The federal agency charged with monitoring commodity markets is preparing to take a look at the role of speculation in the commodity markets. The Commodity Futures Trading Commission (CFTC) will hold an unusual public forum in April to examine several pressing issues impacting the highly volatile futures markets. Among the issues which CFTC is concerned about is the increasing lack of convergence between future and cash prices, higher margin requirements, and the role of speculators and index traders in the markets.

The CFTC forum will be held April 22 at the agency’s Washington, D.C., office and will include USDA officials and a number of commodity market investors and stakeholders.

“These historic market conditions, particularly in wheat and cotton, require the CFTC to hear firsthand from participants to ensure that the exchanges are functioning properly to discover prices and manage risk,” said CFTC acting Chairman Walt Lukken.

He also said during his announcement that the commission is taking a close look at the impact of a proposal which would increase the speculative limit on traders in the agricultural commodities market, noting that CFTC will cautiously examine any effect before it allows any changes.

By some estimates, in 2007 commodity market investment through indexes, exchange-traded funds, U.S. mutual funds and structured products totaled $178 billion, up 32 percent from a year earlier. Consensus estimates are that around $30 billion of fresh investment has entered commodities since the start of 2008. Those numbers prompted a series of inquiries from groups like the National Grain and Feed Association, National Farmers Union (NFU), and the American Bakers Association which have sent letters to the agency questioning the impact of speculation in the commodity markets. The groups have requested a review to determine the impact of futures trading on end-product users, farmers and elevators.

Last week, NFU, in a letter to USDA Secretary Ed Schafer and CFTC, asked the two federal agencies to examine the lack of so called hedge-to-arrive contracts previously available to farmers from local grain elevators. Hedge-to-arrive contracts allow farmers to establish the futures level on the contract, with a predetermined basis level before delivery. The commonly used price protection tool has become almost completely unavailable in the past few years as margin calls in the wake of sky-rocketing grain prices gobble up capital at grain elevators. The sharp rises in grain prices on any given day can leave elevators scrambling for millions of dollars to cover differences in trading accounts.

NFU has said the lack of hedge-to-arrive contract availability for its members is “troubling, as farmers must market their commodities in order to ensure they have the revenue necessary to pay for the skyrocketing input costs to plant a crop.”

NFU leaders said the rising costs of inputs and the lack of a firm Farm Bill policy in the wake of stalled Congressional negotiations is leaving its farmer-members facing a “high-risk, high-reward dilemma.”