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Directly trading in futures isn't all that popular for farmers, owing both to the complexity of the futures market and the capital required to manage a trading position. Most farmers, like Mr. Giessel in Kansas, choose to enter forward contracts with grain elevators. Last September, for instance, he struck an agreement with a local co-op to sell a third of his 2008 wheat crop at $5.30 a bushel: a price that looked good at the time, and that looked horrible in the spring, when wheat moved close to $13. The grain elevator, once armed with this agreement, immediately sells futures in the market at roughly the same price to minimize its risk. But here's the rub: Every time the futures price rises, the elevator must post an equivalent amount of money in the form of margin - a kind of goodwill bond in case the farmer has a problem delivering the physical crop. That's fine if the price of wheat nudges up a few nickels. But when an elevator sells a futures contract at $6 a bushel, and that price doubles, it must then post an additional $6 worth of margin on every bushel. That means going to the bank for a very big loan, which is easier said than done in today's credit environment. "A year ago, we're sitting here with a $7-million line of credit," said Kim Barnes, a hulking man who works as an assistant manager with the Pawnee County Co-op. "Now it's over $19.5-million. And our interest costs have gone from $7-million last year to $14-million this year. Last year, because we were in uncharted waters, the banks allowed you to come back to the well. But we've all been told this year that you've got to live within your means." Translation? Most elevators will only accept futures contracts for this year, and won't offer contracts to farmers looking to lock in prices for their 2009 or 2010 crop, depriving them of a common risk management tool. Some elevators are only offering contracts 60 days out, while a few unlucky ones have fallen into insolvency, unable to meet margin calls as prices accelerated to record levels. As if this unpredictability weren't bad enough, key input costs like fertilizer, fuel and herbicide have soared, affecting farmers on both sides of the border. These inputs are a bit like taxes: Once they go up, they stay up, regardless of whether commodity prices fall again, as they have already done in the wheat market. That can take a big bite out of profit if the commodities don't remain at their current high levels. For farmers, this sudden unpredictability is proof that commodities markets are no longer doing what they were supposed to do. "The commodity market was designed to provide a forward pricing tool to protect ourselves," said Ian Wishart, a farmer in western Manitoba, "not to provide an opportunity for someone else to make profits." In the lead up to the April meeting in Washington, the CFTC resisted the idea that ballooning fund investments were responsible for the dramatic upswing in commodity prices. Yet given the outpouring of concern from farmers, the regulator wasn't taking any chances. At the meeting, acting chairman Walt Lukken said the CFTC would temporarily shelve plans to move ahead with two proposals: Raising the limits, once again, for speculative traders like hedge funds, and formalizing an exemption from any trading limits for index funds. "I will be very cautious about moving forward with such initiatives at this time," Mr. Lukken said. "I believe that before acting, this agency must be certain that additional speculative pressures will not exacerbate the anomalies we are experiencing in these markets." All Roads Lead to Rome
Next week, international leaders will gather in Rome for the High-Level Conference on World Food Security, hosted by the UN Food and Agriculture Organization, in an effort to bring the spiralling food crisis under control. In a report leading up to the summit, the UN warned that 22 countries, including Eritrea, Niger, Comoros, Haiti and Liberia, are particularly vulnerable to the recent rise in food prices, and the agency is calling for urgent measures to ensure the world's poorest citizens have affordable access to food. The UN has also acknowledged that the speculative money flowing into commodities markets could be wreaking havoc with prices, joining officials from other international bodies, including the World Bank, in drawing attention to the problem. In the face of stiff criticism from U.S. agriculture and this widening concern abroad, current and former CFTC officials have insisted the massive movement of investors into commodities has not distorted the markets. Ms. Gramm claimed that deregulation and changes to the futures market have nothing to do with today's rising food prices. That notion, she said, "is just plain flat wrong." "Volatility in the futures market doesn't cause prices [to rise]," she said. "Futures markets are an indicator of what's going on in the cash market, not vice versa." Senator Carl Levin, a Michigan Democrat who heads a subcommittee that is probing commodities prices, disputes this point of view. The CFTC, he said this week, hasn't addressed the issue of how this influx of money into futures markets has affected price. "You monitor, you update, you study, and then you don't do a darn thing about it," Mr. Levin said. Amid this controversy, there remains a growing sense that the CFTC will have to implement some measure of added regulation to address concerns about soaring prices. In the aftermath of the subprime mortgage debacle, U.S. lawmakers are trying to usher in a new era of regulation and scrutiny - one that demands far greater transparency on exotic derivative instruments, whether they be tied to the housing bubble or the commodities markets. This month, the Senate passed legislation aimed at closing the Enron loopholes and bringing electronic energy trading under the purview of the CFTC. Facing growing pressure to rein in soaring prices, the CFTC announced Thursday that it is investigating possible manipulation of crude oil prices by traders. More than one farmer has pointed to the Federal Reserve's assistance in helping JPMorgan to buy troubled brokerage firm Bear Stearns, and openly wondered why the U.S. government couldn't make a similar intervention in the food market. Many would say the stakes are higher, and carry with them something of a moral obligation. "The tsunami they refer to as the food crisis should be the wake-up call to all of us that we have to get our priorities right," said Diana Klemme, a vice-president and grain division director at Grain Service Corp., an Atlanta firm that advises farmers on risk management. "It's not just about the Kansas wheat crop, or the Iowa corn crop," she said. "This is about the world. And it's hard for us to step back and say we have to put this in context." Even farmers like Mr. Giessel, preoccupied as they are with pressing concerns at home, readily acknowledge that the problems with commodities trading resonate far beyond the heartland. "We're commoditizing everything, and losing sight that it's food, that it's something people need," he said. "We're trading lives." TIMELINE
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