Prices of farm commodities are down about 50% or more since June-July - Gosh, I wonder why?

[JohnWxy]

THe non-commercial speculators have pulled out of the commodities futures market. check this graph (FIG 7 pg. 6) of Non-Commercial Net Long Positions and DEC08 Corn Price (on the Chicago Board of Trade).
It leaves no doubt as to what was driving the price of farm (along with non-Farm) commodities. By the way on the chart is shows corn at $4 per bushel in Oct. Now it is at $3.28 a bushel.

http://www.ne-ethanol.org/pdf/CornPrices_Food_prides.pdf#page=6&zoom=89&search=150,000

Figure 7.


In mid-February, non-commercial investors (chiefly speculative index funds, hedge funds, and
commodity pools) held nearly 484,000 total long positions in corn futures on the Chicago Board of Trade
(long positions are contracts that are purchased and held in the hope of profiting from an increase in
price). This is the theoretical equivalent of 2.42 billion bushels of corn—enough to produce
approximately 6.7 billion gallons of ethanol and 19 million metric tons of livestock feed. Indeed, in
testimony before the U.S. Senate Committee on Homeland Security and Governmental Affairs in May,
hedge fund manager Michael Masters said, “Right now, Index Speculators have stockpiled enough corn
futures to potentially fuel the entire United States ethanol industry at full capacity for a year.”6

~~
~~


Without question, the plunge in commodity prices in the last several months has disproven the unsupported claim that biofuels production was the dominant factor driving grain and oilseed prices higher. Ethanol production has continued to expand dramatically while the price of corn and other agricultural commodities has plummeted in the last four months. Still, food prices have continued to rise, undermining the assertion by biofuels critics that food prices and ethanol production are somehow strongly linked.
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From Barron's on March of this year about speculating in commodities by commodities index fund speculation:

http://online.barrons.com/article/SB120674485506173053.html?page=2

The speculators, now so bullish, are mainly the index funds. To see how their influence on the market has become outsized, just look at how they operate. Nearly $9 out of every $10 of index-fund money is not traded directly on the commodity exchanges, but instead goes through dealers that belong to the International Swaps and Derivatives Association (ISDA). These swaps dealers lay off their speculative risk on the organized commodity markets, while effectively serving as market makers for the index funds. By using the ISDA as a conduit, the index funds get an exemption from position limits that are normally imposed on any other speculator
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very interesting. I wonder if the guys in Washington will catch on to this and DO ANYTHING ABOUT IT.


Here's some of Masters recommendations to Congress re the Credit Default Swaps loop-hole (in the Commodities Futures Modernization Act CFMA - which lead directly to this Credit Catastrophe we have seen) and commodities index fund speculators:

http://hsgac.senate.gov/public/_files/052008Masters.pdf#page=8&zoom=76


Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position
limits must “look-through” the swaps transaction to the ultimate counterparty and hold
that counterparty to the speculative position limits. This would curtail Index Speculation
and it would force ALL Speculators to face position limits.
Number

Three:
Congress should further compel the CFTC to reclassify all the positions in the
Commercial category of the Commitments of Traders Reports to distinguish those
positions that are controlled by “Bona Fide” Physical Hedgers from those controlled by
Wall Street banks. The positions of Wall Street banks should be further broken down
based on their OTC swaps counter-party into “Bona Fide” Physical Hedgers and
Speculators.

There are hundreds of billions of investment dollars poised to enter the commodities
futures markets at this very moment.26 If immediate action is not taken, food and
energy prices will rise higher still. This could have catastrophic economic effects on
millions of already stressed U.S. consumers. It literally could mean starvation for
millions of the world’s poor.
(more)

[DJ13]

1. ........& food prices remain high

I dont think the speculators are gone, they just moved into consumer staples.