Healthy soil and sustainable growing

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"...[W]e've got a train wreck coming that's going to be greater than anything 
we've ever seen in agriculture."


http://www.theglobeandmail.com/servlet/story/LAC.20080423.RCFTC23/TPStory/TPBusiness/America/


U.S. food producers, speculators square off
Growing clout of index and hedge funds has exacerbated other factors driving 
up prices, farmers tell commodities regulator
April 23, 2008

WASHINGTON, TORONTO -- Food producers lined up against investment fund 
managers during an extraordinary meeting in Washington yesterday, saying they 
are partly to blame for driving up food prices and playing havoc with 
commodity markets.

"Sixty per cent of the current [wheat] market is owned by an index fund," 
said Tom Coyle, of the National Grain and Feed Association. "Clearly that's 
having an impact on the market."

Billy Dunavant, president of cotton producer Dunavant Enterprises, was more 
blunt: "The market is broken, it's out of whack."

The investment fund managers and some researchers said there is no conclusive 
evidence the funds have caused problems. And both sides agreed that many 
other factors have roiled the markets, including weather, currency 
fluctuations and surging demand from China.

The meeting was called by the Commodity Futures Trading Commission, which 
regulates U.S. commodity markets, in response to growing concerns about 
soaring prices and volatile markets. Several participants said farmers have 
become so frustrated with the markets they no longer trust them to properly 
set prices.

In the past three months, the prices of wheat, corn, soybeans, rice, and oats 
have hit historic highs, raising not only the cost of food, but also the 
amount of money farmers and grain elevators have to tie up to participate in 
the futures market. Trading in some grains became so chaotic earlier this 
year, the Minneapolis grain exchange had to shut down for several days.

Increased borrowing costs have forced some elevators out of business, and are 
making it increasingly difficult for farmers to sell future crops at a 
locked-in price - the one tool they have always used to offset their risk.

"If they can't market their crops at these higher prices, we've got a train 
wreck coming that's going to be greater than anything we've ever seen in 
agriculture," Tom Buis of the National Farmers Union told the meeting. "For 
those who say everything is all right, I'm sorry, maybe I'm wasting my time, 
but there are problems and it's incumbent on us to try and solve them."

Diana Klemme, a vice-president at Atlanta-based Grain Service Corp., an 
agricultural brokerage and risk management firm, said corn growers are two 
rainy weeks away from a "crisis." If anything threatens the current crop, 
there will be a cascading effect throughout the industry, she said. 
"Hopefully God will be merciful, but if this impact does come about, it will 
be devastating," she said in an interview.

A freakish cocktail of factors, including poor global crop yields, increased 
demand from the likes of China and India, and a weak U.S. dollar have made 
food prices soar. Yet many farmers and commodities buyers suggested yesterday 
that another factor has exacerbated these price increases, and incited 
unpredictable gyrations in the futures market: the growing clout of financial 
speculators, like large index funds and hedge funds.

Some producers blamed these large speculators for causing a disconnect 
between the value of a futures contract, and the underlying value of the 
asset is supposed to represent.

Cotton growers have been among the most vocal critics, having witnessed a 
baffling surge in prices over a few days in March. In one day, the price of 
cotton jumped 15 per cent despite reports showing cotton supplies were at 
near record highs.

Several cotton industry players urged the CFTC to investigate the price 
movements, and demanded that the regulator make speculators subject to the 
same rules as commercial players who buy and sell the actual commodities.

Representatives from the speculative-investment side insisted that there is 
no evidence that they are causing price distortions, despite their larger 
participation in the market. "I do not see a convincing case that index money 
has changed the stated objectives of this market," said Bob Greer, an 
executive vice-president at the fund company Pacific Investment Management Co.

Given the current turmoil, the CFTC said yesterday it was not inclined to 
move ahead with controversial plans to raise investment limits for 
speculators. "I believe that before acting, this agency must be certain that 
additional speculative pressures will not exacerbate the anomalies we are 
experiencing in these markets," said CFTC acting chairman Walt Lukken. "It is 
critical that we understand the problem fully so we can get it right and 
ensure that the cure is not worse than the disease."

*****

FOOD FOR THOUGHT

Some food figures from the agricultural round table in Washington organized 
by the Commodity Futures Trading Commission:

World wheat consumption has exceeded production in six out of the past eight 
years.

World wheat stocks are at a 30-year low. Crops in Canada, Europe, the United 
States and Australia have been below average in recent years.

Big wheat-producing countries Ukraine, Russia, Kazakhstan and Argentina have 
recently curtailed wheat exports. Vietnam, Egypt, India, Cambodia and China 
have restricted rice exports.

More than 30 per cent of the U.S. corn crop this year will go to ethanol 
production. Five years ago, it was 10 per cent.

The price of wheat has increased 95 per cent in the past year, rice is up 118 
per cent, corn 66 per cent, soybeans 88 per cent, oats 47 per cent.

Sixty per cent of the wheat trading on U.S. commodity exchanges is owned by 
investment funds.

The price of some fertilizer for Canadian and U.S. farmers has tripled since 
last fall; diesel fuel is up about 50 per cent.

VERBATIM

"...[W]e've got a train wreck coming that's going to be greater than anything 
we've ever seen in agriculture."

- Tom Buis, National Farmers Union

"Here is what I know: There's heartburn in the heartland."

- Bart Chilton, commissioner at the Commodity Futures Trading Commission