New hot commodity: Grains and the "free" markets in Chicago

The U.S. Department of Agriculture surprised the futures markets this morning with a report showing that stockpiles of corn fell 8 percent from a year ago – more than analysts were expecting. As a result, corn futures for May and July delivery rose by the $0.40 daily limit to near $6.50 per bushel. Projected acreage for soybeans and wheat planting was less than 2011 and so prices for those commodities are also much higher. With oil over $100 per barrel and gasoline at the pump flirting with $5.00 per gallon, what does this mean for commodity prices if the U.S. economy ever heats up?

In the robust economy of the 1990s, corn could barely get over $2.00 per bushel and now it’s more than three times the 1990s rate! What changed? Looking at the iTrade price chart of corn on the left, the position marked in red shows the last corn futures price under $2.00/bushel. That was in 2005. Today corn is limit bid at $6.44 and looking for an offer. But what happened in 2005?

In 2005, there was a significant transforming event: the Chicago Mercantile Exchange and the Chicago Board of Trade became “corporate.” For over 100 years, the Chicago exchanges were owned and controlled by its individual members. The markets are now mostly traded by corporations, the memberships are owned by corporations and, in fact, the exchanges themselves are now corporations. In an age where there are cries that oil prices are rigged by corporate speculators, can the same thing be happening to other commodities like corn, soybeans and wheat?

For years, the Chicago futures pits were hailed as the last bastion of open and free markets – a challenging environment of raw capitalism where fortunes were quickly made and lost based on the sheer resourcefulness and energy of individual, entrepreneurial traders. But times have changed. Just as corporations have taken over Las Vegas gambling, they have also taken over the Chicago commodity speculation markets. The CFTC (Commodity Futures Trading Commission) is supposed to be in charge but the CFTC still cannot find over $1.6 BILLION in customer funds that Jon Corzine was responsible for protecting at MF Global!

This is the first in a series of reports on the subject of the “free” markets of the Chicago commodity exchanges and how prices can quadruple even with no demand.