AFR Calls for Action on Wheat Investigation Findings
September 16, 2009
AFR CALLS FOR ACTION ON WHEAT INVESTIGATION FINDINGS;
Commends Senator Tom Coburn
OKLAHOMA CITY -- As Oklahoma wheat producers begin putting a new crop in the ground over the next month, American Farmers & Ranchers (AFR) a general farm organization and mutual insurance company, praised the investigative findings issued by a U.S. Senate committee which found excessive speculation in the wheat market hurting farmers.
“We commend Senator Tom Coburn and his colleagues of the U.S. Senate Permanent Subcommittee on Investigations for their work to get to the bottom of why we have seen such a spread in recent years between futures prices and cash prices for wheat,” said Terry Detrick, AFR President. “Such a span of disparity should not have existed in a marketplace intended to provide protection for risks. The process worked right the opposite. Farmers, grain elevators, processors and
Detrick called on the Commodity Futures Trading Commission (CFTC) to take heed to the findings issued by the Senate Committee and continue to rein in commodity index traders and restrict excessive speculation that have disrupted commodity prices. While acknowledging that speculation must occur for the market to function, Detrick said speculation should have some limits and be closely monitored.
“Battling nature is difficult in agriculture and to a large degree there is nothing we can do about this. But this is something that regulators can address. Speculative money flooded the marketplace and federal regulators failed to take action to protect the real market forces,” explained Detrick.
Since the initial release of the report and within the last month the CFTC has taken initial steps to tighten controls on some traders.
The Senate investigation found that unwarranted price changes created burdens on farmers, agribusinesses and others by making it difficult to use the futures market to protect against price changes and by causing significant unanticipated costs. Those costs created higher margin calls due to higher futures prices; failed hedges; and disruption of normal pricing patterns and relationships.
The federal Commodity Exchange Act requires the CFTC, the primary commodity regulator, to prevent excessive speculation by placing position limits on commodity traders. In the wheat market, CFTC usually restricted traders to no more than 6,500 wheat contracts at a time but instead allowed some commodity index traders to hold up to 10,000, 26,000 and even 53,000 contracts at one time.
The Senate report recommended returning to a 6,500 wheat limit and if this does not fix the problem then to lower the position limit even further. Other recommendations by the Committee included analyzing other agricultural commodities to determine if similar issues exist and strengthening data collection for non-agricultural commodities.
“These issues and increased costs to producers and consumers alike were created by individuals that perhaps have never even seen a wheat field but yet have reaped more than the individual who tilled the soil and put the seed in the ground,” Detrick said. “It is time for a culture change in the commodity markets. If CFTC does not take all of the necessary corrective actions then Congress should.”
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