AFIA urges CFTC to regulate agriculture futures markets

The American Feed Industry Association has urged the Commodity Futures Trading Commission (CFTC) to implement a proposal that would uniformly enforce speculative position limits, enhance transparency, and improve the regulation of all individuals who trade certain energy commodities.

The American Feed Industry Association (AFIA), the world''s largest organisation representing the manufacturers of livestock feed, pet food and related ingredients, expressed its members'' views on this matter in formal comments submitted to the agency, characterising the CFTC proposal as a "very positive step forward for the specified energy contracts."

For nearly two years, AFIA has engaged consistently in the process of studying the complex issues surrounding the trading of energy and agricultural commodities by entities that engage in highly speculative trading activities.

Many of these speculative traders are large Wall Street banks. These speculative traders take an unusually large number of positions within markets for certain commodities, causing highly volatile price swings when they enter and exit.

AFIA made a number of recommendations to the CFTC in the summer of 2008 regarding possible ways to restrain excessively risky trading behaviour as it relates to commodities commonly used or found in the agricultural community.

The CFTC subsequently embraced a portion of those recommendations. AFIA''s latest comments to the CFTC''s Notice of Proposed Rulemaking, published in the Federal Register on January 26, 2010, continue the association''s engagement on these matters.

"AFIA and the feed industry understand the value and need for speculators and for the speculative role in efficient markets," said Joel G. Newman, AFIA president and CEO, "but we want to make sure large speculators don''t consolidate and abnormally affect the market. No one speculator or group of speculators should be able to control a large percent of any market."

"We not only support the new framework for speculative position limits," said Newman, who submitted the comments on behalf of AFIA members. "We also believe it should be applied to agriculture commodities in a similar manner, as well as to Wall Street bank index funds."

Feed represents approximately 70% of the on-farm cost of raising livestock and poultry, according to AFIA.

"With the majority of our industry''s input supplies priced directly on or in reference to regulated commodities markets, we depend significantly on an efficient and well-functioning futures market for both price discovery and risk management," AFIA wrote in its comments.