Opening Statement of Commissioner Caroline D. Pham Before the Agricultural Advisory Committee Meeting
July 19, 2023
Good morning and welcome to this meeting of the Agricultural Advisory Committee (AAC). Thank you to Chairman Behnam, Designated Federal Officer Swati Shah, and the rest of the CFTC staff that helped arrange this meeting. I
I often like to note that much like the United States, agriculture is where this agency began. The CFTC’s connection to agriculture and the agenda we have today demonstrates the agency’s grounding in the real economy and the importance of agricultural derivatives. Having grown up in California’s Central Valley, the “food basket of the world,” I know the vital role of the agricultural economy to the United States’ overall GDP.
Looking at the agenda and to add a personal touch, I want to highlight that the importance of the Colorado and Sacramento Rivers to California’s agricultural industry underscores the necessity of maintaining healthy riverways. Drought has historically had significant impact on California, often causing downstream agricultural disruption. For example, due to drought conditions in the region, pressure has been placed on California’s farmers, ranchers, and producers to curtail water usage from the Colorado River, but California’s agricultural output accounts for over a third of the country’s vegetables and three-quarters of the country’s fruits and nuts. And, reoccurring drought conditions along the Mississippi River could impact the agricultural sector by drastically reducing shipping capacity due to lowered water levels. The Mississippi River moves 500 million tons of agricultural products annually, representing an average value of $130 billion in commodities per year. Considering the agricultural significance of the Mississippi River, drought-related shipping restrictions would impose substantial costs on the agricultural industry.
I appreciate that the AAC is examining this issue because of its importance to the commodities markets. Supply chain and logistics disruptions impose significant burdens on the derivatives market by increasing counterparty risk and premiums in the cash market. These effects can lead to larger volatility and surprise spread across the derivatives market. And considering current supply chain disruptions in rail and chassis methods of transportation, the preservation of the Mississippi River as a viable shipping channel is especially important.
I also appreciate that the AAC is examining agricultural market participants’ access to futures commission merchants (FCMs) and to our markets. Access to markets is one of my three core values as a Commissioner, together with growth and progress. FCMs have traditionally cited challenges to the business model, considering high technology costs, high compliance costs, and increasing capital requirements, leading to a contraction in the FCM market of available clearing providers. In the past several years, certain FCMs are now subject to higher capital requirements for customer clearing due to the implementation of the standardized approach to counterparty credit risk (SA-CCR) under Basel III. The SA-CCR methodology and its relationship to the supplemental liquidity ratio (SLR), among other things, may disincentivize firms from offering clearing services to end users by increasing capital charges disproportionately to the risk posed by the activity. All these increased pressures to the FCM business and operating model have likely contributed to the further concentration of clearing members in the United States.
As the number of FCMs has continued to decline, fewer and fewer FCMs now hold more and more total margin. This continued development could pose problems for agricultural hedgers, who have historically relied on a robust clearing ecosystem. Consolidation may pose systemic risk by amplifying the ramifications of the failure or withdrawal of a major provider.  I look forward to hearing firsthand from market participants that are trying to run a business in this challenging environment, and I am especially interested in hearing about any potential solutions.
The health of the agricultural economy is critically important to all Americans. Thanks again to Chairman Behnam, AAC members, and speakers. I look forward to the discussion.
 Ian James, In California’s Imperial Valley, farmers brace for a future with less Colorado River water, Los Angeles Times (Jan. 27, 2023), https://www.latimes.com/environment/story/2023-01-27/colorado-river-in-crisis-agriculture-under-pressure; and California Department of Food and Agriculture, California Agricultural Production Statistics, https://www.cdfa.ca.gov/statistics/.
 Nicki Clark, Mississippi River levels continue to drop, KFVS12 (June 28, 2023), https://www.kfvs12.com/2023/06/28/mississippi-river-levels-continue-drop/.
 Keely Brewer, Flood, drought threats for Mississippi riverboat industry, The Advocate (July 10, 2023), https://www.theadvocate.com/baton_rouge/news/environment/flood-drought-threats-for-mississippi-riverboat-industry/article_a74ec7f7-0450-56ce-8344-43366ff5e8c8.html.
 Rick Rojas, As Drought Drops Water Level in the Mississippi, Shipwrecks Surface and Worries Rise, The New York Times (Nov. 3, 2022), https://www.nytimes.com/2022/11/03/us/mississippi-river-drought.html.
 Joseph Nicosia, Global Trading Operations Officer and Head of Global Cotton Platform, Louis Dreyfus Company, Supply Chain Disruptions Affecting Markets, Before the U.S. Commodity Futures Trading Commission Global Markets Advisory Committee (GMAC) Meeting (February 13, 2023), https://www.cftc.gov/PressRoom/Events/opaeventgmac021323.
 Joanne Morrison, CFTC Examines FCM Consolidation, FIA (Nov. 15, 2015), https://www.fia.org/marketvoice/articles/cftc-examines-fcm-consolidation; and Kirsten Hyde, Exploring the Impact of Regulation and FCM Consolidation on Liquidity, FIA (Nov. 1, 2019), https://www.fia.org/marketvoice/articles/exploring-impact-regulation-and-fcm-consolidation-liquidity.
 12 CFR 324.
 Joint Statement of Chairman Heath P. Tarbert and Commissioner Brian D. Quintenz in Support of Interagency Cooperation to Strengthen U.S. Financial Markets and Better Serve the Real Economy, U.S. Commodity Futures Trading Commission (Sept. 16, 2019), https://www.cftc.gov/PressRoom/SpeechesTestimony/heathandquintenzjointstatement091619; and Chairman J. Christopher Giancarlo, Commissioner Brian Quintenz, Commissioner Rostin Behnam, and Commissioner Dan Berkovitz, Comment Letter on Capital Adequacy: Standardized Approach for Calculating the Exposure Amount of Derivative Contracts, OCC Docket ID OCC-2018-0030 and RIN 1557–AE44; Board Docket No. R-1629 and RIN 7100-AF22; FDIC RIN 3064-AE80, U.S. Commodity Futures Trading Commission (Feb. 15, 2019), https://www.cftc.gov/sites/default/files/2019-02/SA-CCRCommentLetter021519.pdf.
 Joanne Morrison, CFTC Examines FCM Consolidation, FIA (Nov. 15, 2015), https://www.fia.org/marketvoice/articles/cftc-examines-fcm-consolidation; Keynote Address of Commissioner Dan M. Berokwitz at DerivCon 2019, New York, New York, U.S. Commodity Futures Trading Commission (Feb. 27, 2019), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaberkovitz2; and Robert Zwirb, CFTC Commissioner Dan Berkovitz Warns Of Systemic Risk From Clearing Services Concentration, Mondaq (Aug. 6, 2019), https://www.mondaq.com/unitedstates/commoditiesderivativesstock-exchanges/833536/cftc-commissioner-dan-berkovitz-warns-of-systemic-risk-from-clearing-services-concentration.
 Keynote Address of Commissioner Dan M. Berokwitz at DerivCon 2019, New York, New York, U.S. Commodity Futures Trading Commission (Feb. 27, 2019), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaberkovitz2.