CME Group Disputes Report on Wheat Prices
News Date: 06/25/2009
Outlet: New York Times

The CME Group, parent of the Chicago Board of Trade, Wednesday disputed a Senate panel report that blamed commodity index funds for driving up wheat futures prices.

The panel, the Senate Permanent Subcommittee on Investigations, released its 247-page report late Tuesday after a yearlong investigation led by Carl Levin, a Michigan Democrat who leads the panel, and Tom Coburn of Oklahoma, its top Republican.

The investigation came after months of criticism by grain firms that the board of trade’s soft red winter wheat contract, the world benchmark for wheat prices, was broken.

Those firms complained that cash and futures prices no longer came together when futures contracts reached their expiration dates. That phenomenon, known as “convergence,” is essential for proper hedging by companies that purchase wheat for use in food products — as opposed to speculators who buy contracts with the intention of selling them later at a higher price to make a profit.

The CME Group said that fundamental supply-and-demand factors, not speculation, were responsible for the increased price volatility. It said its conclusion was backed up by studies conducted by the Commodity Futures Trading Commission; the Government Accountability Office; an industry consultant, Informa Economics; and the CME Group.

The studies also analyzed market conditions and trades made by index funds, the CME Group said.