So what’s wrong with neither producing or taking actual delivery of something a person deals in?
In small enough quantities, nothing at all.
What’s wrong right now is that the CFTC has previous set limits as to how much of the market in a commodity (ie, what percentage of contracts) are to be bought/sold by people with no physical commodity position (ie, they’re neither producers, not consumers of the commodity).
Let’s back up a moment: the commodities markets were created to serve both producers and consumers of commodities. Speculators were recognized as adding enough liquidity in a market to help price discovery when producers or consumers might not have their physical counterparty in the market to make a market, but the “position size” of speculators was limited.
The CFTC set a limit to how many contracts in any particular market can go to speculators. The number of contracts being held in hedges and in speculation is part of the CFTC’s “commitment of traders” report. Here’s more info from the CFTC themselves:
http://www.cftc.gov/industryoversight/marketsurveillance/speculativelimits.html
The ICE has had no such limits, and there is no physical delivery. When the number of non-physical contracts for a commodity overtakes the market’s fundamentals, then the market ceases its intended function, ie, helping the producers and consumers of traded products.