The Senate investigators conducting the wheat study gathered trading data from the Chicago Mercantile Exchange, Kansas City Exchange, Minneapolis Grain Exchange and CFTC.

It revealed that commodity index traders had "injected billions of dollars, in the aggregate, into the wheat futures market over the last six years", according to a statement from the subcommittee.

The growth came as index traders "offset their financial exposure from selling commodity index instruments to third parties", it said.

Levin explained: "In the last three years, speculators have spent billions of dollars on commodity indexes, and the financial firms selling those index instruments have purchased billions of dollars in commodity futures to offset their financial risks, creating price disruptions for producers and consumers."

According to the report, CFTC has "allowed some commodity index traders to hold up to 10,000, 26,000, even 53,000 contracts at a time. Six commodity index traders are currently authorised to hold a total of up to 130,000 wheat contracts at a time."

It noted that in 2004, commodity index traders held 30,000 contracts, but that grew to "up to 220,000 contracts in 2008".

Contradictory views

Reaction to the Senate index trading report was contradictory.

The National Grain & Feed Association (NGFA) issued a statement that largely agreed with the Levin-Coburn report's findings, while CME Group found fault with it and said it was debunked by four previous studies.

"While NGFA continues to review the details of the 247-page report, it concurs with the report's finding that the influx of capital from new players in the marketplace has contributed to the lack of convergence and placed financial stress on grain hedgers, particularly during periods of market volatility," the NGFA statement said.

"This, in turn, has curtailed marketing options for producers as grain elevators and other grain purchasers have been forced to reduce offerings of forward cash contracts."

NGFA said it supports "phasing out existing hedge exemptions and so-called 'no-action' relief from speculative position limits for index funds, and other investment capital is warranted and could enhance CBOT (Chicago Board of Trade) wheat futures contract performance".

However, CME Group noted in a statement that it "disagrees with the findings and recommendations in the subcommittee report, which is based on anecdotal information versus sound empirical and economic analysis".

The CME statement charged that the report "is contradicted by four separate studies conducted by (CFTC), the Government Accountability Office, Informa Economics Inc. and CME Group - all of which concluded that there is no causality between market participation of index funds and non-commercial traders and wheat price levels or cash market convergence at expiration.

"Those four studies each concluded that fundamental supply and demand factors related to crop failures, strong economic growth in many importing nations, acreage switching caused by demand for biofuels and currency volatility have all been responsible for recent periods of increased volatility and price swings in commodity markets," the statement added.

Despite the difference in their views on the new report, NGFA noted that it is working with CME Group "on changes to the CBOT wheat futures contract that are designed to enhance contract performance and convergence. We have appreciated the openness and responsiveness of CME Group in this effort to preserve the wheat contract's utility for traditional agricultural customers."

The Senate report was also lauded as an indicator of the impact of index trading on energy prices, which last year had major effects throughout the economy - notably on the airline industry.

In a statement, Air Transport Association president Jim May pointed out that "high oil and gasoline prices are being driven by the same factors that drove high wheat prices: huge increases in commodities and swaps trading, combined with a lack of aggregate position limits.

"High energy prices will stymie the nation's economic recovery, dealing businesses and consumers a heavy blow when they can least afford it - in the depths of the recession.

"Congress should act now to rein in excessive speculation to avoid a repeat of last summer's astronomical oil and gas prices."