Don't blame funds for commods run-up - CFTC, execs

By Christopher Doering

WASHINGTON, May 15 (Reuters) - Global demand and tight supplies are responsible for sending commodity prices to record highs, and fund investors are being unfairly blamed for the increase, government regulators and top exchange executives told lawmakers on Thursday.

Prices for wheat, corn, soybeans and rice have soared to record highs this year due to a weak dollar, low stockpiles, higher energy costs and increased demand from developing countries.

"Together, these fundamental economic factors have formed a perfect storm that is causing upward pressure on futures prices across the board," said Jeffrey Harris, chief economist with the U.S. Commodity Futures Trading Commission, the government agency that oversees futures trading. "The market seems to be acting appropriately, reflecting supply and demand."

This year's sharp runup in commodities prices has highlighted an ongoing debate over whether fundamentals or fund managers are primarily responsible for the increases. Farming groups and food producers blame a rise in speculative trading from investment funds for added volatility, which they said has undermined the role of futures markets to determine price and help players manage risk.

The price volatility has lead to a growing discrepancy between U.S. grain futures and cash prices, which fail to converge at the expiration of a contract, a problem critics said must be corrected to help buffer exposure by exporters, processors and farmers.

The American Farm Bureau Federation told a House Agriculture subcommittee that in some cases grain elevators and multinational companies will not buy grain more than 60 days in advance, making it hard for farmers to predict future income or prepay their input costs.

"We do not want to end speculative participants, nor do we believe the CFTC should be given that authority," said AFBF President Bob Stallman.

But Stallman emphasized that while these investors are crucial to raising liquidity and prices in the market, they may occasionally create uncertainty in prices that cannot be explained. In order to understand who is in the market and why, "additional transparency about the funds involved in the futures market should be required," he said.