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Commodity Speculation Regulations Delayed by CFTC

Feed industry eyes importance of new rules on speculative futures limits

Published on: Dec 17, 2010

Both major organizations representing the feed industry testified at a House subcommittee hearing on speculative position limits for futures and swaps traders, just as the Commodity Futures Trading Commission was expected to act on four major rules to implement the Dodd-Frank Wall Street Reform Act – known as FinReg. However there were objections both from commissioners who want the agency to act quicker to crack down and those who fear moving too fast will damage the market. Action is being delayed due to lack of support for a procedural vote.

American Feed Industry Association president Joel Newman said his organization "is anxiously waiting for the CFTC to finalize its regulations and to put speculative limits into effect."  Newman reported that "excessive speculation by index funds" was one of several factors that led to volatility in agricultural commodity markets in recent years. Newman testified, "Wall Street banks ability to avoid speculative position limits and invest substantial levels of monies in the physical commodity markets" had allowed them to profit by influencing "the escalation of market prices by creating artificial demand."

The Dec. 15 hearing focused on conflicting views among subcommittee members about how quickly CFTC should act to implement the Jan. 17 deadline in the new Dodd-Frank provision requiring speculative position limits. Rep. Leonard Boswell, D-Iowa, who will step down as chairman of the general farm commodities and risk management subcommittee in the new Congress, said, the hearing was "important to make sure that key position limits outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act are implemented during the rulemaking process. Position limits are essential to the function of effective and efficient markets, and necessary to protect market end users who rely on the marketplace to hedge their risks in operating their businesses." But several Republicans challenged whether CFTC had enough data on hand to define workable position limits.

Robert Jones, senior vice president of ABN AMRO Clearing, who testified for National Grain and Feed Assn., pointed out there are already "federal position limits already in place" for wheat, corn soybeans, livestock and cotton. NGFA "believe it would be imprudent for the CFTC to change current speculative position limits for the enumerated agricultural commodities," he testified. If CFTC acts to combine the position limit for the exchange traded ag commodities with the over-the-counter positions of investors, it could, in fact, raise the positions allowed for exchange trade, Jones warned. "We fear the result would be a sort of perpetual motion machine leading speculative investment capital to invest in enumerated ag commodities in ever-greater amounts," he said on behalf of NGFA. That could drive "artificially inflated futures values and wider basis swings," Jones testified.

CFTC Chairman Gary Gensler told the subcommittee he would delay a vote on putting the package out for a 60-day public comment period. A separate vote would still be required to approve the rules.

Full testimony from the hearing is online at: