The US Senate is to urge tighter regulation on commodity traders in a report due later on Wednesday which blames long-only investors for helping fuel last year's spike in prices.

The 247-page Senate report is to recommend stricter limits on commodities positions to prevent speculation which is damaging the market's use to farmers as a hedging system, and may be inflating food prices.

The report, which follows a year-long investigation into the wheat market, will single out index traders, whose investments soared from $15bn in 2003 to $200bn by mid-2008, as particularly distorting the market.

"it is time for [regulators] to change course, rein in commodity index traders and clamp down on excessive speculation that is disrupting commodity prices," Carl Levin, a senator who led the probe said in comments ahead of the report's official release.

Large investors

Long-only investors, who sit on large positions for extended periods, were "at least partially responsible for higher wheat prices" last year, Mr Levin said.

Chicago's benchmark wheat contract touched $13.34 � a bushel in February 2008, more than twice today's price

The Commodity Futures Trading Commission was also to blame for allowing some index funds waivers from limits of 6,500 on the number of wheat contracts that can be held in the hands of a single investor, Mr Levin added.

CFTC data had shown that, between 2006, which opened with a wheat price of $339.5 a bushel, to mid-2008, six index traders had held up to 130,000 contracts between them.

"That means that the six index traders granted waivers from trading limits may have held up to about 60% of all the outstanding wheat contracts held by index traders," the report says.

Volatility concerns 

The scale of this investment feeds through into a "disconnect" between cash prices and inflated futures prices, Mr Levin added.

The gap reached $2 a bushel last year at the time of so-called "convergence", when futures contracts mature and their prices and cash prices should, in theory, just about match.