Commodity Futures Trading Commission Asked to Investigate Low Prices

By Brooks Dailey, President

Montana Farmers Union

August 28, 2006

It’s Congressional recess time, and Farm Bill listening sessions across rural America are  more plentiful than the harvest itself in many parts of the country. 

National Farmers Union (NFU) has been holding its own listening sessions to prepare for the 2007 Farm Bill discussions.  They have heard many concerns and suggestions for improvements.  A common theme at many of these meetings, however, is farmers, ranchers and rural residents expressing their concern with commodity prices.  Of particular concern is the unusual difference between prices on the Chicago Board of Trade (CBOT) and the local cash prices offered to farmers. 

In fact, these home-grown concerns have surfaced in recent news articles that have also raised the price discrepancy issue, commonly referred to as “basis.”  The issue of contention across the country is that the basis has become unusually wide, first in wheat and more recently in corn. 

These stated concerns have led the NFU to send a letter to the Commodity Futures Trading Commission (CFTC) asking it to investigate.

Tom Buis, NFU president, stated recently that during the 2006 wheat harvest, local cash prices for soft red winter wheat initially ranged from 75 cents to $1 under the Chicago Board of Trade September futures price.  As prices rose at the CBOT, the local basis widened, rather than reflecting the price improvement that was occurring on the exchange.  Some people have suggested that one cause of the widening basis is due to the limited number of delivery points for wheat traded on the CBOT and the level of control of those delivery points.  This same situation is occurring at other exchanges and for other exchange-traded commodities.

NFU has urged the CFTC to analyze this issue in terms of the causes for this market “disconnect” and its economic impact on producers across the country.  The NFU, which represents more than 250,000 member families nationwide, said the CFTC should review the effects of concentration within the grain sector and the economic impact it can have on producers across the country.

In a letter to the Commodity Futures Trading Commission, Buis wrote that “producers need to have the assurance that market concentration is not being used to manipulate the futures markets.”

We strongly agree, and will keep you posted on this issue as information comes forward.