Skip to content


CFTC to Study Commodity Markets

In light of the recent rise in crude oil and other commodity prices and the influx of new investors into commodity futures markets, the Commodity Futures Trading Commission (CFTC) is announcing the formation of an interagency task force to evaluate developments in commodity markets. The task force – which includes staff representatives from the CFTC, the Federal Reserve, the Department of the Treasury, the Securities and Exchange Commission, the Department of Energy, and the Department of Agriculture – will examine investor practices, fundamental supply and demand factors, and study the role of speculators and index traders in the commodity markets.

High commodity prices are posing a significant strain on U.S. households and the announced Interagency Task Force will aid public and regulatory understanding of the forces that are affecting the functioning of these markets. The Interagency Task Force will strive to complete its work as expeditiously as possible, and will make public the results.

The CFTC is looking at changing commodity rules to force big funds to disgorge multi thousand contracts positions.

The CFTC stated the commodity markets are not geared to have big funds sitting on long term positions of thousands of commodity contracts for long periods for foods and so on.

We could be looking at a forced liquidation – similar to the silver liquidation that happened in the big metal run up and silver corner by the Hunt brothers. That episode resulted in huge losses for the Hunts – who were forced out at huge losses after they tried to corner the silver market.

The entire world is up in arms about the energy and food shortages. It does not matter that the shortages are the real culprits. The fact is, pretty much all the nations are getting ready to force speculators out of these markets. The speculators are buying thousands of contracts in futures markets, even years ahead in grains, and sitting on them.

The fact is that, in a world food crisis, this is going to force poor people to pay – tribute – to big investors to eat. The world governments are not going to allow that to happen if they can stop it.
Already, India and others, and the US CFTC are looking at ways to force speculators to disgorge their tens of thousands of contracts in critical commodities.

The government could step in if commodity prices keep shooting higher. And some see some sort of government intervention in the marketplace as a virtual certainty. But for the leader of one agricultural group, that kind of discussion brings to mind the ag trade policy missteps of the late 1970s.

Imagine $200 a barrel oil, $9 a bushel corn and $20 a bushel soybeans. Then consider the prospect of less available wheat than now thought as the cattle industry begins feeding much more of that commodity. That's the near future as envisioned by two separate commodity analysts and brokers, especially in light of Tuesday's USDA Crop Production report and World Agricultural Supply and Demand Estimates, which lowered this year's U.S. corn production by 360 million bushels to 11.7 billion and projected increased global demand for soybean meal and vegetable oil. 

And if that future does come to pass, both of the analysts foresee U.S. government intervention as likely. Doug McClellan is President of Plains Commodities in Omaha. He told Brownfield he's heard talk of a complete elimination of government support for corn-based ethanol and a potential effort to drive excessive speculation from ag commodity futures markets.

“One way to do it is let's just go in and cut the ethanol program completely,” McClellan said. “Let's go in and take the hedge funds and the index funds and say, 'No, you can't have 5,000 or 10,000 contracts per account or whatever it is. We're going to cut that speculative power back. You can only trade 2,500 contracts and force a liquidation to get that speculation back in line,'” he added. “Those are some of the scenarios going around.”…” http://www.brownfieldnetwork.com/

But, in light of this very painful commodity boom, the USD happens to be rallying at the moment. Of course, one reason is that the US Fed (Bernanke) is talking about fighting inflation. In fact, much of the world is talking that. That also is happening at the right time to combat this commodity investment ‘boom' that is probably going to be curtailed by world regulators.

The USD rallied heavily this week on the perception that the Fed is really going to try and do something about inflation in the US. All the markets needed was an excuse to rally the USD because there is already so much pressure in the EU zone to stem the Euro's rise. Gold took quite a hit this week as a result. I would not be surprised that the world commodity investment mania is behind the USD rallying because a higher USD is a way to combat that.

We had alerted subscribers Sunday that the USD might strengthen Tuesday, and gold correct. That happened. Oil has been resisting correction somewhat, however.

By Christopher Laird PrudentSquirrel.com  & CFTC

 

 

Posted in Main Page.


No Responses (yet)

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.



Disclaimer: The www.hedgefundsindia.com website solely provides information about HEDGE FUNDS INDIA space. No data or statement herein is or should be construed to be a recommendation for the purchase, retention, or sale of the securities referred to herein and we accept no liability for the consequences of your reliance on this data and information. The value of investments and the income derived from them may fall as well as rise. The information in this website is based on data gathered from publicly available websites and other information mediums. We have not independently verified such information , do not represent it as accurate, true or complete, make no warranty, express or implied regarding it and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use. Investments in hedge funds, private equity, venture capital and other private investment funds are speculative and involve a high degree of risk. You could lose all or a substantial amount of your investment. This website does not list, and does not purport to list, the risk factors associated with an investment in any of the funds listed on this site. We do not represent any hedge funds, private equity or investment/financial advisors nor give any investment recommendations.