A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

US regulators decide to curb positions in
agricultural commodity markets

7 November 2011



On October 18, the Commodity Futures Trading Commission (CFTC)––the American agency that regulates financial and commodity markets––decided to limit the number of contracts that could be held by a single investor in a given market. Nineteen agricultural commodities are involved, together with nine other commodities in the area of energy and metals1.

The new rules are part of the Dodd-Frank Act that was initiated in July 2010 to regulate the US financial system, by overseeing commodity markets and curbing trading positions of speculators in these markets. The stated policy objective is as follows: Preventing excessive and opaque commodity market concentration to avoid any price manipulation, and thus curb agricultural price volatility.

In practical terms, it means controlling investors’ position by dint of a double-threshold mechanism:

    - For most traded products, position limits will be 25 percent of the volume of deliverable supply;

    - For futures contract, position limits will be set at 10 percent of the volume for the first 25,000 contracts and 2.5 percent thereafter.
While the new rules had been anticipated for several months2, some experts and politicians decried them as too weak. US Senator Maria Cantwell (D-WA) said that the regulation, which was supposed provide speed limits on commodity speculation, “is like setting the speed limit at 125 miles per hour.”

More generally, one has to keep in mind that “speculative behavior” is only one of the factors contributing to price volatility. To be genuinely effective, market regulation requires further measures on physical markets.

While the CFTC’s measures denote an appropriate progress to improve agricultural market regulation––especially financialized agricultural markets––the total effectiveness of the scheme will be contingent upon the development of two key factors:
    - The CFTC’s financial ability to supervise the rules in view of the budget cuts that threaten to affect its operations;

    - The implementation of these measures by other major exchanges throughout the world, to avoid competition based on a lower-bidder rationale.
The coming months will therefore be critical.

1 This particularly concerns contracts traded by the Chicago Board of Trade (corn, soybeans, wheat…), the IntercontinentalExchange (cotton, cocoa, coffee, orange juice…), the Chicago Mercantile Exchange (milk, cattle, lean hog…) and the New York Mercantile Exchange (Henry Hub natural gas, light crude, gasoline…).
2 Please see momagri January 24, 2011 article, “United States: Regulators vote for position limits on commodity markets”. http://www.momagri.org/UK/a-look-at-the-news/In-the-United-States-regulators-vote-for-position-limits-on-commodity-markets_826.html
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Paris, 24 April 2019