Trade Watchdog Announces Ag Market Initiatives

Commodity Futures Trading Commission takes action based on issues raised during an April roundtable.

When the Commodity Futures Trading Commission met in April, the event drew wide attention with more than 2,800 individuals watching the event online. This was the first time CFTC provided a Web cast of a public hearing and there was interest from 38 states and 43 countries. The resulting concerns from that event has let the commodity trade watchdog to announce several ag-focused initiatives.

There were several initiatives announced. First is for Index Trading and Speculators:

Review of trader reporting and classification: The commission will develop a proposal to routinely require more detailed information from index traders and swaps dealers in the futures markets. CFTC initially announced this move on May 29.

Withdrawal of speculative position limits proposals: The commission voted to withdraw the proposed rulemakings that would have increased the Federal speculative limits on certain futures contracts and create a risk management hedge excemption from the Federal speculative position limits for ag futures and options.

Agency members say that as part of the data gathering and policy review, the commission will examine the policy of CFTC staff granting excemptive relief from Federal speculative position limits relating to ag index trading.

In the area of providing more risk management choices for farmers and agribusinesses the commission is proposing the following:

Ag trade options: The commission is asking CFTC staff to review and propose revisions to improve the effectiveness of the current ag trade options program. This risk management program may provide producers with an alternative for hedging price risk, according to the CFTC press announcement.

Clearing for ag swaps: The commission has also asked for the development of a proposal allowing the clearing of ag swaps. This would provide farmers and grain merchandisers with another choice for managing price and basis risk with the benefit of centralized clearing and the regulatory transparency that accompanies clearing.

Lending initiatives: Other initiatives involve margin and ag lending with the staff working with ag banking authorities regarding financing and credit issues arising from higher margins in the futures markets. As prices rise for all commodities, financing of margin levels becomes more difficult for merchandisers and producers. CFTC is working with lenders to facilitate an understanding of financing issues faced by market participants.

Cotton Investigation: The commission continues to investigate the February/March 2008 price run up in the cotton futures markets. Although CFTC usually conducts such work confidentially, the commission reports disclosure of this investigation because of "today's unprecedented market conditions and concerns expressed by market participants at the commission's ag roundable."

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