Over the past 10 years the world’s largest commodities trading houses have racked up nearly $250 billion in profit. That is more than the net profit of Goldman Sachs Group Inc. (NYSE: GS), J.P. Morgan Chase & Co. (NYSE: JPM) and Morgan Stanley (NYSE: MS) combined over the same period. It is also more than the combined profits of Toyota Motor Corp. (NYSE: TM), Ford Motor Co. (NYSE: F), BMW, Renault and Volkswagen.

That information was dug up by the Financial Times, which noted that in 2001 the commodities trading houses earned just $2.1 billion. That was before the commodities supercycle began and before the near-meltdown of the global economy.

Times are getting tighter for the trading houses as the Chinese economy slows and the rest of the world continues to stagger along. And then there is the new demands for transparency in the financial sector and the commodities sector.

Now that additional light is being shed on the financial sector, commodities traders want to keep regulators from poking their noses into a business that is highly opaque and extremely lucrative. To do that, at least one industry leader — Greg Page, CEO of U.S.-based Cargill — believes that the commodities houses need to self-regulate before governments step in. He spoke at a Financial Times-sponsored commodities conference yesterday:

The industry, as a whole, must accept its responsibility to behave appropriately, properly, ethically. There are lessons to be learnt from the banking sector, and the forced legislation it prompted and is continuing to prompt. … There is a belief that the trading houses are secretive, totally opaque, manipulating markets and fixing prices in the same way a small group fixed Libor.

The reason people believe that is because it is mostly true. Despite substantive efforts last year by the International Organization of Securities Commissions (IOSCO), a proposal to set benchmark crude oil prices on the basis of settled contracts as opposed to self-reported pricing got nowhere when the trading houses objected. In case you have forgotten, self-report Libor rates were manipulated and there is no reason to believe the big oil companies and the trading houses are any less susceptible to that kind of behavior.

Cargill’s Page sort of gets it:

As commodity merchants we have a choice. We can either earn and embrace the governance and regulation we want and need, or ignore our ethical, behavioural and societal obligations, and then accept governance that others may impose on us.

A couple of years ago, Goldman Sachs was accused of hoarding aluminum in its Detroit warehouses, and just last week Trafigura and Glencore were revealed to have been stacking up copper in their LME-bonded warehouses. Neither company would comment.

Page is right. Until there is more transparency in commodities trading, the public will look at the industry through glasses colored by financial scandals like the Libor rate-setting. Transparency, though, is a slippery concept, and what the industry may think represents transparency usually does not equate with what the public and the regulators believe is transparency.

Now that commodities prices have slipped and the supercycle is over, trading profits will not reach the same order of magnitude that they have in the past. That will give the trading houses some room to maneuver, arguing that their business is really cyclical after all and no more regulation is needed. It is an argument that regulators should not buy.

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