AFIA applauds CFTC action to regulate commodity position limits
The American Feed Industry Association is extremely pleased to learn of a decision this week by federal regulators to close a loophole that permitted certain types of highly speculative trades in agricultural commodities to occur. The loophole was a significant factor leading to dramatic price increases in commodities such as corn, soybeans and wheat in early 2008, and the issue has been a major concern and focus of attention at AFIA for more than a year.
The Commodity Futures Trading Commission on Aug. 19 announced it would close the loophole--which came about when it provided exemptions to its own rules several years ago--by withdrawing two "no-action" letters that had resulted in Deutsche Bank and another investment firm exceeding speculative position limits on corn, soybeans and wheat. The CFTC's action is a good first step toward ensuring dramatic price increases will be less likely to occur in the future as a result of this particular type of trading, according to Joel G. Newman, AFIA president and CEO.
"I believe that position limits should be consistently applied and vigorously enforced," CFTC Chairman Gary Gensler said in an agency news release. "Position limits promote market integrity by guarding against concentrated positions."
"AFIA provided the CFTC and Congress with a broad set of recommendations for reform more than a year ago, and today we applaud the agency for beginning to move in that direction," said Newman. "We are pleased we were able to serve as a resource for CFTC officials and members of Congress who were willing to learn about our concerns."
"The CFTC has taken a positive step and demonstrated strong leadership, and it is clear the Obama administration recognizes the significance of the issue and has begun to address the effect that these speculative position limit exemptions have had on agriculture commodity markets," said Newman. "AFIA members identified this situation as one of six factors that contributed to last year's most dramatic rise in commodity prices in history. This is a critical issue that is within our control and should be addressed."
"AFIA is encouraged by the CFTC's leadership on this issue," said Newman, "and we look forward to continuing to work with the CFTC, the Obama administration and Congress to implement the remaining rule-making and legislative corrections to ensure the commodity markets remain effective tools for customers in agriculture and other industries to establish market prices and hedge against the risk of long-term commodity purchases."
While additional legislation and rule-making efforts may be needed to completely implement the necessary corrections, Congress also has taken some positive steps in the right direction. An example is passage last year of CFTC reauthorization legislation, which returned to the agency some authority over exempt commercial markets that it had lost under the so-called "Enron loophole" in 2000. Congressional appropriators also have steadily increased CFTC funding levels in recent years to allow for much-needed investments in staff, resources and technology.
"We commend President Obama's Fiscal Year 2010 budget request of $161 million for the agency," said Newman, and "we herald the Senate's swift consideration of CFTC nominees such as Gary Gensler. We also are pleased the president said last May that he supports transparency, accountability and oversight in over-the-counter markets."
AFIA will continue to work directly with officials within the CFTC, the administration and Congress to recommend appropriate changes that will ensure commodity markets are effective for both agriculture and speculators, said Newman. AFIA also is active in the Commodity Markets Oversight Coalition, a broad group of industries including agriculture, airlines, transportation and global food service.