US regulator vows caution on grain futures rules

22 April 2008 20:29  [Source: ICIS news]

HOUSTON (ICIS news)--US regulators would proceed with caution on proposals to loosen trading limits for already volatile agricultural commodity future contracts, the head of the Commodity Futures Trading Commission (CFTC) said on Tuesday.

"During such turbulent times, it is tempting to shoot first and ask questions later," CFTC acting chairman Walt Lukken said. "But it is exactly at such moments that government must endeavour to be informed and proportional in its response."

Lukken was speaking at a roundtable meeting of agricultural market participants and government officials in Washington called to discuss the role of futures contracts. The meeting was broadcast via the internet.

The event came amid intense global attention on the problem of rising food prices, with leaders including UN secretary general Ban Ki-moon and UK prime minister Gordon Brown warning of a possible crisis in recent days.

Lukken promised a go-slow approach on proposals to raise the speculative trading limits for some agricultural commodity futures contracts and to exempt some risk-management activity from speculative limits.

"Given current market conditions and the uncertainty surrounding additional speculative money on these markets, I will be very cautious about moving forward with such initiatives at this time," Lukken said.

A US Department of Agriculture (USDA) economist told the roundtable that biofuels demand was only one of a number of supply and demand issues playing a role in the surge in world agricultural prices.

Corn demand for ethanol in the US and oilseeds demand for biodiesel in Europe were increasing demand for grains, with ethanol's share of the US corn crop to reach 31% in the 2008-09 farm year, said Gerald Bange of the USDA's Office of the Chief Economist.

That figure compares with the 24% share for the 2007-08 farm year projected by USDA on 9 April.

Bange said other factors driving up food prices included rising costs for petroleum fuels and fertilizers, below-trend crop yields in major exporting countries for the last two years, including back-to-back crop failures in Australia due to drought, and income growth in Indian, China and other developing countries.

The US ethanol industry and other biofuels proponents have tried to deflect the blame for high grains prices on to the effects of the surge in crude oil.

For more on ethanol visit ICIS chemical intelligence

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By: Stephen Burns
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