Comment Text:
10-002
COMMENT
CL-02673
March 23, 2010
Mr. David Stawick
Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21 st Street, NW
Washington, DC 20581
Re:
Proposed Federal Speculative Position Limits for Referenced Energy Contracts
and Associated Regulations; Proposed Rule (17 CFR Parts 1, 20 and 151)
Dear Secretary Stawick:
AFIA, based in Arlington, Va., is the world's largest organization devoted exclusively to
representing the business, legislative and regulatory interests of the U.S. animal feed industry
and its suppliers. Founded in 1909, AFIA also is the recognized leader on international industry
developments. Members include more than 500 domestic and international companies and
state, regional and national associations. Member-companies are livestock feed and pet food
manufacturers, integrators, pharmaceutical companies, ingredient suppliers, equipment
manufacturers and companies which supply other products, services and supplies to feed
manufacturers.
The feed industry makes a major contribution to food safety, nutrition and the environment, and
it plays a critical role in the production of healthy, wholesome meat, milk, fish and eggs. More
than 75% of the animal feed in the United States is manufactured by AFIA members.
Thank you for the invitation to provide comments on behalf of the AFIA regarding the
Commodity Futures Trading Commission (CFTC) referenced Notice of Proposed Rulemaking
(NPR) published in the
Federal Register on
January 26, 2010.
Feed represents approximately 70% of the on-farm cost of raising livestock and poultry. 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 applauds your proposal to implement an integrated speculation position limit framework
that would include federal position limits on certain energy commodities, as well as aggregate
and exchange specific position limits. This is a solid first step toward our mutual goal of
ensuring these commodity markets and products effectively serve their primary role of providing
commercial true hedgers reliable tools to manage their economic risks.10-002
COMMENT
CL-02673
In response to your specific request for comments, AFIA provides the following responses:
1. Are federal speculative position limits for energy contracts traded on reporting markets
necessary to "diminish, eliminate, or prevent" the burdens of interstate commerce that
may result from position concentrations in such contracts?
Yes, they're necessary to ensure large concentrations of speculative monies do not
create an artificial increase or decline in demand with the subsequent result of creating
extreme volatility in the contract market price, as experienced in 2008. These position
limits should be accompanied by stringent transparency rules to ensure the Commission
is able to more quickly identify schemes and devices that seek to evade such limits.
10. Should any of the distinctive features of the proposed position limit framework, such as
aggregate position limits or the swap dealer limited risk management exemption, be
applied to other agricultural commodities?
Yes. Grains and other agricultural commodities have a finite supply and these markets
require speculative limit provisions to provide end users with effective and efficient risk
management tools. In addition, energy contracts and corn contracts are directly linked
by the evolution of the ethanol industry, and this type of direct link is sure to expand as
the biofuels industry expands its feedstock base, i.e., soybean and other oilseeds
utilized in biodiesel production. Also, there are other agricultural commodities with direct
or very close links. For example, volatility in corn or soybeans can quickly inject
uncertainty into livestock prices and the various beef, pork and dairy risk management
tools.
15.
The aggregate position limits and the swap dealer limited risk management exemption
provisions of the position limit framework proposed for energy contracts would also be
very applicable to agricultural commodities, particularly when applied to the Commodity
Index Funds segment of speculative investors. These funds utilize a predetermined
proportional portfolio mix, including energy, grain, livestock, softs and metals. So as
their investment grows or decreases, it proportionally affects each of these commodity
groups together. (Illustration 1)
Should the Commission propose regulations to limit the positions of passive long
traders?
The proposed position limit framework will be effective only if it is applied and enforced
for all speculative participants in these commodity markets. If the stated objective of this
rule is to "diminish, eliminate, or prevent" the burdens on interstate commerce that may
result from position concentrations in energy and other commodity contracts, the
Commission will have overlooked three of the largest position concentrations active in
these commodity contracts on an ongoing basis by not including passive long traders in
this rule.10-002
COMMENT
CL-02673
S&P Goldman Sachs, Dow Jones UBS and Rogers International Commodity Funds
represent 88% of total dollars invested in Commodity Index Funds. S&P Goldman Sachs
alone represents 66% of total Commodity Index Funds investment dollars. This definitely
represents a concentration of this market segment. (Illustration 2)
Not only are these funds concentrated within a few major funds, but total Commodity
Index Fund investment dollars -- compared to traditional managed futures -- have grown
since 2003. Total Commodity Index Funds peaked in June 2008, and have grown to an
estimated $180 billion, compared to $211 billion for traditional managed futures.
(Illustration 3)
In summary, the proposed integrated speculation position limit framework represented by the
Proposed Rule is a very positive step forward for the specified energy contracts.
AFIA strongly recommends the CFTC take three additional steps l in addition to the measures
proposed in this rule, as follow:
1. The CFTC should propose rulemaking to consistently apply this same framework to
grains and other agricultural commodities
2. The Commission should seek additional congressional authority to apply this framework
to Commodity Index Funds
3. The CFTC should seek congressional authority to also regulate the over-the-counter
(OTC) commodity markets trading in U.S. commodity markets, thus installing regulatory
oversight, reporting and transparency for all U.S. commodity market trading and
positions.
These additional steps would provide bona fide hedgers with a clear, comprehensive road map
and ensure commercial hedgers will have an effective and efficient tool they can depend on for
both price discovery and risk management today and in the future.
Thank you for the opportunity to comment on this Proposed Rule. We look forward to the
CFTC's quick action to finalize this rule. We also look forward to the Commission moving quickly
to provide protections for all agricultural commodity exchanges and contracts.
Sincerely,
Joel Newman
President & CEO
American Feed Industry Association10-002
COMMENT
CL-02673
Commodity Index Funds - 2010
100.0% .................
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Illustration 1
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COMMENT
CL-02673
Joining The Part'i: The Mznzged Mon~ Explosion
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Illustration 3
