EINNEWS, November 17—Recent near doubling of wheat prices has given new impetus for a potential crackdown by the European Union on commodity speculation.
In a speech in Brussels, the EU’s financial services commissioner, Michael Barnier, said commodity speculation “can only lead to further disasters.” He said he would seek to limit “risk exposures” derived from “agricultural products.”
While the U.S. regulates commodity futures markets, the EU relies on voluntary self-regulation. In recent years bankers and financial institutions have essentially turned commodity futures trading into a gambling casino, much like the one in home mortgages that has resulted in financial devastation in most countries.
The U.S. recently enacted legislation that caps the amount of commodities futures contracts financial institutions can hold. Regulators still need to adopt rules for enforcing the new provisions and are under heavy pressure from the financial industry to go lightly on its terms.
Wheat prices spiked during the summer after fires in Russia and other natural events lowered forecasts for wheat crops. But on August 4 the Financial Times reported that the price increases also may have been driven by financial manipulation.
The Financial Times reported that Glencore, the largest global commodities trader, had asked the Russians to ban exports, which they did the following day. The ban enabled Glencore and other traders to “re-price” their relatively lower-price forward and futures contracts. Glencore and other traders operate under the protection of Swiss banking secrecy laws, so there is little transparency in their actions.
A 2009 U.S. Senate investigation into wheat prices concluded that index fund investors were manipulating pricing and violating legal requirements and that the Bush administration’s regulators were looking the other way.
The U.S. has its own problems with unregulated commodity trading. Over the counter market trades are not reported to the Commodities Futures Trading Commission. This loophole lets big traders like Goldman Sachs and Moran Stanley reap pricing advantages over those who trade on regulated exchanges.
EU Commissioner Barnier, in pressing for EU commodities regulation, is advancing a cause long sought by the French government.
The French recognized that when Goldman Sachs first created its “Commodities Index” in 1991 investors could bet on financial derivatives and not on the commodities themselves. In effect, investors can speculate on pricing changes that are not necessarily linked to the “real” supply and demand relationship.
A UN report on the food-price crisis of 2007-2008 pointed toward a “momentum-driven speculation” as the main cause of the crisis, which pushed up many food prices 150 percent and caused widespread hardship in poorer countries. The number of people living in hunger grew by 40 million to 963 million as a result of that crisis, according to the Food and Agriculture Organization (FAO) of the UN.
For more agriculture news, visit Agriculture Industry Today (http://agriculture.einnews.com), a agriculture media monitoring service from EIN News.