SPEECHES & TESTIMONY

Remarks of CFTC Chairman J. Christopher Giancarlo at the 2019 Agricultural Commodity Futures Conference, Overland Park, Kansas

April 11, 2019

Good morning, everyone.  Welcome to the Second Agricultural Commodity Futures Conference.  It is good to have you with us.

The Commodity Futures Trading Commission is pleased once again to co-sponsor this event with the Center for Risk Management Education and Research (CRMER) at Kansas State University.  I would especially like to thank Richard B. Myers, President, of Kansas State University, who you will hear from in a moment.  President Myers and KSU’s CRMER Center have been strong and steady collaborators to the CFTC throughout the sponsorship and planning stages of the conference.  There could be no better partner than KSU.

As you know, this conference brings together federal, state, and local governments with agribusiness and academia to discuss a range of topics that are important to the agricultural community who depend on the futures markets.  We are so glad to have you with us today and tomorrow.

Background

This conference comes about at one of the most difficult periods for the agricultural sector in a generation.  Producers face a cyclically low price environment for agricultural commodities and uncertainty caused by global trade tensions.  Many agriculture producers carry significant debt obligations, while others have endured extreme weather conditions.  At the same time, the business environment has been variable for grain elevators and merchandisers.

Meanwhile, there is also a tremendous amount of structural change in the agricultural sector, from the proliferation of data and precision technology in farming and agribusiness, to generational shifts on the farm, to increasing globalization of commodity markets. It’s abundantly clear that production agriculture in the United States will be very different in the coming decade than it is today, though the contours of that change are hard to discern.

Yet, despite these challenges, the resiliency of American agriculture remains unshakable.  That resiliency is natural to the American farming family.  It is part of its DNA.

The Price Discovery Mechanism

Resiliency also derives from a key mechanism underpinning the American agricultural economy.  That mechanism is “market-based price discovery.”  Let me explain.

At all times and in all places, men and women need to make good decisions about what work to do and what work not to do, when to offer goods or services and when not to, what to produce and how much and what to accept in return and when.

This is especially so in agriculture.  Farmers the world around and their purchasers and suppliers need to make the best decisions that they possibly can.  Such decisions include whether to bring a certain plot of land into or out of production and with what crop it should be sown, in what equipment to invest, and whether to commit to transport production from grain bins through trucks, barges, container ships or freight rail infrastructure.  This is especially so during times of rapid transition and transformation as we have today.

 To make these difficult and complex decisions, Americans engaged in production agriculture and, in fact, all participants in the free market have an enormously powerful, but relatively simple tool: the market price signal.

Specifically, I am referring to the price signal that emerges from the price discovery process inherent in our agricultural commodity futures markets.  What an effective tool it is.

The forward curve can tell you to save or to spend, to store or load out.  Comparing prices across commodities can tell you what crops will be the most profitable per acre, the price of protein in wheat or how long to profitably feed cattle.  Even within a futures contract design, there is information about the most economic delivery locations for soybeans.  All of those decisions are the result of price signals sent by futures markets.

This is not just the case in agriculture – in energy, the price signal governs investment in drilling and refining capacity or something as individual as the choice between an SUV or a hybrid vehicle.

So when we at the CFTC see challenges like trade tensions or flooding across the Midwest, we instinctively rededicate ourselves to making sure that our commodity markets are performing their price discovery function in the most accurate and efficient way possible. 

We know that the market price mechanism – and the efforts of the CFTC, the self-regulatory organizations and the exchanges to ensure the markets and prices are free from fraud and manipulation – are a benefit to economic decision-makers every hour of every trading day and in every corner of the world. 

As American farmers and ranchers seek to rebuild or agribusinesses seek to reinvest after losses or restructuring of trade routes, they are relying on us and the markets for clear and undistorted price signals in order to help them make those important decisions.

Dialogue with Market Participants

That is, in large part, why we are here today – to rededicate ourselves, across industry segments, and with academia and financial intermediaries to engage in a dialogue about some of the most pressing and topical issues that agricultural markets are facing today and which go to the heart of price discovery and risk management. 

We have a great program, beginning with a roundtable of my four Commission colleagues.  Then over the course of this afternoon and tomorrow, we will look at futures trading matching algorithms, cash and futures market convergence, storage rate and delivery issues, rule enforcement, market information and risk management.  We have a great dinner keynote by Ambassador Gregg Doud, Chief Agricultural Trade Negotiator in the Office of US Trade Representative.  That is in addition to so many expert panelists and moderators.  We are grateful to all of them for their time and participation. 

I am specifically grateful to my Kansas City colleague, Chuck Marvine, as well as so many colleagues in the CFTC’s Division of Market Oversight, and Charlie Thornton, Director of Legislative Affairs, for their efforts to make this conference happen.  And, of course, we are most grateful to the great Kansas State University.

I have found during my time at the CFTC that the most important thing in being a financial market regulator – and most critical indicator of success – is a constructive dialogue with participants in our markets. 

Bringing people together reminds us that the Commodity Exchange Act, and the markets subject to its jurisdiction, must be regulated in such a manner that they function well for all participants, regardless of trading technology, asset class, market segment or orientation. And that is why we seek all of your views here today.

As I close out my tenure as Chairman I am honored to have served in support of the hard work, dedication and resiliency of America’s farmers, ranchers, grain elevators, agriculture merchandisers and processors. 

Creating this conference in America’s heartland is a signature and bipartisan achievement in strengthening the ties with the CFTC’s first constituency: American agriculture. 

It is also one for which we are most entirely grateful to all of you.

Thank you.