Milling Journal

Washington—The National Grain and Feed Association (NGFA) issued the following statement in response to the publication June 24 of a 247-page report concerning the performance of U.S. wheat futures contracts by the Senate Committee on Homeland Security and Government Affairs Committee’s Permanent Subcommittee on Investigations.

“The report of the Senate Permanent Subcommittee on Investigations provides an insightful appraisal of the declining performance of the CBOT wheat futures contract.

"The report reflects a view that has been expressed by the National Grain and Feed Association (NGFA) for several years: the CBOT market for wheat has fundamental problems and is not providing the kind of pricing and hedging performance needed to market grain efficiently and to provide forward-pricing contracts to producers that reflect the market.

“While the NGFA continues to review the details of the 247-page report, it concurs with the report’s finding that the influx of capital from new players in the marketplace has contributed to the lack of convergence and placed financial stress on grain hedgers, particularly during periods of market volatility.

"This, in turn, has curtailed marketing options for producers as grain elevators and other grain purchasers have been forced to reduce offerings of forward cash contracts.

“The NGFA believes that phasing out existing hedge exemptions and so-called “no-action” relief from speculative position limits for index funds and other investment capital is warranted and could enhance CBOT wheat futures contract performance.

"In this regard, the NGFA has conveyed its support to the Commodity Futures Trading Commission (CFTC) for a concept that would roll back the agency’s 1991 “swaps policy” under which swap dealers have qualified for hedge exemptions.

"Specifically, the NGFA favors establishing a limited “risk-management exemption” under which swap dealers would need to apply to the CFTC and be approved for an exemption based upon the nature of their clients.

"Only “commercial” business – broadly defined as traditional, physical hedgers – would qualify for the exemption.

"In addition, the NGFA supports phasing out – over some reasonable time period – “no-action” relief granted to two index funds by the CFTC, under which they have exceeded speculative position limits.

“The NGFA also has been working extensively with the CME Group on changes to the CBOT wheat futures contract that are designed to enhance contract performance and convergence.

"We have appreciated the openness and responsiveness of the CME Group in this effort to preserve the wheat contract’s utility for traditional agricultural customers.

“The Senate report provides an important contribution to ongoing efforts to enhance performance of the CBOT wheat futures contract and return it to its primary purpose: to serve the needs of commercial grain hedgers and agricultural producers.

"We look forward to continuing that process with the subcommittee, the CME Group and the CFTC.”

For more information, call 202-289-0873.

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