Market Matters Blog

CFTC Confirmations Mark New Beginning for Ag Relationship

The Senate's confirmation of three Commodity Futures Trading Commission nominees restores the top U.S. ag regulator to its full slate of five commissioners. Rejoice!

Or don't. CFTC's relationship with ag has been rather rocky of late. Remember the residual interest controversy? Only time will tell if this marks a new beginning or the beginning of downward spiral.

On one hand, it's a good thing that CFTC is no longer operating with only two commissioners, which basically left it dysfunctional and unable to make crucial decisions.

On the other hand, none of the three new commissioners or the two current commissioners has a strong agriculture background. All three of the new commissioners -- Timothy Massad, Chris Giancarlo and Sharon Bowen -- have told agriculture groups and senators that they'll work closely with industry to gain a better understanding of how it works and what it needs from its regulators.

Acting Chairman Mark Wetjen explained his Iowa farm roots at the National Grain and Feed Association's annual meeting. Scott O'Malia, the fifth commissioner, took agriculture's side in the customer protections rule, which many thought would have required farmers and grain elevators to pre-fund margin calls. (The House Agriculture committee passed a CFTC reauthorization bill in April that fixes this issue, but the bill still awaits a full House vote. The Senate Agriculture Committee is still writing its authorization bill.)

It appears there are glimmers of hope the relationship with agriculture and the CFTC will improve.

"We are glad to see the Commission at full strength and that we look forward to working with all the Commissioners, new and existing, on issues important to agricultural and agribusiness hedgers," NGFA said in a statement.

The real testing grounds for this new relationship will be the CFTC's position limits rule. The comment period on that proposal ended earlier this year. It frustrated many in agriculture, not because of the position limits per se, but because it sought to redefine bona fide hedging in a way that would reclassify many common elevator market strategies as speculative.

What's even more frustrating is NGFA and agriculture groups undertook this same task two-and-half years ago when CFTC put out its first position limit rule, which was vacated by the courts and withdrawn by the CFTC. During that process, the CFTC decided that if it had previously been considered a bona fide hedge, it'd stay a bona fide hedge.

The issue will be addressed at a CFTC public roundtable on June 19. "The roundtable will focus on hedges of a physical commodity by a commercial enterprise, including gross hedging, cross-commodity hedging, anticipatory hedging, and the process for obtaining a non-enumerated exemption. Discussion will include the setting of spot month limits in physical-delivery and cash-settled contracts and a conditional spot-month limit exemption," CFTC's announcement explained.

It certainly sounds like agriculture will have a chance to voice its concerns.

Of course, there were some politics at play in the confirmation of one of the CFTC nominees, Sharon Bowen. Because of Senate rule changes that allow nominations to pass on a majority vote, Bowen was confirmed (48 to 46). Here's an article with details, and politicians' reactions, if you're interested.…



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