That's the finding of a new U.S. Senate subcommittee report on the 2008 wheat market's crazy ride. A yearlong investigation by a subcommittee of the Committee on Homeland Security and Governmental Affairs found excessive speculation rained dysfunction on the wheat market by creating two prices for the same thing, a phenomenon that hurt farmers, grain elevators, food companies and others who use the markets in their day-to-day business.

Speculators drove the futures price of wheat up even as the cash price, the price paid at the elevator, was lower, the report found. Farmers and others who thought they were protected by their hedges on the futures market were threatened by wildly volatile prices.

"There were some scary moments in there for some elevators," said Bob Zelenka, executive director of the Minnesota Grain and Feed Association.

The 170-page report details how index traders, primarily in Chicago and somewhat less in Kansas City, bought huge volumes of the wheat market to offset the risks they took selling agricultural indexes to hedge funds, pension funds and others who flooded the marketplace in recent years. Those purchases -- a result of trading rules that were loosened in 1986 -- eventually ran to half of the wheat market in Chicago and a quarter to a third in Kansas City.

None of the problem speculation was done in Minneapolis, the report said, but a contract traded here was vital to investigators since it recorded wheat's cash price at elevators nationwide.

The report urges the Commodities Futures Trading Commission to do away with waivers that allowed a handful of commodity index traders to gather more futures contracts than the standard limit of 6,500. If problems still persist, the report says traders should be restricted to 5,000.

The report did not find evidence that speculators alone drove up the price of wheat, deferring instead to a U.S. Department of Agriculture analysis that said many factors played a role in the historic runup of wheat prices last year, from fertilizer and energy costs to trade issues, supply, runaway demand and weather.

Sopurce: Minneapolis Star Tribune