Two reports released earlier this week concluded that commodity market speculation is largely to blame for increasing prices of food and energy. The reports were issued in advance of the October 18 meeting of the Commodities Futures and Trading Commission (CFTC) which placed limits on speculation in a variety of commodities including oil, corn, gold and natural gas.
One report came from the non-profit organization Better Markets, which concluded, “Research analyzing commodity markets for the last 27 years shows that Wall Street’s speculative trading through commodity index funds is causing market disruptions, interfering with price discovery, increasing the costs for businesses to hedge, and needlessly pushing prices higher for all Americans.”
A second report from economic analysis firm Cardno Entrix had similar findings, concluding that commodity prices are “likely higher than justified purely by fundamentals and the commodity markets have become more volatile as the volume of trading by index funds and other non-commercial traders has increased sharply.”
In examining the activity of speculators in the corn futures market in the context of supply and demand fundamentals, the Cardno Entrix report found that “speculation is a major factor behind the recent sharp increase in both the level and volatility of corn prices.”
At this week’s CFTC meeting, federal regulators decided to cap the volume of futures trading for 28 different agricultural commodities, energy and metals in the hopes of limiting the impact of speculative trading on consumer prices.