August 24, 2009

US regulators have decided to close a loophole that permitted certain types of highly speculative trades in agricultural commodities to occur, according to the American Feed Industry Association (AFIA).

 

The loophole was a significant factor leading to dramatic price increases in commodities such as corn, soy and wheat in early 2008, and the issue has been a major concern and focus of attention at AFIA for more than a year.

 

The Commodity Futures Trading Commission (CFTC) on August 19 announced it would close the loophole-which came about when it provided exemptions to its own rules several years ago-by withdrawing two "no-action" letters that had resulted in Deutsche Bank and another investment firm exceeding speculative position limits on corn, soy and wheat.

 

The CFTC's action is a first step toward ensuring dramatic price increases will be less likely to occur in the future as a result of this particular type of trading, according to Joel Newman, AFIA president and CEO.

 

Position limits should be consistently applied and vigorously enforced, as it promote market integrity by guarding against concentrated positions, said CFTC Chairman Gary Gensler.

 

Newman said the AFIA has worked with the CFTC and Congress for the reform more than a year ago, and they will continue to work directly with officials within the CFTC, the administration and Congress to recommend appropriate changes that will ensure commodity markets are effective for both agriculture and speculators.