CME's Duffy: Food price highs not all speculation

NEW YORK (Reuters) - Commodity traders are not to blame for the latest increase in global food prices, despite persistent complaints from politicians that speculators are raising the cost of food globally, CME Group Inc CME.N Executive Chairman Terry Duffy said on Monday.

"When you have got oil doing what it's doing, and then you've got food prices doing what they are doing ... you can't be surprised when people in Washington are talking about it," Duffy said at the Reuters Exchanges and Trading Summit in New York on Monday.

"But to say that the speculator or the hedge funds or other participants are the root of the problem is really misguided," he added.

Soaring food prices in foods such as bread, milk, rice, beans and other staples, have been blamed recently for pushing up inflation around the world.

But Duffy, a long-time livestock futures trader, said those price increases are mainly a reflection of market fundamentals and not rampant speculation.

"The hedge funds and the growth of those folks has really only deviated by about a 5 percent increase in this whole uptick we have seen," Duffy said. "So it is not the dramatic number that people have said that is out there that is causing the run-up in commodity prices."

Instead, Duffy said his group is looking for ways to offset the problem and help traders work more efficiently, but it is not entirely up to the exchange.

"To think that you are going to take the speculator or the hedge fund out of the game is ridiculous," Duffy said. "People want commodity exposure and they are going to get it. Whether they get it on a regulated platform or an unregulated platform, they will get it."

CME has filed with regulators for a swaps contract to establish a basis trade between cash and futures that it hopes will help stabilize some of the prices and help traders manage risk in futures contracts, Duffy said.

The exchange also is monitoring trading aberrations. It said on Monday it is investigating a "database issue" at a trading firm that caused wild fluctuations in grain futures for a few moments in the market's early electronic trading session.

But Duffy was also careful to point out that this is not the first time commodity prices have caused controversy -- but in the past it was usually when prices fell too low and threatened to put farms out of business.

"Right now, I think that people understand that our markets are big, they are global," Duffy said, saying that issues such as crop failures and ethanol production were playing a role.

Duffy said that he and his group are currently spending a "tremendous" amount of time with politicians to explain why prices have risen so high.

"Every member of Congress represents roughly 500,000 people or so in the U.S. and I assure you every one of those members of Congress has got somebody in their district that has something to do with agriculture and they all have an opinion," Duffy said.

"It is painful at times to be a political football, but you can do nothing more than just give your message and hopefully it registers," he added.

(For summit blog: summitnotebook.reuters.com/)

(Editing by Phil Berlowitz)