WASHINGTON — The American Bakers Association called the recent vote by the Commodity Futures Trading Commission to advance proposed position limits in commodity futures a “significant step toward approving a long-pending A.B.A. recommendation to address the detrimental impact of index funds in commodity futures markets.”
The C.F.T.C. voted four to one Jan. 13 to move forward a proposed rule to implement position limits on noncommercial hedgers in commodity markets. A vote originally had been planned for December. The proposal covers metals, energy, soft commodities and agricultural futures.
“Due to the impact of index funds, bakers and wheat producers are facing ever-increasing volatility in the wheat markets,” said Robb MacKie, president and chief executive officer of the A.B.A. “C.F.T.C.’s decision is a positive step toward decreasing volatility and recreating an environment for true price discovery.”
In 2009 the A.B.A. testified before the U.S. Senate in favor of imposing position limits on index funds and defining index funds as speculators instead of as commercial hedgers. The A.B.A. also participated in multiple C.F.T.C. meetings and sent numerous letters in support of position limits to the Commission. The A.B.A. said it would continue its efforts through submitting comments in favor of position limits during the rule’s 60-day comment period. A final C.F.T.C. vote will come after the comment period.
“Volatility has wreaked havoc on the wheat market and on the baking industry,” said Cory Martin, senior manager of government relations at the A.B.A. “While there are many factors influencing the markets today, the direct negative influence of index funds is undeniable. Index funds treat wheat as an asset class, but the wheat market was never intended to function as an investment tool for multibillion dollar financial firms. Through limiting the aggregate impact of the index funds in the wheat market, the market will react more efficiently to fundamental supply and demand factors.”
The U.S. Congress passed the Dodd-Frank financial law in July 2010 providing the C.F.T.C. the power to set trading limits. But there has been disagreement within the C.F.T.C. about whether the Commission has the power to enforce such limits and from some in the trading community as to the actual impact on commodity prices and volatility from large index funds.