Fear that a handful of speculators were trying to corner the market in wheat and jack up prices yesterday shut down the wheat trading pits of the Chicago Board of Trade.
It was the first time that the Chicago board -- the heart of the nation's grain market -- stopped trading because of an apparent attempt to manipulate prices, industry sources said.
The Chicago board trades not in actual bushels of wheat but in futures contracts, each calling for delivery of a boxcar of wheat at a specified date.
Late Wednesday night the Commodity Futures Trading Commission declared an emergency in the market and halted trading in wheat for delivery this month. The Board of Trade then halted all wheat futures trading until late yesterday, when trading resumed for an hour in all but the March contracts.
Over objections from the Board of Trade, the CFTC last night froze the price of wheat for March delivery at $3.76 3/4 cents per bushed, the price on Thursday.
CFTC officials said they acted after finding that three wheat speculators had purchased more than 80 percent of the cocntracts for March delivery and were in a position to inflate prices artificially.
In all, speculators held contracts calling for delivery of 11.8 million bushels of wheat, the CFTC said. But only 2 million bushels were available in the Chicago area for delivery by next Wdnesday, the day trading in March futures contracts ends. (On the last day of trading, the person who sold a contract must either deliver the grain or pay off the contract holder in cash, based on the current price.)
With such a severe shortage of sheat, the three speculators who held most of the wheat contracts would be able to "squeeze" the market, forcing up the price and making millions of dollars in profits.
Because prices would be pushed up only temporarily, consumers would not necessarily pay higher prices for flour or other wheat products, CFTC officials said.
"We were acting to preserve the integrity of the market," said Gary Seevers, acting chairman of the CFTC. "Our number one job is to prevent market manipulations that result in artificial prices."
Yesterday's crisis in the wheat market was the third in recent days on the nation's commodity exchanges. Last Friday trading in potato futures was halted because of a shortage of nigh quality potatoes, creating the potential for the same kind of artificially high prices as in the wheat market. Earlier lst week the CFTC charged that coffee prices were manipulated by producing pations trying to raise prices.
CFTC officials carefully avoided charging that laws were broken in recent wheat dealings, but said they are continuing to investigate the actions of some wheat traders.
One professional wheat speculator alone held contracts calling for delivery of 2.5 million bushels of wheat -- more than the total available supply.
That speculator -- the only one named so far -- was identified in court papers filed in Chicago as Alan Freeman, a partner in Rosenthal & Co., a Chicago grain company.
CFTC officials said the Rosenthal firm recently has been buying large amounts of wheat, contributing to the shortage of wheat in Chicago.
Late Wednesday -- when it appeared the Chicago Board of Trade might take action to prevent him from profiting from his position -- Freeman sued the exchange and obtained an injunction blocking it from acting. That temporary order was dismissed yesterday, so it did not prevent the CFTC from halting trading.
CFTC officials said the shortage of wheat that made it possible for speculators to profit from a crisis in the market was due in part to natural factors.
The crop of soft red winter wheat -- the variety traded in Chicago -- was poor last year, so that instead of the 17 million bushels available in Chicago at this time a year ago there were only 2 million bushels. There was also a shortage of railcars for shipping more wheat to Chicago from midwestern grain elevators.
Federal regulators moved into the wheat market this week after the Chicago Board of Trade refused to act. Contending there was no evidence that traders had acted illegally. the board argued that trading should continue, even if prices soared temporarily.
CFTC officials said they halted trading for March delivery yesterday to give the exchange time to act on the problem.
After a day-long meeting and a series of negotiations with CFTC officials, the directors of the exchange voted by a two-thirds majority to resume limited trading on Monday. The exchange proposed allowing traders to liquidate present contracts -- in effect, to sell out.
But the CFTC overruled that action, because, Seevers said, it could still have pushed prices far higher than the actual supply and demand for wheat. Instead, the agency froze all prices.