“In 2008, as prices of commodities from wheat to petrol were surging, an obscure hedge fund manager named Michael Masters made a splash in Washington. His contention was that institutional investors were contributing to the crisis as they purchased billions of dollars worth of futures contracts through commodity indices such as the S&P GSCI. Congress should ban pension funds from making such investments, he said.

Four years later, corn and soyabeans have broken the records of 2008, while retail petrol prices average $3.85 a gallon, near an all-time high. But index investors no longer register on the political radar. One reason is that, unlike 2008, the worst drought in half a century has confronted Americans with images of dead corn stalks, making it clear supplies will fall short. The shock value of oil prices appears to have faded.

Also, under pressure from critics such as Mr Masters, regulators began publishing the positions of commodity index investors. The data show that between June and July investors pared net bullish positions in US crude oil, corn and soyabean futures even as prices for the commodities rose.

“It’s very difficult to sustain the idea that investment flows are pushing prices higher if prices have moved up a lot during a period when investment flows have been flat to negative,” says Kevin Norrish, managing director at Barclays.

Regulators have also passed a new rule limiting the size of the biggest investors’ positions. Banking groups have challenged it in court.

Dennis Kelleher, chief executive of Better Markets, a group funded by Mr Masters, says concern over higher commodity prices may have simply been overshadowed by other economic headlines: “There’s excessive speculation in commodity markets which is driving up prices.”

Read Greg Meyer’s full article here