Scott,

you're not alone. Mish's Global economic blog:
http://globaleconomicanalysis.blogspot.com/2008/05/quantifying-commodities-speculation.html

echoes your reasoning, and summed it up as:
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Forces At Play

1) The falling US Dollar
2) Commodities speculation by price insensitive index strategy players
3) Rules and regulations at the CTFC that have categorized as commercial hedgers, those who are in reality speculating in enormous size.
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Moreover, more sovereign wealth funds combined with commercial/instiutional hedge-funds are placing a larger percentage of their holdings (which are significant) into commodities futures.

This will be another game of "hot potato" just like speculative housing . . .

:-( neil

PS: here is Congressional testimony on how institutional investors and the CTFC are contributing to higher pricing of commodities:

http://hsgac.senate.gov/public/_files/052008Masters.pdf

Excerpt:


Congress Should Eliminate The Practice Of Index Speculation
I would like to conclude my testimony today by outlining three steps that can be taken to immediately reduce Index Speculation.

Number One:
Congress has closely regulated pension funds, recognizing that they serve a public purpose. Congress should modify ERISA regulations to prohibit commodity index replication strategies as unsuitable pension investments because of the damage that they do to the commodities futures markets and to Americans as a whole.

Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position limits must “look-through” the swaps transaction to the ultimate counterparty and hold that counterparty to the speculative position limits. This would curtail Index Speculation and it would force ALL Speculators to face position limits.

Number Three:
Congress should further compel the CFTC to reclassify all the positions in the
Commercial category of the Commitments of Traders Reports to distinguish those positions that are controlled by “Bona Fide” Physical Hedgers from those controlled by Wall Street banks. The positions of Wall Street banks should be further broken down based on their OTC swaps counter-party into “Bona Fide” Physical Hedgers and Speculators.

There are hundreds of billions of investment dollars poised to enter the commodities futures markets at this very moment. If immediate action is not taken, food and energy prices will rise higher still. This could have catastrophic economic effects on millions of already stressed U.S. consumers. It literally could mean starvation for millions of the world’s poor.

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Intro
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I have been successfully managing a long-short equity hedge fund for over 12 years and I have extensive contacts on Wall Street and within the hedge fund community.

Itʼs important that you know that I am not currently involved in trading the commodities futures markets.

I am not representing any corporate, financial, or lobby organizations.

I am speaking with you today as a concerned citizen whose professional background has given me insight into a situation that I believe is negatively affecting the U.S. economy.

While some in my profession might be disappointed that I am presenting this testimony to Congress, I feel that it is the right thing to do.

You have asked the question “Are Institutional Investors contributing to food and energy price inflation?” And my unequivocal answer is “YES.”

In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action.