The Agricultural Advisory Committee of the Commodity Futures Trading Commission (CFTC) met Thursday in Washington to consider issues related to the cotton, wheat and livestock markets.
Cotton industry leaders and those at the CFTC are looking at changes to cotton market delivery locations and that industry’s problems with wide basis. CFTC is attempting to weigh potential contract changes to balance the needs of producers and users, making sure that both parties are “reasonably inconvenienced” and, importantly, that storage is actually available in delivery locations.
That discussion fed into one about wheat, with a report on the variable storage rate system and additional delivery points recently added to the Chicago contract. Many wheat market participants now believe there have been structural changes to the wheat market that are affecting convergence, in addition to logistical challenges, like tight storage at Kansas City Board of Trade delivery points.
Members of the Committee expressed concern that credit limits are affecting storage facilities’ ability to issue delivery receipts and encouraged further consideration of changes to delivery procedures. Another speaker, a trader, said changes to the variable storage rate in Chicago are making it impossible to trade the spreads in anything but nearby contracts, which is damaging to the market.
Concerns were also expressed about index funds entering the market with massive amounts of money but largely passive trading activity, affecting the overall system.
The meeting ended with a discussion of the implications of the Frank-Dodd financial reform bill that was recently signed into law, which could affect agricultural swaps and convergence issues.
That bill excludes exchange-traded activity from further regulation but includes over-the-counter activity and options. These provisions are intended to exempt participants using the market as a hedging mechanism. The CFTC is in the process of writing rules to implement the new legislation, a process in which Advisory Committee members will be involved.
NAWG Chief Executive Officer Dana Peterson, an agricultural economist by training, is a member of the Advisory Committee and participated in Thursday’s meeting.
NAWG will remain actively engaged with CFTC and other coalition partners to gauge how regulation of the commodity markets may or may not have influence on convergence and basis issues producers are seeing on the ground. The NAWG Board will also likely consider policy priorities related to these issues at its next meeting in October.