CMC Testifies at House Agriculture Committee Hearing

The House Agriculture Committee held a hearing earlier this week focusing on Title VII (derivatives) regulatory issues in the Dodd-Frank Act (DFA).  CMC was invited to testify as part of a panel of experts, and we were able to be represented by Todd Thul, Risk Manager at Cargill.

Among the high priority issues that CMC addressed in our testimony were inter-affiliate swaps transactions, recording and recordkeeping requirements, entity definitions, and cost-benefit analysis.  But the bulk of our testimony focused on an issue that is vital – given the CFTC’s imminent rulemaking on October 18 – for many of our members’ businesses, which is bona fide and anticipatory hedging.  We opined that the CFTC’s proposed rule on the topic is inconsistent with the DFA and has the potential to have calamitous effects in the cash commodity markets.  Based on recent press reports, we stated that the CFTC’s rule would reduce the industry’s ability to continue offering the same suite of risk management tools to farmers that they are accustomed to using, and that the merchandising of grain could be curtailed as a result.  As serious as these issues are for farmers, the implications are far broader with the potential to impact energy markets as well.

In short, unless dramatically revised, the CFTC’s approach will severely limit the ability of grain handlers to participate in the market and impede the ability to offer competitive bids to farmers, manage risk, provide liquidity and move agriculture products from origin to destination.  The irony is that limiting commercial participation in the market actually introduces volatility. Clearly this is not what Congress intended.

The Coalition of Derivatives end Users, of which CMC is a part, also testified at the hearing (as represented by Constellation Energy) on inter-affiliate swaps transactions, margin requirements, entity definitions and cost-benefit analysis.

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