The American Bakers Association (ABA) calls on the Commodity Futures Trading Commission (CFTC) to take immediate action in addressing volatility in the wheat markets.

“The market has become dysfunctional,” says Robb MacKie, ABA president and CEO. “Bakers and other true commercial users are finding it increasingly difficult to use the wheat futures markets for price discovery. Simply put, the markets just aren’t working like they are supposed to. ABA warned the CFTC in late April that convergence was going to continue to be a key issue in the wheat markets. While bakers and other wheat users across the country are straining to work within an ineffective market, wheat farmers in Kansas are facing issues with a severe lack of convergence. The traditional users of the market are struggling while the index funds continue to hold or add to their positions, indifferent to the difficulties they are creating for farmers and food producers."

ABA, based in Washington, D.C., participated in the Aug. 5 CFTC Agricultural Advisory Committee Meeting, discussing solutions with other market participants.

“The wheat markets were created for the primary purpose of allowing producers to sell and wheat users to purchase wheat,” says Cory Martin, ABA senior manager of government relations and ABA liaison to the Commodity and Agricultural Policy Committee. “Unfortunately, today these markets are overrun by firms investing in wheat as you would invest in real estate. Wheat was never meant to be an asset class.”

The ABA is currently drafting comments to urge the CFTC to remove exemptions on the funds in accordance to the guidance given in the recently passed financial regulatory reform bill.

“Making further tweaks to the wheat contract without addressing the root of the problem will only continue to harm traditional market participants,” Martin says. “The CFTC must take the necessary step of removing position limits on index funds in order to allow for true price discovery in the market.”