Explaining the commodity warehouse trade with scripture This is Joseph. He is a well known commodity forecaster. This is Pharaoh: Pharaoh is worried about future scarcity of commodities because he's been listening to Joseph's scary dream-based forecasts. This is despite the fact that there is a helluva lot of wheat around today. In fact, there is so much wheat due to a bumper harvest that the price of wheat is falling, something that's discouraging farmers from planting more for tomorrow on the basis they have to get through the surplus inventory first: But Pharaoh is convinced of the future scarcity to come because Joseph's forecasts are "God's work." If only there was a way to encourage farmers to keep producing wheat today so that they keep planting for tomorrow and keep the kingdom in merry equilibrium. Thankfully, Joseph has a plan! The only way to to ensure the price of wheat today stays stable enough to avoid production cuts is for Pharaoh to buy the surplus wheat and convince farmers there really is demand for all that wheat today. This way they won't be burdened with surplus inventory which will stop them from planting tomorrow. Pharaoh happily buys all the wheat, on Joseph's advice. Unfortunately, there's a problem. The price of wheat does not go up because the farmers know that all that stock is still there and it's just being kept in the country's warehouse system which warrants every bushel of wheat and discloses the information publicly: To get over the problem, Joseph cunningly buys all the warehouses. This way Joseph can manage the stock directly, and no one notices when he creates some new secret and private storage compartments within the storage units. He stashes Pharaoh's purchases in the private section of the warehouses, which fall outside of the warrant system. The farmers, who can't see inside the silos, now think there isn't a surplus of inventory anymore! The price of wheat stays supported. Hurrah! The farmers keep planting. And Pharaoh stocks more and more wheat convinced that in seven years time he will make a nice profit as scarcity will prevail! But Joseph knows his relations with God are a bit off at the moment. In fact, he's aware there is a very high risk that the scarcity he foretold may never come about. Since Pharaoh is likely to be furious if that happens, he engineers an even better plan. He publicly promotes Pharaoh's scarcity dream, causing hysteria in the land. Everyone is now just as convinced as Pharaoh that there won't be enough wheat in the future. Though they are late to the party, compared to Pharaoh who naturally had advance knowledge of the situation. But....Jospeh reassures the public that there is a way for citizens of Egypt to claim a right to tomorrow's supplies no matter what! He tells them they must make contracts with Joseph to buy tomorrow's wheat at today's prices. The promotion works. People are now so hysterical many even offer to pay more than the price of wheat today to ensure their rights to scarce stock. This is great news for Joseph. He knows that no matter what - whether there is a famine or not - Pharaoh will now make a profit on the wheat he bought during today's glut. Also, the more people are prepared to overpay for tomorrow's wheat, the greater the incentive Pharaoh has to stash stock in his secret compartments. And the more likely Joseph will get paid a nice fee for his advisory and market making services. But it's fair to say that seven years is a long time to wait to take profit on your stashed wheat. Luckily for Joseph, Pharaoh's secret hoarding has been so effective that he's accidentally caused a supply problem today. In fact, the Egyptian baking industry is now so desperate for bread, they want to take delivery of the stocks they had warranted publicly in the silo system to begin with. It seems to be taking Joseph weeks to figure out which wheat is theirs and which is his private stash, and he's making them wait a long, long time. Consequently, the bakers are now prepared to pay more than what speculators who are worried about tomorrow's scarcity are willing to pay. They are going direct to farmers, and paying ever greater premiums: The tightness in today's wheat prices now convinces Joseph that it might be a good idea to release some of Pharaoh's secret hoard. This is because he can make a nice profit (versus the price he paid for the wheat) today, and not have to wait seven years. But there is a risk. The process of releasing the secret stash or making it known as available for sale may push prices down in the very near future. But that's fine providing Joseph agrees his sale at the high spot price, and then replenishes his stock to support the price once market prices fall. And so the accumulation game, with intermittent releases of stock whenever prices are high enough to justify sales, continues. Joseph is a happy man, because he takes a commission either way.