First oil. Now cotton.
The Commodity Futures Trading Commission on Tuesday again took the unusual step of disclosing an investigation into the possible manipulation of commodity prices.
This time, the CFTC said it has been conducting an investigation of the February/March price run-up in cotton futures after farmers, investors and other market participants expressed concerns at a meeting in April that explored the disconnect between futures and cash prices, the impact of higher margin requirements and the role of speculators and commodity index traders.
The commission said it was taking the "extraordinary step of disclosing this investigation because of today's unprecedented market conditions." That is the exact language the CFTC used last week when publicizing a six-month-old investigation of potential price manipulation and abuses in the way crude oil is purchased, shipped, stored and traded nationwide.
Congress is increasingly pressuring the commission to explore the reasons behind soaring fuel, food and other commodity prices. In rolling out initiatives for agricultural markets, the CFTC on Tuesday repeated last week's announcement that it will propose requiring more detailed information from funds designed to mimic the price of crude oil and other futures.
The surge in popularity of commodity index funds and unregulated over-the-counter swaps has been blamed by some analysts and lawmakers for artificially boosting the prices of oil, gasoline, corn and other commodities.
In a Senate hearing on oil speculation Tuesday, billionaire financier George Soros said such speculators entering a market mostly on one side _ in this case, betting on rising oil futures _ "distorts the otherwise prevailing balance between supply and demand."
"That makes it desirable to discourage commodity index trading while it is still inflating the bubble," Soros said, echoing previous calls for improved regulatory oversight and limits on speculative positions.
When it comes to smaller agricultural markets, "speculators can really play havoc," Soros said.
On Tuesday, the CFTC said it is withdrawing proposals that would have increased the speculative position limits on certain agricultural futures contracts and created a risk management hedge exemption from them for agricultural futures and option contracts. "During this review period, the commission will be cautious and guarded before granting additional exemptions in this area."
Acting CFTC Chairman Walter Lukken told reporters the CFTC decided adding such limits with so many commodities at record-high prices would have been "bad timing."
Analysts said any CFTC action may have a short-term effect on prices, but would likely do little in the long run.
The agency may be able to close some loopholes about how large funds are categorized "but that's not going to stop people from making trades or making a profit when they see" that potential, said Elaine Kub, a grain-market analyst with Omaha, Neb.-agricultural data firm DTN.
In the short-term, day traders may try to make some money off market volatility, but "that will only make (the supply and demand) fundamentals more important for pricing in the long-term," Kub said. "Just because money is taken out doesn't mean prices drop."
Other federal action includes:
_ Developing a proposal that could provide producers with an alternative for agricultural trade options to include hedging price risk with a fixed premium.
_ Proposing a plan to provide farmers and grain merchandisers another choice for managing price and basis risk through centralized clearing of swaps.
_ Developing a new monthly publication on trader data for agricultural and other markets beginning in July.
_ Working with agricultural banking authorities, including the Federal Reserve Banks of Chicago and Kansas City and the Farm Credit Administration, regarding financing and credit difficulties arising from higher margins in the futures markets.
The CFTC is "under a lot of pressure to say they're doing something so some of this is political Kabuki," said Howard Simons, a strategist at Bianco Research in Chicago.
Still, much like free speech doesn't allow someone to shout fire in a crowded theater, free markets does not give traders the right to overwhelm a commodity market on one side, buying everything, Simons said. He classified that flood of money into the markets as "unwittingly disruptive," but said a new federal mandate on ethanol, and the Federal Reserve's decisions to keep lowering interest rates, which has kept the dollar down against foreign currencies, also qualify in that respect.
"Is the government going to investigate itself? I think we know the answer to that," Simons said.
,
uBlock 
,
and
Ghostery 
)