Agency Puts Reclassification Rumor to Rest

Hedge and Index funds shed a combined net ownership of greater than $22 billion worth of corn, soybean and wheat contracts this summer, sending prices several dollars off their early-summer highs. Improved Midwest weather garnered much of the credit for the liquidation, but trade rumors circulated in recent weeks that much of the selling was stimulated by actions taken by the Commodity Futures Trading Commission.

Institutions labeled as speculators have strict position limits. Trade rumors suggested that a firm was reclassified as a noncommercial speculator, necessitating liquidation of large corn and soybean positions to bring it under the specified limits. Traders believed that selling then produced additional chart-related sell signals that accelerated losses.

Farm Futures spoke exclusively with Bart Chilton, CFTC Commissioner, Thursday about the liquidation as he prepared to speak to the Michigan Agri-Business Association's summer conference. Chilton assured Farm Futures that its reclassification actions did not necessitate liquidation of corn and soybean contracts by any institution to bring it under the position limits.

Chilton spoke of the need to close loopholes in reporting positions to provide greater transparency to the markets; particularly those trading energy. However, he warned that the ag commodities would come under increased political, and perhaps regulatory, scrutiny as investors see increased opportunities to gain from generally favorable supply and demand fundamentals.