US Wheat: Regulating The Regulator

A year long investigation into the role of speculators in the US wheat market was released by the Senate yesterday.

The 247-page report points the finger at long-only index traders for driving up the price of wheat last year, and also lays some blame on the doorstep of the Commodity Futures Trading Commission (CFTC) for, in some cases, waiving the 6,500 limit on the number of wheat contracts that can be held in the hands of a single investor.

CFTC data shows that, between 2006 and mid-2008, six un-named index traders had held up to 130,000 contracts between them at any one time. With the total number of outstanding contracts attributable to index traders being around 200,000 contracts, this means that almost two-thirds of the entire open position held by index traders was in the hands of just these six.

On one occasion one lone trader held up to 53,000 contracts, or a quarter of the index trader market.

During the last few years index trader money in the wheat market soared "from an estimated $15 billion in 2003 to around $200 billion by mid-2008," says the report.

Somebody clearly needs to be regulating the regulator.