economics of speculation

so, reuters, (not the awesome song by wire off of their album pink flag, but the subject of that song), well, they could use some ekonomiks skoolin'.

likely that link is broken as you can't permalink a reuters piece.

anyway, i keep trying to figure out how speculators drive up prices. over time, they can't. certainly short term they can, they can also cause crashes during periods of adjustment down, but all of that implies only volatility, not higher prices over time. put bluntly, if you speculate that a commodity is worth more than is actually is, you just pay more for a commodity than it's actually worth and in taking delivery you're forced to either consume something that is beyond your ability to consume (hoarding, burning, whatever) or you sell it on the open market for what it's actually worth, aka a loss.

In theory there is some debate over if volatility is even increased because of speculation. It's probably most fair to say that volatility can be either increased or decreased by speculation, though it'd hardly be speculation if one or the other was not the case.

Anyway, spend some time thinking about it, then go out and buy some grain futures and decide for yourself if you have any control over the ultimate clearing price.