There's a legitimate reason for a futures market in ag commodities .... producers and suppliers can use it to lock in prices and reduce price risk for themselves. So to do what I think you'd like, you'd need to somehow restrict parties not in the business from buying/selling agricultural commodity futures and I don't know who you'd do that.
The players are required to self-identify. For ex., my trades are cleared through Open E-Cry, where I'm registered as an individual speculator. If I were working on behalf of a producer or processor, my account would be registered and titled differently. The distinction is made because each month, only a certain number of positions or contracts are made available to speculators and this varies with each commodity.
Now as long as I only trade financial futures, such as currencies or the S&P, I'm not subject to any kinds of limits. This would only come into play if I switched over to physical commodities.
In theory, the CME knows who's who. In reality, it gets a little muddled. A company like Cargill might have traders going into the forward market to lock in prices and also have a trading department that is trading for its own account, i.e. speculating. The real problem is with outright fraudulent attempts to evade the position limits. I don't understand the mechanics, but it can be done with both swaps and options to in effect control more contracts than one would normally be allowed to control. Evading position limits brings about big fines and automatic disgorgement of profits for those who get caught.
The CFTC is much like the SEC in that both claim to be underfunded and understaffed and thus unable to fulfill the regulatory oversight they are tasked with. I don't know how much validity this has, but do know that the CME, the Chicago Mercantile, is said to be working overtime to try and enforce position limits on speculators. The huge percentage price swings hurt the ag producers and processors that the exchanges themselves were created to assist. Take a Safeway for example which suddenly has to lock into substantially higher prices for beef and then try to pass that extra cost along to consumers or absorb those costs in making cuts somewhere. |
