From ABA President & CEO Robb MacKie:
Commodity volatility remains front of mind for ABA. If you recall, January opened with this very troubling quote from Bloomberg News:
“Wheat futures for March delivery rose 23 cents, or 2.9 percent, to $8.1725 a bushel on the Chicago Board of Trade. Earlier, the price touched $8.25, the highest for a most-active contract since Aug. 6. The commodity climbed 47 percent last year, the first gain since 2007.”
Little did we realize that these were conservative estimates compared to the actual numbers. Further weather challenges have the potential to exacerbate an already volatile market.
ABA is continuing to aggressively seek relief from the Commodity Futures Trading Commission (CFTC) from the undue influence of index fund speculation in the wheat futures markets.
Today’s volatility in the wheat market represents millions of dollars daily in undue financial risk. The markets have been overly influenced by index funds, causing prices to rise and fall in dramatic fashion. It wasn’t too long ago when the wheat markets were effective hedging tools for bakers, but now wheat is treated as just another asset class for buy and hold index funds. In short, the added volatility caused by index funds means bakers are paying an unnecessary premium for wheat.
ABA is making a big push with the CFTC to support reasonable rules enforcing contract limits on index funds. Such contract limits will allow the markets to react to traditional supply and demand factors, reversing the current trend of index fund activity heavily influencing prices. ABA has secured meetings with Commissioner Michael Dunn and is pushing for the Agriculture Advisory Committee to meet to take action on these rules. Finally, the ABA Board will be meeting with Agriculture Secretary Tom Vilsack at its June meeting to seek his support on this issue.
However, ABA is taking the unprecedented step of asking all bakers to immediately contact the CFTC to implement rules enforcing contract limits on index funds. Please take a couple of minutes to visit ABA’s RisetoAction.org grassroots Web site. The risk to your business is too great to not invest those couple of minutes.