The US Commodity Futures Trading Commission (CFTC) is investigating potential market manipulation of cotton futures after prices surged and then abruptly plunged in March, two people familiar with the probe said.
Results of the investigation may be released as soon as tomorrow, said the sources, who asked not to be identified because the probe hasn’t been made public.
The Washington-based commission, which is also examining potentially improper trading in oil markets, began the cotton inquiry after seeing unusual gaps between futures and spot prices, the people said.
Cotton traded on Intercontinental Exchange Inc’s ICE Futures US unit rose to a 12-year high of US$0.9286 a pound (0.45kg) on March 5, then fell as much as 26 percent by March 20 to US$0.6902. Supplies in the US didn’t justify the increase, cotton merchants told the commission during an April hearing on the role speculators are playing in rising commodities prices.
“The market is broken, it’s out of whack, and someone has to step in and bring relief,” William Dunavant, chairman of cotton merchant Dunavant Enterprises Inc, said at the April hearing.
CFTC spokesman Dennis Holden said yesterday in an interview the commission doesn’t comment on whether it’s conducting investigations.
Intercontinental Exchange spokeswoman Kelly Loeffler said her organization also doesn’t comment on possible probes. The investigation was reported earlier in the Wall Street Journal and the New York Times.
The CFTC, which regulates markets including silver and soybeans and derivatives linked to stock indexes and bonds, is under pressure from Congress to ensure commodity markets aren’t being manipulated as the prices of gold, copper, corn and wheat rose to records, said one of the people familiar with the probe.
The Reuters-Jefferies CRB Commodity Index has jumped 37 percent in the past year, touching a record 435.53 on May 22. Oil has doubled, making it the biggest gainer. Cotton jumped 48 percent, the eighth-biggest increase of 19 commodities on the CRB. Cotton for December delivery fell US$0.0027, or 0.4 percent, to US$0.7437 a pound on Friday on ICE Futures US, formerly the New York Board of Trade.
Joseph Lieberman, chairman of the Senate Homeland Security and Government Affairs Committee, said on May 20 he is considering legislation limiting large institutional investors in commodities markets.
The legislation would be aimed at speculators and other investors who use commodities to hedge against swings in other investment instruments such as stocks and the US dollar, Lieberman, a Connecticut independent, said during a hearing.
The CFTC said in a statement on Thursday that it is investigating US oil trading to determine whether the doubling of prices in the past year is the result of manipulation or fraud.
The CFTC has been investigating the transportation, storage and trading of crude oil in the US since December, the regulator said in the statement posted on its Web site.
The CFTC said its probe, which involves ICE and the UK’s Financial Services Authority, includes oil futures contracts. Oil rose to a record US$135.09 a barrel on May 22.
The regulator, which generally keeps its inquiries confidential, didn’t say when the oil-market probe will end and didn’t name any companies being targeted. The details of the investigation were confidential, it said.
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