WASHINGTON -- Speculation by index funds and other institutional investors in agricultural commodity markets is having a bigger impact on agricultural prices than on energy prices, House Agriculture Committee Chairman Collin Peterson, D-Minn., said July 16 as he was writing a bill to try to bring the agricultural markets back to market fundamentals.
Senate Democrats have introduced a bill to reduce speculation in the commodity markets, but it's focused on energy.
Peterson said he would prefer to wait until after the Commodity Futures Trading Commission has completed its analysis of the situation in September to write a bill, but that there is "a lot of pressure" to act before the August recess. Peterson said his analysis of the commodity markets over the weekend makes him thinks there is "more of a problem" than he indicated the week before after three days of hearings on commodity speculation. Peterson also said that the Republicans on his committee, who generally defended speculators, "are coming to believe there is some kind of problem," but that they still are "much more skeptical that we can do something" to resolve it.
Peterson did not provide the exact content of his bill, but said it would be important to get a handle on over the counter trading and swaps as well as the speculative activity that occurs on the exchanges.
Peterson said two core concerns have led him to think that the ag markets are not based on fundamentals: that ag futures prices and cash prices are not converging at the end of the futures price contract period as they have in the past and that farmers cannot get prices in line with those on the commodity exchanges. Peterson said he thinks that the problem is bigger in ag commodities than in the energy markets because there has not been the same problem of convergence in the energy markets. He noted that the ag markets are smaller than the energy markets, but index funds and other institutional investors still have poured money into those markets.
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Peterson said he has reached these conclusions using a chart comparing a July 1 CFTC commitments of traders report with the June 10 USDA world agricultural supply and demand report on the actual carry-over stocks of grain and the new crop that is expected. Peterson said he thinks the problem in the agricultural markets is that the CFTC has granted exemptions to index funds and swap dealers "who are not in the market for the normal purposes" to take positions larger than previously allowed. The result, Peterson said, is that the traditional market players with an underlying interest on either the producer or end user side of ag "have speculation limits, but people creating investments don't."
