Considering the degree to which trading in financial derivatives is done in indexes created solely to attract dealings by the public, it is tempting to look on any new index as a marketing ploy. Of course, that is not the intention of the International Grains Council, which last spring launched an index named “GOI” to represent the I.G.C. Grains & Oilseeds Price Index. The index, created at the suggestion of member countries, is designed to provide a meaningful measure of prices of the grains and oilseeds that the organization now covers in periodic reporting on developments in export markets. From a mid-20th century beginning that focused solely on wheat, the Council now seeks to provide understanding regarding developments in that food grain, as well as in rice, all the feed grains, and soybeans, canola and soybean meal. The I.G.C. explains that the new index is computed at the weekly Friday closing prices of global markets. It is “is intended to provide an overall measure of export price movements in the major grains and oilseeds markets,” the Council says.
Only time will tell all the purposes such an index serves. With 100 based on average prices on the four Fridays in January 2000, the current reading is 283, compared with the high first reached last February of 355 and 204 a year ago. That prices for this agglomeration are 40 per cent above a year earlier provides some guidance as to export price fluctuations and direction across a group that has little relevance to one another except for commonality within the I.G.C.’s mandate. Any other relationship is not indicated by index moves. Thus, the competition between wheat, corn and soybeans for acreage in major producing countries like the United States or China is not amplified by this index. The index could measure how countries aspiring to export all these grains and oilseeds might be doing. But very few nations ship all these products.
Commodity indexes have been published for years. It seems desirable to separate the GOI from the many indexes that are meant to represent commodity prices. The latter include many of the grains in GOI, but also crops like cotton as well as minerals and similar goods broadly defined as commodities. These indexes, meant to facilitate knowledge about costs in industries that process these raw materials, have become an important trading medium. This is due in large part to the relatively new definition of commodities as an asset class, where ownership is facilitated by trading derivatives defined by a commodity index. Institutions managing the index acquire ownership of commodities mainly through futures contracts, stirring questions about responsibility for hugely expanded futures trade.
As controversial as allegations may be that index-related trading distorts traditional supply-demand factors, recent commentaries on the gold market show how far the power of indexes can go in unexpected ways. In the case of gold, many individual traders have become increasingly suspicious of the way institutions sponsoring indexes actually accumulate gold to cover the outstanding index exposure. Rather than relying on indexes or even on futures contracts to represent desired ownership of gold, an expanding number of individuals have taken to buying gold to own as their under-the-mattress protection.
In other words, indexes like the new GOI become marketing forces, whether so intended or not, and that is definitely not the goal of the I.G.C. But once the public catches on to the possibilities of trading in any index and questions are asked about what stands behind the index, the potential outcomes are fascinating. Nothing untoward has happened in wake of the longstanding I.G.C. Wheat Price Index, based on July-December 1986 as 1,000, and which currently stands at 3,085. The much more all-encompassing GOI has a different set of avenues to move along, and while offering the global world of grain an interesting and helpful measure of prices, poses interesting possibilities for grain-based foods.