CFTC investigation into fund activities in "fixing" oil market spreads to cotton
It seems that those naughty fund boys have been getting up to all sorts of mischief. Following the CFTC's announcement this week that they are looking into ways of more closely regulating activity in the crude oil market, it seems that there is also a "stewards enquiry" going on in the cotton market as well. Surely its only a matter of time before they tighten up the rules to cover all these markets including grains? From the Wall Street Journal read on...
The U.S. Commodity Futures Trading Commission has launched an investigation into potential irregularities in the cotton futures market, according to people familiar with the matter.
Commissioners are considering publicly acknowledging the ongoing, confidential probe as soon as next week, along with a broader set of oversight initiatives involving other agriculture markets.
Prices of many grains and other crops hit all-time highs this spring at a time when trading in those markets had been surging to record levels.
The cotton investigation concerns a dramatic spike in cotton prices in early March, followed by a drop. People familiar with the matter say the agency sent out subpoenas over the past several weeks to a variety of cotton market participants.
Unlike the grain markets, where inventories stand at multi-decade lows, cotton stocks were overflowing this spring and few saw a reason for the sudden rally.
Many cotton merchants had already agreed to sell cotton futures later this summer at much lower prices. Over the two days that prices soared, their lenders asked for dramatically higher margin, or collateral, payments not to close out their trades.
The agency's stepped-up scrutiny of the agriculture markets comes in response to criticisms aired at a CFTC hearing in April that speculators and other financial investors could be influencing markets for basic foods and fibers, either driving up prices or making the markets more volatile.
Grain elevators, farm cooperatives, and other merchants have flooded the agency with letters and sent lobbyists to Capitol Hill to argue that the CFTC should do more to police aggressive hedge-fund trading and to study the impact of increased pension fund investment in farm commodities.
Earlier this week, the U.S. futures regulatory agency unveiled a similar package of new surveillance initiatives in the energy markets. Under pressure to show consumer-friendly action in an election year, it also took the extraordinary step of disclosing a wide-ranging investigation into the crude-oil markets.
The CFTC is studying a number of suggestions from agriculture market participants to improve the ability of futures markets to reflect market prices. Officials are likely to announce stepped-up scrutiny of financial trading in agricultural commodities. They also are reviewing potential technical changes, such as how physical commodities are delivered to satisfy futures contracts, people familiar with the review say.
Sorry Miss, I left that $190 billion I owe you on the bus
The US hedge-fund industry is reeling from its worst ever crisis because bankers -- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the U.S. subprime-mortgage market -- are raising borrowing rates and demanding extra collateral for loans.
The dollar sank to the weakest ever against the euro and to a 12-year low versus the yen on speculation credit-market losses may widen after New York Federal Reserve and JPMorgan Chase & Co. stepped in to rescue Bear Stearns, and a Carlyle Group fund defaulted on $16.6 billion of debt. Two days ago, Drake Management LLC said it may shut it largest hedge fund.
Hedge-fund managers and other large speculators cut their net-long position in soybean futures by 8.8 percent to 115,796 contracts in the week ended March 11, the U.S. Commodity Futures Trading Commission said today after the close of trading. Net- long positions, or bets prices will climbed, reached a record 155,278 contracts on Dec. 11.
Funds that invest in baskets of commodities reduced net- long soybean positions 6.4 percent to 183,252 contracts on March 11. Index funds were net long a record 198,707 in the week ended Feb. 19.
"The fear now is how many other hedge funds and other investors have losses they cannot cover, and commodities are the most liquid asset to raise capital,'' said Alan Kluis, president of Northland Commodities LLC in Minneapolis.
"It's could get real ugly if these hedge funds decide to exit longs and get short,'' Kluis said. "I told clients this week that commodities are reaching an extreme high and equities may be at an extreme low.''
