Study Shows Excessive Speculation in Wheat

A year-long bipartisan Senate probe shows excessive speculation in the wheat market helped fuel last year's record jump in prices. According to the report - large wheat purchase on the Chicago Board of Trade drove future prices higher, disrupted convergence between futures and cash prices and increased costs for farmers, the grain industry and consumers. The study was released by Carl Levin - Chairman of the Senate Permanent Subcommittee on Investigations - and Ranking Member Tom Coburn late Tuesday.

Levin calls it another case of speculative money overwhelming a market - and federal regulators failing to take the steps needed to protect the market. He says it's time for the Commodity Futures Trading Commission to change course, rein in commodity index traders and clamp down on excessive speculation that is disrupting commodity prices. CFTC Chairman Gary Gensler says the Commission will continue its own analysis and appropriate regulatory responses - and will give Levin's recommendations the utmost attention and careful consideration.

The study shows commodity index traders increased their holdings from about 30-thousand daily outstanding wheat contracts in 2004 to 220-thousand in mid-2008 at the largest wheat futures market - the Chicago Mercantile Exchange - before dropping to about 150-thousand contracts at year's end. Index traders - overall - held between 35 and 50-percent of the outstanding wheat contracts since 2006. While the contracts held by index traders soared - so did the gap between futures and cash prices - which rose from 13-cents a bushel in 2005 to $1.53 in 2008.