Fears are growing in the commodity futures business that volume will decline next year from this year's record level.
The expected slowdown, which would be the first in two decades, could be the result of the chaotic trading this fall that produced millions of dollars in losses for those in the financial and precious metals markets.
The whole idea for the futures markets is to provide a place where producers and consumers of a commodity can protect themselves against wild and unpredictable price changes.
But all the rules were broken last month when the Federal Reserve Board stepped up its battle on inflation. The shock in the interest-rate markets, produced by the Fed's clamp on the money supply Oct. 6, spilled over into precious metals and foreign currencies, where traders sought to figure the correct value of the dollar. Eventually, almost every commodity market was affected.
The strain on the commodity markets was unprecedented, according to President Clayton Yeutter of the Chicago Mercantile Exchange.
In a letter to members of his exchange, Yeutter said, "I do not recall a time over the last three decades when supply and demand fundamentals have been so overwhelmed by other factors" and "price gyrations became rampant, and unpredictable to ordinary mortals."
Though the losses ran into the tens of millions, an exact tally will never be known. But it's clear that no segment of the market escaped the bloodletting.
While commodity speculators seeks to profit by leaving themselves open to the risk of unexpected price changes, Yeutter said, "people on the specutive side have been at sea, trying to anticipate the size and location of the next price wave." For every speculator who lost, of course, there was another who reaped an overnight fortune..
If the markets were unkind to speculators willing to shoulder the risks, they were downright cruel to many of the producers and users of commodities who use the futures markets, not to seek profits but to hedge themselves against price fluctuations.
"Many active hedges (and their creditors) can breathe a sigh of relief for having avoided the enormous price risks of the last 30 or 60 days," Yeutter said.
"Others, however, have been caught on the short side of an up-market and have experienced cash-flow problems as futures markets have jumped ahead of the cash (markets)."
Some hedgers, Yeutter continued, experienced the worst of both worlds when bankers refused to meet margin calls, thus forcing them out of their hedged positions" at a loss.
"Without question, we have lost some trading volume as a result of this series of events," Yeutter said. "The inordinate volatility has frightened a lot of people, both on and off the floor."
With the markets now settling down, traders may get a chance to "regain their self-confidence," and may return to the market, Yeutter said.
Heavy activity throughout 1979, however, ensures that volume won't flag this year. Contact volume at the nation's 10 commodity exchanges is expected by the Futures Industry Association to reach 75 million, as compared with last year's record 58.5 million. That compares with 11.4 million contracts in 1969 and 7.6 million contracts in 1959.
While Yeutter feels this fall's chaos may have frightened many participants away from the market, Executive Vice President Paul Johns of the Chicago Board of Trade says continuing economic uncertainty may well make participation in the market mandatory. "The thing That could hurt our markets is if the cost of money gets high and continues staying high," Johns said. "That will tend to dampen the market, because it will make it harder for traders to finance their positions."
Noting that there "is a lot of talk in the industry about 1980 being a down year," FIA President John Clagett disagrees. "I think a lot of people are standing aside right now and not trading," Clagett said. "But I think there will be continued activity in the markets, because there'll be as much of a need for hedging next year as there was this year. And I don't see the specutators going any place else, either."