Supporters of the financial regulation bill before the Senate say it will not only help reform the country's financial crisis but also control spikes in grain and food prices. "Regulations would create more transparency in the buying and selling of derivatives and discourage speculation by imposing capital and margin requirements on swap dealers," Phillip Brasher of the Des Moines Register reports. "Grain traders such as Cargill Inc. and other 'end users' who use the markets to control their risks would be exempted from new capital and margin requirements."
Discouraging speculation in commodities markets "should at least get us back to the point where there will be a little more predictability," Roger Johnson, president of the National Farmers Union, told Brasher. Not everyone agrees what caused the spike in food prices in 2008. Most believe it was either "Wall Street speculation in derivatives that are tied to commodities or the combination of soaring energy prices and tight grain supplies," Brasher writes. Analysis released recently by the international Organization for Economic Cooperation and Development said "the weight of evidence clearly suggests" that index funds did not cause the commodity price increases.
The study warns "excessive new regulations could rob markets of needed liquidity," Brasher writes. Spikes in prices don't always hurt farmers; they can benefit from spikes, too. "Volatility provides opportunity," Don Elsbernd, president of the Iowa Corn Growers Association, told Brasher. "But things got a little carried away in 2008 and we're still paying for that." For the most part agribusiness interests seem satisfied with the bill, Brasher writes, and are at least not fighting it. (Read more)
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