The National Grain and Feed Association (NGFA) recently submitted its third statement in a series of comments to the Commodity Futures Trading Commission (CFTC) concerning a rulemaking that could have broad impacts on futures market performance and hedging efficiency for the grain, feed, processing and export industry.
According to the statement, NGFA is "deeply concerned about potential changes that have been proposed with regard to both position limits and the definition of bona fide hedging. If implemented as written, the proposal would have very harmful effects on hedgers and, ultimately, on farmers, ranchers and U.S. consumers. There is a growing recognition among agribusiness hedgers - traditional hedgers who use futures markets to manage their business risk - that this proposed rule could drastically change the way they do business and seek to reduce their risk and the risk of their producer-customers."
In addition to the NGFA statement, approximately 50 NGFA-member firms also submitted comments to the commission in response to a recent NGFA Member Advisory. Key concerns focus on a CFTC attempt to redefine transactions that qualify for bona fide hedge treatment and would dramatically narrow bona fide hedging strategies; and a new regime for establishing speculative position limits, which could lead to large increases for certain contracts in the grain and oilseed complex.
In response, the NGFA warrned that restricting bona fide hedging strategies ultimately would negatively impact agribusiness hedgers by raising costs of hedging, and likely would result in lower price bids to producers and impacts on consumers. Further, the NGFA letter reiterates industry concerns that setting too-large speculative position limits would impede contract performance and threaten convergence.
Two previous statements accompanied NGFA's comments to the commission from previous comment periods - one appended by a number of examples of hedging strategies that the NGFA urged should continue to be categorized as bona fide by the CFTC.
In the latest statement, NGFA concludes, "the NGFA recognizes the challenging task confronting the commission. We respectfully submit that it is virtually impossible to write a 'one size fits all' rule that will succeed for the number and diversity of contracts, markets and commodities that will be affected. For both the position limit provisions and the bona fide hedge definition, the NGFA urges that the commission respect processes that have worked well in the past and maintain flexibility that is needed to respond to a variety of market factors."
As of noon Jan. 23, more than 450 comments had been filed with the commission since the original proposal was issued in November 2013.