By KEVIN WALKER
Michigan Correspondent

WASHINGTON, D.C. — People in the feed and grain industries seem to be happy, more or less, with the Dodd-Frank financial reform act, but rural financial institutions are expressing their unhappiness with some of the law’s provisions.

Right now the Dodd-Frank Act – named for U.S. Rep. Barney Frank (D-Mass.) and former senator Christopher Dodd, a Democrat from Connecticut – is being reviewed by regulators, and stakeholders have the chance to comment on what those regulators are proposing.

“We generally support the structure that CFTC (Commodity Futures Trading Commission) has proposed for spot month, non-spot month, aggregate single-month and all-months-combined position limits in the 28 referenced contracts,” said Joel Newman, president of the American Feed Industry Assoc. (AFIA). “This structure will bring a consistency and transparency to the markets, which was lost with the passage of the Commodity Futures Modernization Act of 2000.”

The AFIA describes itself as a major user of the agriculture-based derivatives market, including exchange-traded futures contracts and over-the-counter products. According to the AFIA, these derivative products allow companies to hedge their exposure to price fluctuations in agricultural commodities.
Feed manufacturers, farmers, ranchers and consumers feel the pain when “input prices” as reflected in the futures market become distorted or excessively volatile, read a recent AFIA statement.

The AFIA is concerned that, if anything, the CFTC might become too lax in its enforcement efforts. According to the group, Wall Street firms have expanded to $206 billion since 2009, almost the same as their 2008 peak. It says these are dominated by three funds controlling 94 percent of the total.
“AFIA urges CFTC to address this continuing concern by completing the setting of limits on over-the-counter markets as proposed in this rulemaking package,” the statement reads. “In addition, CFTC should set a realistic phase-out process for any of the ‘grandfathered’ positions that exceed the new limits. The preexisting positions that exceed the implemented position limits must not be allowed to be held indefinitely.”

Dave Armstrong, CEO of Greenstone Farm Credit Services, a credit union that serves mainly a rural and farm clientele, is upset about the CFTC’s seeming inflexibility. He says end users of commodities, such as the AFIA, are happy with what is transpiring because they are getting an end-user exemption.
“They are going to be an end-user of the commodity,” Armstrong said. “Basically, that’s what we’re asking for, also. What we do is really no different from them. Money is just another form of commodity.”

Armstrong said the farm credit system helps farmers hedge risk.
“They are proposing to treat us like a very large financial firm and banks that take positions for a lot of different reasons,” he said. “It sounds like they don’t want to make any exceptions for any financial institution. We’re just saying, let’s use some common sense here. All this will do is add additional costs for the farmers that we serve.”

Armstrong said the farm credit system is already well regulated by the Farm Credit Administration and that Greenstone had no problems during the financial crisis. He said it’s just easier from a regulatory standpoint to paint everybody with a broad brush.

“You write a law to punish the good,” he opined.