The National Farmers Union has submitted comments on the Dodd-Frank Wall Street Reform and Consumer Protection Act to the Commodity Futures Trading Commission requesting that the CFTC impose strong position limits to curb excessive speculation in commodity markets. In its comments, NFU asked the CFTC to strengthen protections against excessive speculation and market manipulation by lowering the spot-month position limits below the proposed 25% of deliverable supply.
A recent study by CFTC found that as much as 80% of market activity for some commodities is conducted by speculators. Johnson notes that although speculation is necessary to provide markets with liquidity and to assist in risk management practices, excessive speculation has come to dominate commodity markets. And this level of activity certainly qualifies as excessive speculation.
Excessive speculation pushes futures prices up artificially, widening the gap between current cash prices and futures prices. This wider gap makes the market an ineffective hedging tool for farmers, greatly increasing risk. Johnson says that a limit set at 25% will have some effect on market manipulation by eliminating the ability of individual traders to corner a market. However, a lower spot-month limit would better uphold the provisions of the Dodd-Frank Act banning excessive speculation in commodity markets.