In times of rising food prices such as the current time, politicians often accuse the food industry of ‘price gouging’. In the four years that have elapsed since July 2019, retail grocery prices have risen overall by 27%. In such times speculators are sometimes singled out for demonization by politicians. Speculators do at times make outsized profits, however, there are times when they have outsized losses. Their losses get less press coverage than their profits. Speculators are the group that collectively absorb the risk that hedgers are paying to avoid. Some of the positions that they take expose them to high risks of loss (but also high potential gains). 

Despite the scorn that speculators sometimes receive they are essential to well-functioning markets. They provide liquidity that ensures that contracts are (almost) always available when hedgers wish to buy them. By providing the single largest group of the three group of market participants, speculators provide the market with depth that improves price discovery. Thin markets (few participants) are notorious for poor price discovery. Most speculators specialize in a few commodities. They are likely to understand them much better than the typical hedger that spends most of their time growing wheat or milling flour or some other activity. The collective knowledge of speculators in a commodity is embodied in the prices of futures contracts for that commodity. 

The third group are arbitrageurs. Arbitrage is the practice of trading in two or more markets with the objective of profiting from differences in prices for the same commodity in different markets. With most markets being electronic it is now common for arbitrageurs to practice their trade globally. This activity prevents prices from diverging irrationally. Divergent pricing is an indication that markets are not functioning efficiently.