Aug 20, 2014

PFA Pioneer Blog

RSS By: Chip Flory, Pro Farmer

This is a private blog for Pioneer.

A Push for Position Limits

Oct 05, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Oct. 28, 2012


The Push for Position Limits


A court recently vacated the Commodity Futures Trading Commission’s position limit rule that was part of the Dodd-Frank Act. Following the ruling, CFTC Commissioner Bart Chilton urged the agency to immediately appeal the ruling and quickly move forward with a new plan.


Chilton says position limits are necessary because an influx in managed money has flowed into the U.S. commodity futures market (a $200-billion increase between 2005 and 2008), creating “an unprecedented link between financial markets and commodity markets.”


These speculators trade futures like stocks rather than futures, in that they “park” their money and “bet” prices will rise over the long-term, with little concern about short-term price fluctuations, Chilton says. His major concern is that their sheer size enables them to move markets.


While Chilton acknowledges these speculators are necessary in the market, he also says they create a “speculative premium on commodity prices… that shouldn’t be allowed.” He believes speculative position limits “across all physical commodity derivatives” would be a step toward ensuring commodity markets operate properly.


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