Release:             #4505-01
For Release:     April 4, 2001

Farm Groups Meet to Discuss Risk Management Measures for Farmers

    Representatives of major agricultural organizations met in Washington on March 28, 2001 to discuss measures to improve farm risk management and other issues. The organizations are all members of the Commodity Futures Trading Commission’s (CFTC) Agricultural Advisory Committee (AAC). The AAC, made up of representatives of national farm organizations, major commodity groups, agribusiness concerns and agricultural bankers, advises the Commission on agricultural issues and serves as a communications link between the agricultural community and the CFTC. A complete list of the Committee’s membership is attached.

    Describing the reason for the meeting, CFTC Commissioner David Spears, Chairman of the AAC, stated that, "we are entering a new era in agriculture in which it is absolutely crucial to educate farmers on current and new risk management tools." Consistent with that message, participants in the meeting heard about a successful agricultural trade option (ATO) program offered to pork producers under CFTC rules and learned of a new program, to be conducted by the Department of Agriculture's Risk Management Agency, that will protect livestock producers from financial risks in the production and marketing of livestock.

    Representing Kent Feeds, Inc., of Muscatine, Iowa, a primary provider of animal nutrition, Jack Dougherty, Kent’s Vice President for Commodities, appeared as a witness before the Committee. Dougherty described the effectiveness of over-the-counter Agricultural Trade Options - a revised program approved by the CFTC in December 1999. ATOs give producers the option to sell (or buy) commodities in the future for a set price (the "strike price") or to "walk away" from the option contract if market prices are higher (or lower) than the strike price. Mr. Dougherty noted that key factors in Kent’s participation in the ATO Program included the ability to customize the program for individual producers, and to cash settle the option contracts. He said Kent’s program was targeted to independent hog feeding operations, with the goal of enabling them to lock-in income protection to help them stay in business during times of low prices. Dougherty observed that Kent had found registering as an agricultural trade option merchant to be "quite simple," and that the reaction of the hog producers has been very positive.

    William Dodds, Grain Merchandizing Manager of The Andersons, Inc., and the National Grain and Feed Association’s representative on the AAC, also made a presentation to the Committee. He argued that ATO concerns are "part of a much broader issue: the need for greater ‘legal certainty’ for off-exchange forward agricultural contracts." Dodds stated that, while the ATO program may be good for Kent Feeds, the only company registered to offer ATOs, "The very narrow participation is not a legitimate test of the program and the kind of trade option contracts and their benefits that could be offered to producers." Observing that ATOs "hold the greatest potential benefit to farmers," he challenged farm organizations to examine the potential value of ATOs and to make their views known to the CFTC.

    AAC member Phyllis Honor, Acting Administrator of USDA’s Risk Management Agency (RMA), explained RMA's new authority to implement pilot programs "to evaluate the effectiveness of risk management tools for livestock producers, including the use of futures and options and policies and plans of insurance that protect the interests of livestock producers." The pilot programs, which could include subsidizing the purchase of futures and options contracts by livestock producers, are authorized by the Agricultural Risk Protection Act of 2000, passed by Congress last year. Ten million dollars will be available under the programs for both fiscal years 2001 and 2002.

    Other matters discussed at the AAC meeting included an update by David Lehman, Managing Director-Product Development of the Chicago Board of Trade, on CBOT’s initiative to convert paper corn and soybean shipping certificates to electronic form. According to Lehman, effective with the May 2001 and subsequent corn and soybean futures contracts, paper corn and soybean shipping certificates will no longer be deliverable. Holders of the shipping certificates may begin converting paper certificates to the more efficient electronic format starting April 9, 2001.

    Additional presentations were made by Ms. Melinda Schramm, Chairman of the National Introducing Brokers Association, and Paul Architzel, Chief Counsel of the CFTC’s Division of Economic Analysis. Mr. Architzel briefed the Committee on the Commodity Futures Modernization Act of 2000 and proposed conforming changes to CFTC regulations.

    Also present at the meeting were CFTC Acting Chairman James Newsome, and CFTC Commissioner Tom Erickson. Acting Chairman Newsome stated that, "the Commission recognizes that participating in these meetings represents a significant commitment of time, effort and expense by the members of the AAC and we truly appreciate their contributions to the CFTC’s decision-making process over the years."

    The Agricultural Advisory Committee is composed of members representing the following organizations:

American Agriculture Movement, Inc.
American Agri-Women
American Bankers Association
American Cotton Shippers Association
American Farm Bureau Federation
American Soybean Association
Farm Credit Council
Independent Bankers Association of America
National Association of Wheat Growers
National Chicken Council
National Cattlemen’s Beef Association
National Corn Growers Association
National Cotton Council of America
National Council of Farmer Cooperatives
National Farmers Organization
National Farmers Union
National Grain and Feed Association
National Grain Sorghum Producers
National Grain Trade Council
National Grange
National Pork Producers Council
North American Export Grain Association
North American Millers’ Association
USDA – Risk Management Agency
U.S. Rice Producers Group