Is Food Market Speculation actually a good thing? Vanilla Argument.

Just a very quick thought.

Food speculators are seen as greedy and evil people that profit from the misery of the poor. But let us briefly cast aside this stereotype and look at a real world situation.

The price of vanilla beans is currently reaching new record heights (+ 2000%) after a cyclone hit the island of Madagascar which is one of the world's major producers of vanilla. Most articles on this issue also blame market speculators for the high prices but can this be justified?

Here is how market speculation basically works (obviously simplified):

• let's say there is a global market for vanilla and there is sufficient supply to meet demand at a certain price

• speculators buy vanilla and hoard it expecting prices to rise in the forseeable future to sell it off for a profit

• speculators reduce market supply leading the price to rise slightly (here comes the public outcry) but they can also help to absorb excess supply and take away the risk from producers

• now the cyclone strikes and a major part of the next vanilla harvest is destroyed

• vanilla supply is reduced dramatically leading to shortages and extreme price increases

• now the speculators throw their hoarded vanilla into the market making a huge profit and simultaneously increasing vanilla supply which alleviates shortages and curbs the price

-> speculators ensure availability in bad times and buffer price extremes and are therefore rewarded with a profit

But what if the cyclone never hit and vanilla prices kept falling? Speculators would make a huge loss (no public outcry here) because they had to sell off their vanilla for a lower price.

So speculators can be seen as insurers in a free commodity market rewarded for good prediction skills. What is your take on this subject?