House Ag Committee Signals Unusual Partisan Split

In a partisan voice vote, the House Ag Committee approved a proposal to cut the Supplemental Nutrition Assistance Program (SNAP) by more than $33 billion over the next 10 years on Wednesday.  The vote came on the heels of a very contentious debate.  Ultimately it lacks legislative meaning as it was part of a budget proposal the Senate will not consider; however, it is an indicator of the partisan rancor present in a traditionally bipartisan committee.  It is certain to flare up again when the Committee takes up the 2012 Farm Bill in earnest and must address SNAP – the program which provide food stamps and free school lunches.

Chairman Frank Lucas (R-OK) called the cuts “credible reforms that reduce waste and abuse and close” loopholes.  Ranking Member Collin Peterson (D-MN), countered by comparing the proposal to taking “a meat axe” to the program to avoid the defense cuts mandated in last year’s debt-limit law.  The savings would come from both reducing benefits and increasing the requirements for qualification.

CRS Report:  The Role of Local Food Systems in US Farm Policy


CMC Recap of House Ag Hearing on MF Global

Last week, CMC participated in the House Agriculture Committee hearing on the bankruptcy of MF Global.  It was an important opportunity that positioned the Council as a thought leader on the issue.  We were one of only two witnesses that spoke about the bankruptcy from a market participant perspective.  The hearing garnered significant media attention as it was the first public appearance of former MF Global CEO Jon Corzine since the bankruptcy of the firm.


  • CMC testified at the first Congressional hearing on the MF Global bankruptcy
  • The Trustee currently estimates the customer shortfall to be $1.2 billion
  • Investigations into missing customer segregated funds continue and include CFTC (civil penalties) and the US Attorney’s office (criminal penalties)
  • If in a legal proceeding the CFTC successfully collects restitution from MF Global, it would be distributed to customers.
  • Corzine testified for the first time and will subsequently testify in two more hearings this month (12/13 and 12/15)
  • Congress understands the magnitude of this situation and will explore policy options.  While nothing appears to be imminent, bills have already been introduced and Ranking Member Peterson may introduce a bill requiring third party segregation of customer funds.

The hearing stretched well over 8 hours and started with three hours of tough questioning for CFTC Commissioner Jill Sommers and Mr. James Kobak (lead counsel for the Trustee).

Mr. Kobak estimates the potential shortfall of customer funds at $1.2 billion.  He also indicated that customers would have priority in any asset distribution and the Trustee will pursue any legal theory to “claw back” customer money.  He also explained that today the trustee is asking the bankruptcy court to allow distribution of an additional $2 billion.  If the distribution is granted, it would bring everyone up to 69-70% and customers should have their money in 2-4 weeks.

When Mr. Corzine came forward in the afternoon he proved to be contrarian.  He apologized and took questions.  However, the critical questions – what did he know and when – remain unanswered.

CMC joined several other witnesses on the third panel.  Gerry Corcoran, our witness, gave an abbreviated statement and fielded questions.  Rep. Conaway spoke directly to Mr. Corcoran and asked if it was possible for the market to fix itself after all the dust settled.  Mr. Corcoran suggested that customers are already looking more closely at their FCMs and greater transparency may help customers choose the right FCM.

House Ag Committee Chairman Lucas (R-OK) refrained from advocating for any particular policy change and focused on fact-finding.  Ranking Member Collin Peterson (D-MN), however, took a different approach.  He appears to be giving deep consideration to two options:

  1. The capital requirements of a combined FCM/BD; and
  2. Third party holder of segregated funds or full physical segregation.

Peterson made clear he opposed any proposal for a SIPC-like insurance fund.


Panel I

Panel II

Panel III

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.