Statement of Commissioner Kristin N. Johnson Regarding CFTC Charges Against Ceres Global: Protect Farmers’ Ability to Hedge
October 23, 2023
Today, the Commodity Futures Trading Commission (CFTC) announced the filing and settlement of charges against Ceres Global Ag Corp. (Ceres). The order finds that in two months in 2016 and 2017, Ceres engaged in a plan whereby it would build very long positions in oats futures—contracts worth close to 3 million bushels, the speculative position limit for oats. Ceres simultaneously bought shipping certificates with the goal of reducing the amount of lower quality oats available in the market.
By engaging in this plan, Ceres held, for example, 100% of the long open interest in the July 2016 contract. Ceres then stood for delivery of the oats, requiring its counterparties to either enter transactions to offset their short positions at unfavorable prices, or deliver higher quality oats than the contract called for. The order finds that through this plan Ceres attempted to manipulate the oats futures market.
Two weeks ago, I had the privilege of traveling to meet with members of the agricultural community in Frankenmuth in Saginaw County, Michigan. During the meeting, I listened to grain millers, elevators, grain traders, and other representatives of the agricultural community describe the challenges facing the agricultural markets and the ways that the CFTC can be supportive.
Farming communities are facing challenging macroeconomic conditions including low-priced wheat exports from Russia, increased input costs, and rising interest rates, all contributing to increased production costs. A strong U.S. dollar may also make exports less competitive. Logistics also pose a significant challenge. Despite the Army Corps of Engineers’ efforts, sustained low water levels on the Mississippi River have increased distribution times and reduced the potential volumes that may be distributed. Similar challenges at the Panama Canal may negatively impact our farmers’ and other producers’ ability to export.
Each of the farmers I met with talked about how access to the financial markets we regulate, including the oats futures contract at issue in this case, was critical to their business interests. The futures contracts allow the farmers to conduct price discovery and hedge their exposure to the volatility of the agricultural markets so that they can more confidently plan their finances. These benefits are undercut if the contracts are subject to manipulative activity.
Ceres is one of the largest merchandisers of oats in the United States, and operates four of the thirteen warehouse facilities designated by the Chicago Mercantile Exchange for regular delivery of oats. The conduct in this case shows how a large company can leverage its position for its own benefit, at the expense of others in the marketplace. But the impact of the activity here is more than just the profits and losses caused by their conduct. Rather, this kind of activity undermines market participants’ confidence that futures contracts can serve their hedging and price discovery functions. The CFTC needs to continue to ensure the agricultural derivatives markets work for small and medium growers, farmers, and ranchers across the country.
To end, I want to thank the staff of the Division of Enforcement who worked hard to protect the ability of farmers to access the financial markets, in particular Ben Sedrish, Joseph Patrick, Brandon Wozniak, Allison V. Passman, Scott Williamson, and Robert Howell.