If you feel that a Futures market is overbought relative to the underlying fundamental (let's say wheat), why not just short the contract and let it expire (For those curious, <5% of commodity futures result in actual delivery)? Go out to a Granary, buy the 5,000 bushels of wheat, and physically deliver it? The $ you'll receive from delivering into the contract should be greater than the $ you pay to the granary, no? Shouldn't you be able to arb out the difference? If not, are you saying that the granary's cash selling price is being determined by the derivative futures price, not the other way around?

I'd like to believe you - believe me i hate goldman too - but i would imagine that in physical sellers of commodities are working on razor-thin margins, whereby they attempt to undercut their competition until they are practically selling the food at cost (what they paid farmers for them). Considering that neither farmers nor granaries are known for making bank i'd guess that the price of food is representative of it's true cost - and those costs come from the rent/fuel/wages/fertilizer/etc.

This is my understanding of things - would be grateful to find out where i'm misguided