France's push to get the world's leading economies to toughen regulation on commodity markets may prove to be like herding cats as most governments see little benefit in new rules that could harm their financial interests.
Many say improving market transparency and raising food production is the way to tackle price volatility and few expect last month's call by G20 farm ministers for regulation to bring coordinated hard action among the Group of 20 leading economies.
"The chances of this happening are quite slim," Commerzbank analyst Carsten Fritsch said. "Views are quite different among G20 countries and this makes it quite difficult to come up with any specific measures which are relevant for every country, and if any country goes ahead alone it risks losing market share."
French President Nicolas Sarkozy has put a crackdown on commodity speculators at the heart of his G20 presidency in 2011, blaming speculation for a surge in staple food prices that has led to political unrest in North Africa and the Middle East.
Sarkozy, who has drawn parallels between regulating commodities and combating the mafia, has proposed to limit positions large investors can take, create identity cards for operators, or regulate over-the-counter trades.
The FAO's food price index has risen by nearly 40 percent in the last 12 months as Russia's grain export ban last summer and adverse weather this spring led wheat and corn to record prices.
Grain trade has also become extremely choppy.
Euronext wheat futures lost a quarter of their value between mid-February and mid-March before rebounding 37 percent until end-May and plunging again 22 percent last month.
Data showing surprisingly high U.S. corn supplies sent Chicago corn prices down 10 percent on Thursday, a volatility that Michel Portier from consultancy Agritel calls "irrational."
France said this exacerbated volatility had lent weight to its efforts to put more trading under the thumb of regulators, but many disagree that speculators are to blame.
"We are not persuaded that speculation is the fundamental problem," UK farming minister Jim Paice told Reuters last month.
Observers say recent yo-yo moves in wheat prices were spurred by physical factors rather than excessive speculation. Prices surged in May as adverse weather threatened European and U.S. crops, and largely fell in June on the expected return of leading Black Sea grain producers to the international markets.
Demand for food commodities has been rising strongly due to population growth, higher incomes, changing diets in emerging nations and the increased use of crops to make biofuels, and key producing nations such as Argentina and Brazil say only a sharp rise in production can help reduce market imbalances.
This belief shifts the focus away from calls for regulation.
Concern from some countries that tighter trading rules would harm their interests also caps any inroads on that front.
Britain for instance fears tougher regulation would reduce the appeal of its financial market hub in London.
"China is also opposed to regulation. The country cannot entirely cover its immense food needs and it must have access to a very free world market to ensure its food security at the best possible price," said a source close to G20 negotiations.
Coordinating regulation efforts among so many countries may also prove difficult, if not impossible, experts say.
G20 ministers last month "strongly encouraged" finance ministers to take decisions for better regulation of agricultural financial markets, leaving it up to them to adopt concrete measures on an issue that pits France against countries like Britain which see little interest in more regulation.
"I find it extremely difficult and I'm very doubtful that it will ever happen," said economist Dan Basse, with AgResource Co.
"Tell me of a framework on global finance, other than Basel for the banking sector, that has worked in terms of regulation? I don't think there is one out there. So we're going to do this now in the opaque world of derivatives?" Basse added.
Although a global breakthrough on regulation is unlikely, pioneer regulatory efforts by the United States may inspire European countries to set up rules for their commodity markets.
For more than a year, the U.S. Commodity Futures Trading Commission (CFTC) has been trying to implement rules -- such as position limits, anti-manipulation, large trader reporting, or clearing measures -- to limit the positions big investors can take in markets spanning energy, metals and agriculture.
"It is possible that going forward European markets will become regulated in the same way that U.S. markets are regulated," Commerzbank's Fritsch said.
"But this is unlikely to go beyond that."
Editing by Keiron Henderson
Source: http://www.reuters.com
Many say improving market transparency and raising food production is the way to tackle price volatility and few expect last month's call by G20 farm ministers for regulation to bring coordinated hard action among the Group of 20 leading economies.
"The chances of this happening are quite slim," Commerzbank analyst Carsten Fritsch said. "Views are quite different among G20 countries and this makes it quite difficult to come up with any specific measures which are relevant for every country, and if any country goes ahead alone it risks losing market share."
French President Nicolas Sarkozy has put a crackdown on commodity speculators at the heart of his G20 presidency in 2011, blaming speculation for a surge in staple food prices that has led to political unrest in North Africa and the Middle East.
Sarkozy, who has drawn parallels between regulating commodities and combating the mafia, has proposed to limit positions large investors can take, create identity cards for operators, or regulate over-the-counter trades.
The FAO's food price index has risen by nearly 40 percent in the last 12 months as Russia's grain export ban last summer and adverse weather this spring led wheat and corn to record prices.
Grain trade has also become extremely choppy.
Euronext wheat futures lost a quarter of their value between mid-February and mid-March before rebounding 37 percent until end-May and plunging again 22 percent last month.
Data showing surprisingly high U.S. corn supplies sent Chicago corn prices down 10 percent on Thursday, a volatility that Michel Portier from consultancy Agritel calls "irrational."
France said this exacerbated volatility had lent weight to its efforts to put more trading under the thumb of regulators, but many disagree that speculators are to blame.
"We are not persuaded that speculation is the fundamental problem," UK farming minister Jim Paice told Reuters last month.
Observers say recent yo-yo moves in wheat prices were spurred by physical factors rather than excessive speculation. Prices surged in May as adverse weather threatened European and U.S. crops, and largely fell in June on the expected return of leading Black Sea grain producers to the international markets.
Demand for food commodities has been rising strongly due to population growth, higher incomes, changing diets in emerging nations and the increased use of crops to make biofuels, and key producing nations such as Argentina and Brazil say only a sharp rise in production can help reduce market imbalances.
This belief shifts the focus away from calls for regulation.
Concern from some countries that tighter trading rules would harm their interests also caps any inroads on that front.
Britain for instance fears tougher regulation would reduce the appeal of its financial market hub in London.
"China is also opposed to regulation. The country cannot entirely cover its immense food needs and it must have access to a very free world market to ensure its food security at the best possible price," said a source close to G20 negotiations.
Coordinating regulation efforts among so many countries may also prove difficult, if not impossible, experts say.
G20 ministers last month "strongly encouraged" finance ministers to take decisions for better regulation of agricultural financial markets, leaving it up to them to adopt concrete measures on an issue that pits France against countries like Britain which see little interest in more regulation.
"I find it extremely difficult and I'm very doubtful that it will ever happen," said economist Dan Basse, with AgResource Co.
"Tell me of a framework on global finance, other than Basel for the banking sector, that has worked in terms of regulation? I don't think there is one out there. So we're going to do this now in the opaque world of derivatives?" Basse added.
Although a global breakthrough on regulation is unlikely, pioneer regulatory efforts by the United States may inspire European countries to set up rules for their commodity markets.
For more than a year, the U.S. Commodity Futures Trading Commission (CFTC) has been trying to implement rules -- such as position limits, anti-manipulation, large trader reporting, or clearing measures -- to limit the positions big investors can take in markets spanning energy, metals and agriculture.
"It is possible that going forward European markets will become regulated in the same way that U.S. markets are regulated," Commerzbank's Fritsch said.
"But this is unlikely to go beyond that."
Editing by Keiron Henderson
Source: http://www.reuters.com
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