By Zack Clark, government relations representative, National Farmers Union

It is a well-known fact that farming is a risky endeavor. General risk and uncertainty, be it weather or volatile price fluctuations, can wreak havoc on a farm’s financial wellbeing. A range of risk management tools aids producers in mitigating the impacts of uncontrollable events. One of these instruments is hedging against price fluctuations in commodity markets.

Regulated by the Commodities Futures Trading Commission (CFTC), these markets, which include derivatives, futures and option markets, offer market participants opportunities to stabilize some aspects of price volatility. As the market watchdog, the CFTC works to uphold open, transparent, competitive and financially sound markets using compliance, surveillance and enforcement authorities provided to it by Congress.

Instances of fraud, manipulation, abuse and systemic risk have existed in one form or another throughout market history. More recently, the CFTC navigated the 2008 financial meltdown and large financial collapses like MF Global and Peregrine Financial, brought cases against individuals and companies, and continued to promulgate rules in an effort to bring more certainty and confidence to the markets the commission regulates.

One of the many items on Congress’s to-do list is the reauthorization of the CFTC, which lapsed September 30, 2013. During the 113th Congress, the House passed the Customer Protection and End-user Relief Act, but the Senate did not take action on the bill, and the law subsequently expired at the closing of the 113th Congress. Chairman Mike Conaway’s, R-Texas, Agriculture Committee has held hearings on the subject and marked up a bill on May 14, 2015, which in part mirrored the reauthorization package passed out of the House in the 113th Congress. The Senate began holding CFTC hearings on May 14, 2015.

Extending CFTC’s governing laws through reauthorization is of critical importance. While the CFTC continues to operate absent authorization, reauthorization allows the commission to focus more intently on its mission. Legislative inaction increases uncertainty at a time when the CFTC is working to move forward significant rules that will have a large impact on market participants.

As Congress works towards reauthorization and the CFTC advances additional rules, National Farmers Union (NFU) continues to advocate for the policies enacted by its membership.  Establishing appropriate contract and aggregate position limits for all commodities in all price-discovery markets, with input from agricultural producers and commercial market users, is chief among our policy. NFU also supports maintaining the practice of over-the-counter trades being cleared by a CFTC-regulated clearing organization, but goes even further in seeking that those trades be publically reported. NFU, like so many other organizations, also seeks clarification of the definition of hedgers and hedge exemptions. These exemptions should only include those with a legitimate commercial interest in the physical commodity.

NFU also has an ongoing concern over questionable market movements. The organization supports the monitoring of any market movements that indicate a deliberate accumulation of excessive speculative positions that exceed the limit number of positions an individual speculator may hold. For this and other reasons, CFTC will need to continue to update its surveillance capabilities. This will require resources that Congress is unlikely to provide according to House Appropriations Subcommittee on Agriculture Chairman Robert Aderholt, R-Alabama.

NFU believes this is a mistake and calls on Congress to adequately fund the CFTC. Since 2008, when CFTC’s authority expanded by roughly $400 trillion when over-the-counter swaps became a part of its jurisdiction, CFTC’s resources have been inadequate. The Obama administration has called for $322 million in funding for fiscal year (FY) 2016, an increase of $72 million. Congress must recognize the role that the CFTC plays in markets that impact so much of the U.S. economy, especially the agricultural economy.

Statistics not only show the net positive CFTC plays for the U.S. Treasury, but also illustrates the volume of enforcement that the commission is required to conduct. In FY14, the CFTC obtained $3.27 billion in sanctions, including $1.8 billion in civil monetary penalties and $1.4 billion in restitution that bypasses the commission and goes directly to the Treasury.

Last month, we witnessed another high-profile charge brought by the CFTC. Charges have been leveled against Kraft Foods and Mondelez for profiting an estimated $5.4 million through the manipulation of the wheat market to drive down prices while never intending to take delivery on its $90 million worth of wheat futures. The merits of these charges must be weighed by the judicial system. But it is an example, like that of the aggregated sanctions for FY 2014, of the need for a well-funded regulator to protect producer’s bottom line.

Ensuring that the CFTC has the resources that it needs, thereby ensuring that producers have confidence in the financial tools they require, is of critical importance to agriculture. To achieve this, Congress must not only reauthorize the CFTC, but also fund the commission through the annual appropriations process at a level that allows it to effectively carry out its mission.

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