Over the past 18 months, the commodities markets have become more complex. Production and consumption outside the United States have grown, prices have skyrocketed to record highs and then plummeted, and more tools have become available to identify and manage risk. At CME Group's Global Financial Leadership Conference in September, a farmer and policy marker, an energy specialist, and a global economist discussed these trends creating both pressure and potential in agricultural and energy commodities today.

Representing the farmers' perspective was John Block, former U.S. Secretary of Agriculture and and former president and chief executive officer of Food Distributors International. John Hofmeister, found and chief executive of Citizens for Affordable Energy, served as energy specialist. The panel also included David Hale, economist and founder, David Hale Global Economics; and moderator Tom Coyle, chairman of the National Grain and Feed Association.

What do you see as the most important pressures on the commodities markets today?

BLOCK F It's astounding what's happened over the years. For a long time, you could hardly get $1.00 a bushel for corn. Then Earl Butz, the Secretary of Agriculture, sells grain to the Soviet Union, it shoots up to $1.80 or $2.00 a bushel, and we are in hog heaven. All of a sudden, corn goes up to $7.00 or $8.00 a bushel. But we're not in hog heaven anymore because the costs of operation have gone up so much. Next year, corn is going to cost at least $4.00 a bushel to product.

While there's huge global demand for food in places like India and China, we're going to see the rest of the world start growing more and raising more and meeting the demand for fuel. We have better technology to product and raise crops than we've ever had before, such as genetic engineering that increases yields and lets us use less chemicals. But with rising prices, the situation's changed completely and we're looking at a different world in agriculture.

HALE The energy market has been very controversial here in recent months. The major reason for the large increase in oil prices is the significant increase in global demand, especially from emerging markets. Over the last eight years, global demand went from 76 million barrels per day to over 85 million barrels per day. The second major factor driving up commodity prices has been American monetary policy. This just naturally encouraged commodity inflation.

The U.S. Commodities Futures Trading Commission just did a much more comprehenmsive report on oil demand in the futures market, along with the swap dealers and the over-the-counter-market. The report said the nominal value of money in index funds invested in oil did increase in the first half of this year from $39 billion to $51 billion. It went up by 30 percent. But that compares to an oil price increase of 46 percent. So, indeed, institutional investment actually lagged the increase in the oil prices.

HOFMEISTER In this nation, issues around energy are defined in three forms: lack of information, disinformation, and misinformation when it comes to setting energy policy. We have turned energy into debate over ideology. If you are for hydrocarbons, it must mean you are against global warming. If you want to have more access, then you have another form of political ideology. To have turned energy into political ideology has now driven policy markets into partisan paralysis.

We hear all about the drilling debate. Would more drilling help manage prices and reduce reliance on foreign oil? Can we drill in a way that is environmentally sound?

HALE If you go out 10 years, I think we have the potential to find 20 or 30 billion barrels of oil on our continental shelf so we can double our reserves. That's not big compared to Saudi Arabia, which has 250 billion barrels, but it's a lot for the United States. That would give us somewhat greater autonomy and somewhat greater freedom from what is now a dependence on a lot of foreign oil.

The environmental issue is ongoing, but our technology is far better than it was 40 years ago when we had oil spills off the coast of California that led to these drilling restrictions. Most people I know in the industry are confi dent that we can handle the environmental risks. So, it's a question of trade-offs. We can't fully eliminate every single risk, but if we can make the risks manageable, then we have to open up the continental shelf and fi nd this oil.

HOFMEISTER If you dissect the 21 million barrels a day that we consume, 14 million barrels are coming from imports. We produce about seven. If we increased production in this country by two million barrels a day from all sources, offshore Alaska and so forth, and you add another two million barrels of liquid product in through ethanol, and you improve efficiency in the use of liquid fuels to the equivalent of two to three million barrels a day, you can flip the import/export ratio on its head.

We talk about market prices and inflation. Do we need oil and grain prices to be higher as a more compelling argument to speed the process of coming out with new technology?

HOFMEISTER There's no political will in this country to have a tough energy policy. I think the great tragedy of the oil market is that we've not been willing to impose upon ourselves much higher energy taxes to discourage consumption and to encourage new kinds of technology. But because we won't tax ourselves, we have to do it through supply and demand in the marketplace - which means the kind of price spike we had three and four months ago when the price of gasoline averaged over $4.00 a gallon.

HALE I don't disagree, but I take a somewhat different approach. We need a short-term, a medium-term and a long-term plan. I think we can move beyond hydrocarbons in rational, reasonable ways, while still having affordable energy. While I can accept the notion that higher taxes would help move us, I think incentives would also help.

BLOCK Let's face it. The Congress is never going to impose much higher energy taxes. They can't even get five more cents to fix the roads and bridges. It's just not going to happen.

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