Some believe that the crisis was amplified by speculative trading in commodity futures, which have become an integral part of food markets.

Commodity futures are generally traded before their expiration date.

Recent initiatives by the US Commodity Futures Trading Commission point in the right direction.

Commodity futures are formal agreements to buy or sell a specified amount of a commodity at a specified future date for a specified price.

Economists generally consider commodity futures to be the solution to higher price volatility, not its cause.

International commodity markets are under stress.

An alternative for some commodity exporters is to hedge their risk by selling on the futures market.

But their presence has also raised concerns that speculation in commodity futures could result in higher price volatility.

They argue that traders of commodity futures merely react to price signals that ultimately depend on market fundamentals.

But history is not destined to repeat itself, and leaders of commodity rich countries are seeking alternative futures.

Furthermore, ample worldwide liquidity and the rise of other commodity prices induced market speculators to buy into oil futures.

Such measures will contribute to shaping a more stable market environment and ensure that commodity futures reduce risks and volatility.

Limiting or even banning speculation in futures markets might therefore be costly and have unintended consequences.

Until this month, the US Commodity Futures Trading Commission had been at odds with Barnier over the territorial scope of US derivatives rules.

Fourth, the commodity super cycle that helped Brazil, Russia, South Africa, and many other commodity exporting emerging markets may be over.

Oil is a fungible commodity, and markets clear at a common price.

Synthetic securities need to be similarly regulated, although the task could be assigned to a different authority, such as the Commodity Futures Trading Commission.

Given these findings, trading in futures markets seems to have amplified price volatility in the short term only.

Given the important role that commodity futures play for many market participants, regulatory measures should aim at enhancing confidence in the functioning of the market.

They thus provide an important instrument for hedging price risks in commodity markets.

The futures markets on home prices will allow investors around the world to invest in US homes indirectly, by buying interests in them through these markets.

Others spoke out as well, and the futures markets quickly predicted another 25 basis point rate hike in March.

For example, the recent spike in oil prices would have been driven by an irrational frenzy in futures markets.

This is more prevalent in the US, where regulators salaries are very low, especially in the Securities and Exchange Commission and the Commodity Futures Trading Commission.

In fact, commodity futures have become increasingly appealing to non commercial investors, as their returns seem to be negatively correlated with returns on equities and bonds.

China s 4 trillion stimulus package, unveiled in November 2008, restored confidence in global commodity markets.

And emerging markets will suffer once the US contraction and global slowdown undermines commodity prices.

Price volatility has also been high for commodities that are not traded in futures markets (copper, iron, and ore), or for which these markets are not important (steel and rice)

While commodity prices are always more variable than those for manufactured goods and services, commodity markets over the last five years have seen extraordinary, almost unprecedented, volatility.

Recognizing also that structural changes in international commodity markets, particularly the increasing concentration in trade and distribution, constitute new challenges for commodity producers and exporters in developing countries,

2. Expresses the urgent need for supportive international policies and measures to improve the functioning of commodity markets through efficient and transparent price formation mechanisms, including commodity exchanges, and through the use of commodity price risk management instruments

Recognizing that structural changes in international commodity markets, particularly the increasing concentration in trade and distribution, constitute new challenges for small farmers, commodity producers and exporters in developing countries,

In the short term, dollar depreciation does not affect supply and demand, but it does affect speculation and investment in oil futures markets.

3. Recognizes that developed countries account for two thirds of non fuel commodity imports, and expresses the urgent need for supportive international policies and measures to improve the functioning of the commodity markets through efficient and transparent mechanisms, including commodity exchanges

2. Expresses the urgent need for supportive international policies and measures to improve the functioning of commodity markets through efficient and transparent price formation mechanisms, including commodity exchanges, and through the use of viable and effective commodity price risk management instruments

Although index fund investments are important compared to the positions of other futures participants, their behavior is predictable, as they publicly announce both their commodity portfolio and the timing of their transactions

Europe s Two Futures

America s Opposing Futures

Two Energy Futures

Even those countries that were better prepared were made painfully aware of the after effects of crisis export markets collapsed, commodity prices fell, and credit markets seized up.

When the United States went to war, oil cost less than 25 a barrel, and futures markets expected it to remain there for a decade.

Futures markets have evolved historically in response to market participants need to manage price risks, and they are an indispensable marketing tool for many commodities.

At a recent Commodity Futures Trading Commission roundtable, the banking sector representative sitting next to me cited a paper by a prominent Stanford University finance professor to support his position against a particular regulation.

the increasing gap between world and domestic price in commodity markets over the past 25 years , World Bank Economic Review, vol. 12, No. 3 (1998), pp. 503 526) notes that since the 1970s, commodity prices have fallen in international markets at the same time that consumer prices have risen.

Much more progress toward comprehensive public futures and derivatives markets would help, as would policies to encourage the emerging world to participate more in the US economy.