Contact: Cory Martin
Director, Government Relations
Washington, D.C. – The American Bakers Association (ABA) today signed on to an amicus brief supporting the Commodity Future Trading Commission’s (CFTC) rule imposing position limits on index funds operating in the wheat market. The CFTC is appealing a ruling late last year striking down a proposed rule implementing position limits in the agriculture, metals and energy markets.
“Market volatility continues to be a major issue for bakers,” said Robb MacKie, ABA President and CEO. “The buy and hold strategy that index funds employ in the wheat market only further weakens the wheat markets’ ability to react to traditional fundamentals. When this happens, the wheat markets become a much less reliable tool for true price discovery.”
“Open interest in the Chicago soft red wheat contract is almost seven times the size of the 2013 crop,” said Cory Martin, ABA Director of Government Relations. “The position that index funds hold in the wheat market is massive, and when you combine that with their tendency to sit on these contracts regardless of what is happening in the market, it leads to increased volatility. For example, from 2005 to 2007, the range in monthly price movements was only 61 cents per month. From 2008 to today, that has increased to $1.17 per month. The jump in monthly volatility corresponds with the increase in index funds investment in the wheat market.”
“The position limit rule will go a long way in addressing unsustainable market volatility,” added Martin. “Limits will preclude the funds’ ability to buy and hold a vast amount of open interest in the market, allowing the market to react appropriately to traditional market fundamentals.”
ABA will continue to work with the CFTC and Congress to address today’s extreme market volatility.