Manipulation of Grain Futures Market by Speculators Hurts Farmers and Consumers
ST. LOUIS, (SLFP.com), April 26, 2008 - The influence on commodities markets by Wall Street speculators is hurting both Missouri farmers who aren't benefiting from higher grain prices and Missouri consumers who are paying more for food at the grocery store, Attorney General Jay Nixon said in a release.
Nixon is urging the federal agency that regulates futures markets, the Commodity Futures Trading Commission (CFTC), to take action to protect consumers and farmers.
In a letter sent Tuesday to CFTC Chairman Walter Lukken, Nixon asked the CFTC to level the playing field for buyers and sellers of commodities by reducing the influence of futures speculators. Nixon asked the CFTC to work to restore price convergence, which occurs when the market price of a good at the time of delivery matches the price which the buyer and seller agreed to in their contract. He pointed out that speculators - for whom transportation and storage are not factors - have advantages that farmers and buyers do not, because they can pick the better of the market price and the contract price.
"Farmers are not getting the full benefit of their hard work, and consumers are experiencing sticker shock in the cereal aisle," Nixon said. "Much of this is because speculators - who are neither producers nor consumers - are manipulating prices, and they are the primary beneficiaries. Wall Street gambling on grain hasn't had a positive impact on Main Street, Missouri."
Many Missouri farmers sell their commodities on futures contracts, which require them to deliver a quantity of goods on a particular date. These contracts have a fixed price and protect farmers from fluctuations in market prices between planting time and harvest time. In recent years, however, pension funds, hedge funds, and other speculators have flooded commodities markets by buying futures contracts. Unlike other commodities buyers, speculators use these contracts as a way to game the market and do not actually receive the commodities they contract for.
Refining Profits Set to Rise, Spiking Gasoline Prices Further Says Consumer Group
ST. LOUIS, (PRNewswire-USNewswire), April 26, 2008 - Conoco Phillips' CEO all but apologized for his company's 1st quarter profits, even though the $3.29 billion total was a record for the quarter, and the company's profit on oil exploration and production alone reached an all-time high of $2.55 billion. Consumer Watchdog called this mindset in the oil business evidence of an industry responding to the expectations of speculative markets, not the needs of a sagging economy or the long-term health of the industry.
"Conoco is the starter McMansion of oil companies, compared to the lavish estate of Exxon," said Judy Dugan, research director of the nonprofit Consumer Watchdog (formerly The Foundation for Taxpayer and Consumer Rights). "But for its CEO to say that record profits are merely 'solid financial results...[negatively] impacted by unplanned downtime' shows an industry operating in an economic bubble with no connection to the pain its prices are causing in the rest of the economy."
CEO Jim Mulva pointed to a drop in refining profits, which at $520 million were less than one-fourth of Conoco's quarterly record, $2.36 billion in the 2nd quarter of 2007. Yet the drop was largely a result of the high oil prices that Conoco was charging to its own refineries, noted Consumer Watchdog. If refinery margins this year had reached the 2007 record levels of nearly $1.00 on each gallon of gas at Conoco and other companies, drivers would be paying $4.50 to nearly $5.00 a gallon at the pump today.
"Refiners are now curbing production of gasoline even more than consumers have cut back on driving, so gasoline prices are now rising faster than oil prices," said Dugan. "What drivers and the economy as a whole can't afford is an industry bent on having it both ways."
Conoco, which like its larger brethren is awash in cash, noted in its investor presentation that it would spend the largest single portion of its 2008 profits to buy back company stock, rather than on exploration or updating and expanding its refineries.
Conoco is just the first drop in the oil barrel this quarter, said Consumer Watchdog, and larger giants like Exxon and Chevron are expected to hit even larger percentage records.
Conoco's profits also showed how diesel fuel prices, the backbone of food and goods transportation, rose even higher than gasoline.
Independent oil analyst Tim Hamilton analyzed the Conoco profit data for Consumer Watchdog and noted that the wholesale price of diesel rose 95 cents a gallon from the 1st quarter last year, or 27 cents more than the wholesale gasoline price in the same period.
"Even though gasoline and diesel come out of the same barrel of oil, farmers, truckers, and other users of diesel got hit first and hardest," said Hamilton.
Since diesel demand begins in early spring and gasoline demand comes in late spring through summer, Hamilton expects gasoline to catch up with and even pass diesel by the end of the 2nd quarter.
"It's a given that we will see $4 at the pump. The question is, will we see $5? If we have so much as a big burp at any refinery in the West this summer," said Hamilton, "$5 per gallon is likely, at least in California."
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