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| MGEX: Free market can’t legislate commodity prices |
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MGEX, established in 1881, is the only futures and options market for Hard Red Spring Wheat (HRSW) and five financially settled index contracts. By design, the contracts (National Corn Index, National Soybean Index, Hard Red Spring Wheat Index, Hard Red Winter Wheat Index and Soft Red Winter Wheat Index) force convergence between the futures contract and a representation of the national cash market at contract expiration.
MGEX Index Products trade in all 12 months, settle to the three-day average of the national spot price and require no delivery. These contracts offer added risk management options and allow for greater flexibility in hedge timing.
These basic index contracts are the answer so many market participants like producers and grain elevators are looking for when traditional delivery contracts are no longer reliable. Due in large part to global market fundamentals, MGEX saw record HRSW futures prices in February.
Supply and demand fundamentals can explain much of the run-up in price, with reported 60-year lows in global wheat stocks and a growing and demanding world population.
Despite this futures price increase, market transparency and price discovery continued as speculators, hedgers and funds remained active in our marketplace. MGEX encourages greater participation in our contracts and believes new market participants including funds have improved the spread between bidders and sellers and provided greater market liquidity.
MGEX does not have control over fundamental factors affecting the market. We do, however, have contracts available to all market participants that offer price discovery and risk mitigation.
Constant Congressional inquiry that focuses on speculators as the source of all market problems misses the larger point. A properly functioning market like MGEX offering viable agricultural trading products can accommodate and benefit all market participants.
Discrimination against a group of participants, restricting access or making it more difficult for speculators to participate in the marketplace will not make the market more efficient.
Despite a well-intentioned Congress, its potential actions threatening to interfere with market forces will harm our marketplace and the public. MGEX believes it is not possible to legislate commodity prices and still maintain a free market for price discovery.
Layne Carlson
Minneapolis Grain Exchange |
| 7/18/2008 |
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