speculation in food commodities - more speculative contracts than those held by producers & users.

[Bill USA]

There are more futures contracts for corn and wheat held by speculators than those in the business of producing and processing food (Producer, merchant, processor, user).

Corn: Producer/Merchant/Processor/Users hold 49% of the contracts. Speculators hold 51%.
Wheat: Producer/Merchant/Processor/Users hold 35% of the contracts. Speculators hold 65%.

There is no economic rationale for those not in the business of producing or processing food to be speculating on farm commodities. This makes no sense whatsoever. Farmers who produce the commodities and processors who buy them need to be able to hedge their costs. They need to be able to buy and sell futures contracts. But speculators? ... There is no economic benefit that I can think of from others speculating in farm commodities.


http://www.cftc.gov/dea/futures/ag_sf.htm

Commitments of Traders reports page: http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

NOw there are commodity index funds where the investors (institutional mostly) can invest in a whole basket of commodities (e.g. ~17 commodities). This considerably removes the risk for institutional investors and has increased the amount of money invested in farm commodities.


http://hsgac.senate.gov/public/_files/052008Masters.pdf">Senate testimony Michael Masters

Michael W. Masters Managing Member / Portfolio Manager
Masters Capital Management, LLC before the Committee on Homeland Security and Governmental Affairs United States Senate May 20, 2008

"Assets allocated to commodity index trading strategies have risen from $13 billion at the end of
2003 to $260 billion as of March 2008,5 and the prices of the 25 commodities that
compose these indices have risen by an average of 183% in those five years!"

.... that's an increase of 20 times in 5 years.


BTW, before the Trickle Down disaster of 2008, investors could bet on commodities by buying Credit Default Swaps from banks and the banks would buy the commodity futures for the investors. NOte that this way THERE WAS NO TRACKING OF THESE INVESTMENTS BY THE CFTC (that's the way it was written in the http://www.huffingtonpost.com/jim-moore/a-nation-of-village-idiot_b_127340.html">Commodities Futures Modernization act). So the CFTC didn't even know if a few investors were taking unusually large positions in given commodities - something the CFTC is supposed to do to make sure there is no market manipulation going on.


more on the http://www.washingtonmonthly.com/archives/individual/2008_06/013839.php">Commodity Futures Modernization Act and it's main proponent Phil Gramm.

"In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call "a stunning departure from normal legislative practice," the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.

There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment -- also known as the Commodity Futures Modernization Act --along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry.(...)