Statement of Commissioner J. Christopher Giancarlo for the Agricultural Advisory Committee Meeting
September 22, 2015
Thank you Commissioner Bowen. Thank you Chairman Massad for convening today’s meeting. Thank you also for your sponsorship of the Agricultural Advisory Committee (AAC). The AAC is a sounding board for the CFTC’s important work on behalf of its original and still critical constituency, America’s farmers and agriculture producers, and the many businesses that service them. It is important that we meet today.
No one can argue that these are good times for America’s farmers. Since the last meeting of this Committee in December of 2014, the U.S. Department of Agriculture (USDA) has issued a report further dampening its already-bleak projections for the American farming sector.1 It estimates that, by the end of this year, net farm income will plummet 36 percent from the previous year, reaching its lowest level in nine years.2 Farmers have not faced such a pronounced freefall since 1983.3
These bleak figures for the farming sector are in line with what the rest of America is experiencing. The Census Bureau recently reported that the income of the typical American family remains statistically unchanged over the prior year and is 6.5 percent lower than the median in 2007.4 A record 94 million Americans are not in the labor force, and the labor participation rate is the lowest it has been since 1977.5 At the same time, the percentage of Americans living in poverty is almost 15 percent of the population.6 Seven years of near zero interest rates have failed to boost income, employment and upward mobility in the broader economy, not just for farmers.
Yet, the prolonged low interest rate environment has been especially harsh on America’s Futures Commission Merchants (FCMs). As I have said publicly, America’s FCMs are becoming an endangered species due to Federal government policies, including monetary policy.7 FCMs continue to consolidate at an alarming rate with dire consequences for American agriculture and manufacturing. It is no secret that, amid consolidations, some FCMs have refused to retain their smaller, less active clients, including many small agricultural producers.8
I look forward to hearing today any good news that the remaining, consolidated FCMs have stabilized their business models and are able to serve their remaining clients. I look forward to hearing how smaller farmers and agriculture producers that need to hedge their production risks will be serviced by a consolidated FCM industry based in New York and Chicago that increasingly imposes strict limits on customer size and capacity.9 We must not allow Washington regulations to wipe out smaller FCMs and their customers the same way Dodd-Frank regulations have wiped out small community banks across America’s agriculture landscape.10
I also look forward to today’s discussion about the CFTC’s new proposals for aggregation of positions under its previously proposed position limits framework. I support these proposed changes because they make the position limits regime more workable. I commend the CFTC staff for taking into account public comments and putting forward a revised rule proposal that better recognizes the varied corporate structures of today’s modern firms engaged in the trading of commodities to manage risk.
Nevertheless, this is just the first of many changes that are needed to make the CFTC’s approach to position limits less harmful to the risk management activities of American farmers, energy producers, manufacturers, risk-hedgers and trading institutions that do business around the globe. We must avoid adopting flawed government regulations that prevent our commodity markets from operating effectively at a time of plunging commodity prices.11 That means not displacing the everyday commercial judgement of farmers and business people with a small set of allowable hedging options pre-selected by a Washington Commission with limited experience in commercial risk management.
In closing, I want to add an anecdote about when I was a corporate lawyer. In my practice, I would try to spend time with new clients at their offices learning their business. You can’t truly help someone you represent unless you dig in to understand how they make a living. I have continued that practice in my first year as a Commissioner by travelling to Indiana, Kentucky, Illinois, Iowa and Minnesota to meet with cattle, pork, poultry, corn, soybean, dairy and various other ag producers. I have also met with a number of cooperatives and manufacturers who serve these producers.
Many of the everyday working people I met on their farms and in factories don’t know and don’t care what Washington does, as long as politicians and bureaucrats stay out of their way. Rather, what I heard most about was the steep drop in commodity prices, which is having an immediate impact on their bottom lines (and personal checkbooks). These concerns have since been verified by the USDA report on falling farm incomes. These declines are real and are eating away at their livelihoods.
The Commission has a choice to make. We can continue down the road of implementing position limits and sitting idly by while FCM consolidations continue to negatively impact smaller customers with poorer credit. Or, we can make sure we first do no harm. We must not make matters worse by restricting the ability of agricultural producers to hedge against plunging revenues.
Let us agree on one thing: American farmers had absolutely nothing to do with the Financial Crisis. It would be the height of recklessness to expand the current position limits regime for agricultural products and impose a new flawed position limits ruleset at a time when our farmers are relying on the derivatives markets to manage the price risk of this year’s harvest. If our position limits rules have the perverse affect – as I fear they will – of adding liquidity risk to the everyday practice of risk management, then American agriculture will be confirmed in its belief that, once again, Washington politicians and bureaucrats are part of the problem, not part of the solution.
1 U.S. Dep’t of Agriculture, August 2015 Farm Sector Income Forecast 1, 9 (2015), http://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/2015-farm-sector-income-forecast.aspx.
3 Id. at 1.
4 Carmen DeNavas-Walt & Bernadette D. Proctor, U.S. Census Bureau, Current Population Reports: Income and Poverty in the United States: 2014, at 5 (2015), https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf; see also Incomes and Poverty, 2014, Wall St. J. (Sept. 17, 2015), http://www.wsj.com/articles/incomes-and-poverty-2014-1442445396 [hereinafter Incomes and Poverty, 2014].
7 Statement of J. Christopher Giancarlo for the Market Risk Advisory Committee Meeting on June 1, 2015, available at http://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlostatement060115.
8 Christian Berthelsen, SocGen's Bache Deal a Sign of Commodity Woes, MarketWatch (May 27, 2015), http://www.marketwatch.com/story/socgens-bache-deal-a-sign-of-commodity-woes-2015-05-27.
9 See Testimony Before the Subcomm. on General Farm Commodities and Risk Management of the H. Comm. on Agriculture on the Future of CFTC: Perspectives on Customer Protections, 113th Cong. 50 (2013) (statement of Theodore L. Johnson, President, Frontier Futures, Inc.), http://agriculture.house.gov/sites/republicans.agriculture.house.gov/files/transcripts/113/113-08.pdf.
10 Testimony Before the Subcomm. on Economic Growth, Job Creation, and Regulatory Affairs of the H. Comm. on Oversight and Government Reform on the Impact of Dodd-Frank on Community Banking, 113th Cong. 1, 3–7 (2013) (statement of Hester Peirce, Senior Research Fellow, The Mercatus Center at George Mason University), https://oversight.house.gov/wp-content/uploads/2013/07/Hester-Peirce-Testimony.pdf; see also Testimony Before the H. Financial Services Comm. on The Dodd-Frank Act Five Years Later: Are We More Prosperous?, 114th Cong. 6 (2015) (statement of Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute); David Smith, Consolidations, Regulations Pare Banks, Execs Say, Arkansas Online (Sept. 20, 2015), http://www.arkansasonline.com/news/2015/sep/20/consolidations-regulations-pare-banks-e/?f=business.
11 See Ira Iosebashvili & Tatyana Shumsky, Investors Flee Commodities, Wall St. J. (Jul. 20, 2015), http://www.wsj.com/articles/investors-flee-commodities-1437434367; see also Veronica Brown & Pratima Desai, Speculators Show Global Commodities Rout Still Has Legs, Reuters (Jul. 27, 2015), http://www.reuters.com/article/2015/07/27/us-markets-commodities-rout-idUSKCN0Q11TJ20150727.
Last Updated: December 20, 2017