October 29, 2009
Good morning. Thank you Commissioner Dunn for chairing today’s meeting of the Agriculture Advisory Committee. I would like to welcome Commissioner Scott O’Malia to the CFTC. I note the importance of having a full Commission at this critical moment in our nation’s history. I also want to thank the President for nominating and the Senate for confirming Commissioners O’Malia, Sommers and Dunn.
I also join Commissioner Dunn in welcoming all of the Committee members. I wish to thank you for all of your advice and contributions.
The agriculture futures markets remain at the forefront of the CFTC’s regulatory agenda. The markets provide a critical price discovery function for many sectors throughout our economy. The Commission and staff make policing the markets for fraud, manipulation and other abuses a top priority.
There are three things that I’d like to learn today. First, I want to hear the Committee’s thoughts on the over-the-counter derivatives initiatives currently being debated in Congress. Second, I look forward to hearing the Committee’s insight on the issue of convergence in the wheat market. Third, as the Commission continues to consider setting concentration position limits in the energy markets, I’d like to know from Committee members’ perspective what has and has not worked regarding position limits in the agriculture markets. Do they believe that the CFTC sets appropriate limits?
More particularly, the Commission has been very concerned about the lack of convergence in the CBOT Soft Red Winter Wheat contract. At the height of poor convergence in the July, September and December 2008 expirations, the futures price was $1.30, $2.00 and $1.15 per bushel, respectively, over the Toledo cash price. By July 2009, the basis had narrowed to $0.77 per bushel and.
In April, the Chairman of the Agricultural Advisory Committee, Commissioner Dunn, brought together stakeholders affected by the lack of convergence and formed a subcommittee to address the issue. Over the last several months, members of the subcommittee have been working to identify the causes of poor convergence and to provide recommendations to the Agricultural Advisory Committee on how to remedy the situation. I look forward to hearing some of those recommendations today.
In particular, I would like to hear from this Committee on the causes of continued lack of convergence. For instance, how much of this is due to the design of the contract? How much is due to the market being in full carry? How much may be due to the significant scale of the index investments in this market?
To the extent that it is the contract design, I’d like to hear from this Committee with regard to the Chicago Mercantile Exchange’s proposal to implement a variable storage rate. Will this sufficiently address the concerns about the current contract? If you support this proposal, I’d like to hear about the timing – is it important that changes be implemented earlier than the CME has recommended?
Again, I’d like to thank my fellow Commissioners and Agriculture Advisory Committee members for participating in today’s meeting. I look forward to learning from the presenters and having a good dialogue on the most important agricultural issues facing the Commission. Thank you again Commissioner Dunn for calling this meeting.
Last Updated: June 10, 2010