers are once again dropping away. Jim Mumford, an equipment dealer in Walters, says demand for small tractors has dried up. Where part-timers might once have put in a small crop, there are only weeds. “They’re holding off till things get better,” Mr. Mumford said.

The Kinders are making their own adjustments.

“The market says, ‘Here’s the price. You want to make any money, get below it,’ ” said Jimmy Wayne Kinder.

One way to do that is by diversifying, so they bought 2,000 head of cattle. This has its own risks: a hard winter will mean less grazing for the cattle, which translates into buying more feed. It is also a gamble that cattle prices will rise instead of sinking, as they have been all fall.

Another way to get under the market price is by trying to do more with less. The Kinders are practically spoon-feeding nitrogen and phosphate fertilizers onto their wheat.

It is a queasy time. “Given the current economic environment, I don’t think anyone can predict commodity prices,” said Mr. Anderson, the economist.

If production costs do not fall or wheat prices do not rise by next spring, he said, farmers will be contacting their representatives in Congress and requesting higher price supports.

The elder Mr. Kinder, who is pessimistic enough to think land values will once again fall 50 percent, is taking it philosophically.

“People have great prosperity and everyone gets spoiled,” he said. “Then there are times of great hardship and everyone learns patience.”

Fields of Grain and Losses, NYT, 21.11.2008,
http://www.nytimes.com/2008/11/21/business/21farm.html

Commodity Prices Tumble

October 14, 2008
The New York Times
By CLIFFORD KRAUSS

HOUSTON — The global financial panic and the economic slowdown have put at least a temporary end to the commodity bull market of the last seven years, sending prices tumbling for many of the raw ingredients of the world economy.

Since the spring and early summer, when prices for many commodities peaked amid fears of permanent shortage, wheat and corn — two cereals at the base of the human food chain — have dropped more than 40 percent. Oil has dropped 44 percent. Metals like aluminum, copper and nickel have declined by a third or more.

The swift turnaround is the brightest economic news on the horizon for consumers, putting money into their pockets at a time they need it badly. Gasoline prices in the United States are falling precipitously — by about 24 cents over the last five days, to a national average of $3.21 a gallon on Monday — and analysts said they could go below $3 a gallon nationally this fall, down from a high of $4.11 a gallon in July.

Prices for most commodities remain elevated by past standards, and they rose a bit on Monday amid the broad market rally. But the trend seems to be downward as traders weigh the prospect that the global economic crisis will lead to sharp drops in demand. The big question is whether prices will drop all the way to long-term norms or whether Asia’s continuing economic boom has set a floor.

The rapid commodity decline has eased fears of inflation, a reason central banks were able to lower interest rates around the world last week in an effort to salvage economic growth. It also represents a fundamental shift of view that is driving markets these days.

A scant few months ago, Americans were seen as participants in a bidding war with the emerging Chinese, Indian, Russian and Brazilian middle classes for a basket full of products. But that was before an extreme slowdown in demand for things as diverse as gasoline and aluminum and the retreat of investment money from commodity futures into safer havens like government bonds.

The commodity bust began before last week’s broad market declines, though the panic has exacerbated the pressure on commodities. Oil dropped by 10 percent on Friday alone, but then recovered some of that loss Monday to settle at $81.19 a barrel, far below its high in July of $145.29.

“Commodities followed the euphoria cycle that we had along with housing,” said Robert J. Shiller, an economist at Yale who specializes in market bubbles. “We had the idea that the world is growing very fast, people are getting very rich and, by the way, we are running out of everything. That theory doesn’t seem so good when the economy is collapsing.”

Some analysts, while welcoming the recent declines, say they believe that prices are likely to remain above long-term norms. Food, in particular, could be a continuing problem: today’s prices are still too high to allow many people in developing countries to afford adequate diets. Nor have the recent declines been passed along in American grocery stores, at least as of yet. The United Nations has projected that global food prices will remain elevated for years.

The price increases of recent years served their economic function, calling forth additional supplies of many commodities — farmers planted every acre they could, mining companies opened new mines and oil companies went to the far corners of the earth to drill wells. In many cases, the prices also caused demand to decline even as supply started rising.

Americans, the world’s largest fuel consumers, have been cutting back on gasoline all year, and the decline is approaching double digits. Motorists pumped 9.5 percent less gasoline for the week ended Oct. 3 compared with the same week a year earlier, according to MasterCard Advisors, which tracks spending. In a report on Friday, the International Energy Agency cut its forecast for global oil consumption yet again, projecting that 2008 would end with the slowest demand growth in 15 years.

Big increases in world wheat production because of increased acreage in the United States, Canada, Russia and much of Europe have brought wheat prices to less than $6 a bushel today from nearly $13 in March.

Soybean prices have dropped to $9 a bushel from $16 since July, in part because of a record crop in China and a slowdown in Chinese imports. Corn prices are also easing amid expanded supply.

A theory among economists is that commodity prices are still at the beginning of a steep fall as the credit squeeze takes the world economy into a deep recession.

“When you have a seven-year bull run, you are going to have more than a four-month correction, and we are just beginning our fourth month,” said Richard Feltes, senior vice president and director of commodity research at MF Global Research. “We have got more deflation coming in the housing sector, in capital assets, and it’s going to continue in commodities as well.”

But many economists say a lasting price collapse is unlikely because the emerging middle class and growing populations in developing economies will continue to have strong appetites for fuels and metals.

Some say that the other commodity bull markets in modern history — approximately spanning 1906 to 1923, 1933 to 1955 and 1968 to 1982 — lasted more than twice as long as the current run. They included some sharp corrections before they ran their course, suggesting that the current drop, however precipitous, could be temporary.

Though the picture is slightly different for every commodity, prices generally hit a low point for the decade soon after the terrorist attacks of Sept. 11, 2001, then rose as the global economy strengthened in the following years. From late 2001 until mid-2008, the price of oil rose 800 percent, copper rose 700 percent and wheat rose 400 percent.

The decline of recent weeks has taken virtually every major commodity more than halfway back to its late 2001 price, adjusted for inflation. The recent drop has been so rapid that if the pace continued, it would take only a few more weeks to erase the gains of the bull market entirely.

That suggests to some analysts that prices could hit a floor fairly soon. “The underlying fundamentals of strong demand for energy, food and industrial commodities will come back,” said Michael Lewis, global head of commodities research for Deutsche Bank.

Many analysts think oil could fall to $70 a barrel in the next few months, if not sooner. But it is hard for them to believe it will go much lower: oil is not becoming easier to find, as fields in Mexico peter out and suppliers like Iran, Nigeria and Venezuela remain unreliable.

The costs of finding oil in deep waters or mining oil sands in Canada remain high, in the $60 to $70 a barrel range — and since those are now vital sources of supply, they could help put a floor under the oil price. Additionally, the Organization of the Petroleum Exporting Countries could cut production to try to shore up prices, probably at an emergency meeting it will hold Nov. 18. Analysts note that the credit crisis and economic slowdown will inevitably stall new industrial projects, reducing demand for metals. But the falling prices will also discourage new mining and drilling. When economic growth resumes, that could produce metal shortages that would drive prices back up.

The biggest single factor that will decide whether a prolonged bull market in commodities is over, or just in a lull, is the Chinese economy. The industrial development of that country in recent years was responsible for much of the world’s increased consumption of copper, aluminum and zinc, and almost a third of the increase in oil consumption.

Chinese growth has slowed but is still running above 12 percent, and that country is expected to undertake some huge projects in coming months as it repairs damage from earthquakes and storms.

Kevin Norrish, a senior commodities researcher at Barclays Capital, said that in a recent visit to China he found that domestic demand for copper was still strong but that exports were weakening. Chinese copper wire manufacturers, he said, “are very depressed indeed because their export orders have fallen a long way.”

He said that as high as prices for commodities rose in recent years, the bull run in the late 1970s and early 1980s was even more buoyant. Of all the major commodities, only oil at its peak in July traded at a higher price than in the last bull market, adjusted for inflation.

That previous bull run, stimulated by years of high economic growth and inflation, was followed by nearly two decades of weak prices that accompanied the transition in the United States from an industrial to a service economy. Then China and India appeared on the world stage as major economies at the turn of the new century, followed by the oil-driven economy in Russia and greater consumption in the Middle East the last four or five years. Mr. Norrish is one of many commodities analysts who think that the story of China, India and other developing countries’ spurring commodity demand is not over.

“What we are seeing is a pause in what we see as a very, very long bull run,” Mr. Norrish said.

    Commodity Prices Tumble, NYT, 14.10.2008,
    http://www.nytimes.com/2008/10/14/
    business/economy/14commodities.html

Commodities:

Latest Boom, Plentiful Risk

March 20, 2008

The New York Times

By DIANA B. HENRIQUES

The booming commodities market has become increasingly attractive to investors, with hard assets like oil and gold perhaps offering a safe hedge against inflation, as well as the double-digit gains that have fast been disappearing from the markets for stocks, bonds and real estate.

Undeterred by the kind of volatile downdrafts that sent oil plunging 4.5 percent Wednesday, to settle at $104.48 a barrel, large funds and rich individual investors have sent a torrent of cash into this arcane market over the last year, toppling records for new money flowing in.

Small investors are plunging in, too, using dozens of new retail commodity funds to participate in markets that by one measure have jumped almost 20 percent in the last six months and doubled in six years.

But this market, despite its glitter, offers risks of its own, including some dangerous weaknesses that are impairing the ability of regulators to police fraud and protect investors. Commodities are also vulnerable to the same worries affecting the rest of Wall Street, where on Wednesday the Dow Jones industrial average plunged almost 300 points, erasing more than two-thirds of Tuesday’s steep gains.

Moreover, the biggest speculators and lenders in the commodities markets are some of the same giant hedge funds, commercial banks and brokerage houses that are caught in the stormy weather of the equity, housing and credit markets.

As in those markets, an evaporation of credit could force some large investors — especially hedge funds speculating with lots of borrowed money — to sell off their holdings, creating price swings that could affect a host of marketplace prices and wipe out small investors in just a few moments of trading.

“Right now is a very scary time” for commodity market regulators, said Michael Riess, a director of the International Precious Metals Institute, a consultant to commodities investors for more than 30 years. “It’s not a question of overregulating or underregulating. It’s a question of just being swamped by volume, volatility and a dramatic shift toward speculative interests.”

Developments on Wall Street in the last few days underscored the new risks. Both Bear Stearns and its prospective new owner, JPMorgan Chase, are important clearing brokers that process and guarantee their clients’ trades in the commodities markets.

Officials at the exchanges where those trades occur had to monitor Bear Stearns’s financial situation carefully throughout last week to ensure that its cash shortage did not affect its commodity positions or those of its clients.

Walter L. Lukken, who heads the federal agency that regulates most commodity markets, said his staff had been able, so far, to cope with both the markets’ growth and the recent tremors from Wall Street.

"Even with the enormous volume coming through,” said Mr. Lukken, acting chairman of the Commodity Futures Trading Commission, “we think we have gotten a very good handle on the market. You can’t catch them all, of course, and you worry that something will get past the goalie. But we have been able to scale up the regulatory monitoring system to deal with increasing volume.”

Regulators and exchange officials take comfort from the rising commodity prices, which reduce the risk that lenders will grow nervous about their collateral and withhold new credit. Despite a broad commodities sell-off yesterday, a Commodity Research Bureau index remains almost 40 percent higher than a year earlier.

But it has been a roller coaster: commodity prices can record daily percentage changes that dwarf typical movements in stocks. Yesterday, when crude oil gave back some of its 85 percent annual gain and gold dropped almost 6 percent after an annual gain of 44.5 percent, the Standard & Poor’s 500-stock index fell 2.4 percent, leaving it down 7.4 percent over the last year. On its worst single day over the last year, it fell 3.2 percent.

So stock market investors seeking these formidable gains will find themselves on unfamiliar terrain. The heart of commodities markets is the so-called cash market, a “professionals only” setting where producers sell boatloads of iron ore, tanker ships full of oil and silos full of wheat for immediate use.

Wrapped around that core are the commodities futures markets. Here, hedgers and speculators trade various versions of a derivative called a futures contract, which calls for the delivery of a specific quantity of a commodity at a fixed price on a particular date.

Futures contracts trade both on regulated exchanges and in the immensely larger but less regulated over-the-counter market, where banks and brokers privately negotiate futures contracts with hedgers and speculators around the world.

The prices at which all these contracts trade indicate the potential strength of demand and supply for commodities still in the ground or in the fields. That makes them important to everyone who produces, buys and uses those goods — wheat farmers, baking companies, grocery shoppers, oil companies, electric utilities and homeowners.

Prices here can also influence the values of the increasingly popular exchange-traded funds, or E.T.F.’s, that focus on commodity investments. Born barely four years ago, these funds had net assets of $32.8 billion in January, compared with less than $4.8 billion in 2005.

But as the futures markets have grown, the ability of federal regulators to police them for fraud and manipulation has been shrinking, as a result of legislative loopholes and adverse court decisions. And despite widespread agreement that these regulatory gaps are bad for investors and consumers, they have not yet been repaired.

The oldest of these is the so-called Enron loophole, an 11th-hour addition to the Commodity Futures Modernization Act of 2000 that gave an exemption to private energy-trading markets, like the one operated by Enron before its scandalous collapse in 2001. Regulators later accused Enron traders of using this exempt market to victimize a vast number of utility customers by manipulating electricity prices in California.

Related to that loophole is a broader one for a category called exempt commercial markets, envisioned in the 2000 law as innovative professional markets for nonfarm commodities that did not need as much scrutiny as public exchanges.

What lawmakers did not anticipate was that one of the exempt markets, the IntercontinentalExchange, known as the ICE and based in Atlanta, would become a hub for trading in a product that mirrors the natural gas futures contract trading on the regulated New York Mercantile Exchange.

In 2006, traders at a hedge fund used the ICE’s look-alike contract as part of what regulators later asserted was a scheme to manipulate natural gas prices, again at great cost to users. The fund denied the accusation, and civil litigation is pending.

That case persuaded the commission that it needed more power to police these exempt markets, at least when they help set commodity prices. But so far, it has not received it, despite repeated requests to Congress.

Another attempt to close these loopholes is attached to the pending farm bill, which is scheduled to emerge from a Congressional conference committee next month. But this latest effort, too, faces market and industry opposition.

The courts have also curbed the commission’s reach. In three cases since 2000, judges have interpreted federal law to severely limit the commission’s ability to fight fraud involving both over-the-counter markets and specious foreign currency contracts used to victimize individual investors.

The commission has filed appeals, but a far quicker remedy would be for Congress simply to revise the laws, as the commission requests.

Mr. Lukken said he was confident that passage of the commission’s proposed language as part of the farm bill would address those shortcomings, as well as the exempt-market problem.

Finally, the commodities market has not yet dealt with what some economists say are inherent conflicts that have arisen as the futures exchanges, which have substantial self-regulatory duties, have been converted into for-profit companies with responsibilities to shareholders that could conflict with their regulatory duties. (For example, shareholders may benefit when an exchange’s regulatory office ignores infractions by a trader who generates substantial income for the exchange.)

By contrast, when the New York Stock Exchange and Nasdaq became profit-making entities, they spun off their self-regulatory units into an independent agency, now called the Financial Industry Regulatory Authority.

The C.F.T.C. never encouraged that approach, trying instead — so far unsuccessfully — to adopt principles that would encourage the for-profit exchanges to add independent directors to oversee their self-regulatory operations.

Independent directors do not owe any less loyalty to shareholders than management directors would, said Benn Steil, director of international economics at the Council on Foreign Relations. "The statutory regulators have got to acknowledge these conflicts and act accordingly," he said.

His view is opposed by Craig Donohue, chief executive of the CME Group, the for-profit company that operates the Chicago Mercantile Exchange and the Chicago Board of Trade and may soon merge with the New York Mercantile Exchange.

“We succeed because we are regulated markets, among other things. That’s part of our identity and brand,” Mr. Donohue said. Effective self-regulation, he added, is “very consistent with the shareholder interest.”

Mr. Lukken nevertheless plans to push ahead with his call for more public directors. “The important point is trying to minimize and manage conflicts,” he said. “Public directors are uniquely qualified to balance the interests of the public as well as the requirements of the act.” Although the effort has been delayed, he added: “This is not an indefinite stay. It’s a priority of mine that we hope to complete in the coming months.”

But some with experience in the commodities market remain nervous about the new money pouring in so quickly.

Commodity trading firms that have survived for any length of time have excellent risk-management skills, said Jeffrey M. Christian, managing director of the CPM Group, a research firm spun off from Goldman Sachs in 1986. Mr. Christian said he was less certain how the newcomers would deal with risk.

“You have the stupid money coming into the market now,” he said last week. “And I think the smart money is beginning to get a little frightened about what the stupid money will do.”