Congress eyes market impact of speculators: Vilsack

CHICAGO (Reuters) - Congress is eyeing ways to make sure speculative trading helps commodity markets rather than distorting pricing signals, U.S. Agriculture Secretary Tom Vilsack said in a Reuters Television interview Monday.

Agriculture Secretary Tom Vilsack speaks in Carson City, Nevada February 21, 2007. REUTERS/Kimberly White

“There are concerns,” Vilsack said, noting he has spoken about the issue with Tom Harkin, chairman of the Senate Agriculture Committee.

“I suspect that there will probably be an effort to make sure when there is trading that takes place on the market, that it’s trading that actually assists the market, doesn’t hurt the market, creates a robust trading scheme so that we get a good pricing signal,” Vilsack said.

Grain futures markets are bracing for more government regulation after a U.S. Senate probe blamed index funds for overinflating wheat prices last year.

Vilsack toured the Chicago Board of Trade on Monday with executives from parent company CME Group Inc, the world’s largest derivatives exchange, which has said speculators were not responsible for price volatility.

Food prices soared to record levels last year, causing riots and hoarding in some countries.

While prices have come down from the spike, they remain at historically high levels, especially in developing countries.

The expansion of biofuel production over the past few years also has been blamed for driving food prices higher. Most of the biofuel consumed in the United States is ethanol made from corn.

But the Obama administration remains supportive of the biofuels industry to wean Americans from foreign oil, Vilsack told Reuters.

“The President has been very, very clear about this. He wants the biofuel industry to take hold in this country. He wants us to break our addiction to foreign oil. The only way we can do that is by producing our own fuel and the biofuels industry is the way we are going to do that,” Vilsack said.

“Corn-based ethanol will continue to be part of the solution but by no means the only way to produce ethanol.”

High corn costs and a drop in fuel prices from 2008 highs have challenged the once-lucrative ethanol sector this year, tipping several producers into bankruptcy.

Vilsack said the USDA would work with producers to help them survive the difficult period, but he did not rule out further industry consolidation.

“We are working very hard to make sure that we maintain the infrastructure of the ethanol industry in the United States,” he said during a visit to the CBOT trading floor. “There will likely be some companies that will succeed and some companies that won’t, but it won’t be because we haven’t been giving them an opportunity to succeed.”

Vilsack also said in a speech that the United States will take a new approach to fighting global hunger that helps developing countries produce more of their own food rather than relying on shipments of emergency food aid.

“It is a more comprehensive, holistic view of food security that focuses on the notion that we want to make food more available, we want to make it accessible and we want to make sure that it is properly used,” he said in a speech to the Chicago Council on Global Affairs.

The Obama administration has said it will ask Congress to double agricultural development aid to $1 billion by 2010.

“It is part of national security, it is part of foreign policy, it’s part of our trade policy. It’s part of our economic recovery efforts,” Vilsack said.

The United Nations’ World Food Program has pleaded with rich nations to maintain food aid as more than a billion people are chronically hungry at a time when global food aid is at a 20-year low.

Reporting by Roberta Rampton, Christine Stebbins, Mark Weinraub and Karl Plume; Editing by Marguerita Choy