Comment Text:
I had not planned to comment on the MRAC meeting held yesterday. However, after hearing the phrase "market resiliency" multiple times, I thought this would be an opportunity to bring up an issue that I believe the Commission is not aware of. I fully share the Commission's belief in market resiliency, integrity, and price discovery. Unfortunately, there is a department inside the beltway that does not share those same principals. That department is USDA Risk Management Agency (RMA). The RMA's disregard for honest price discovery is on full display with their Livestock Risk Protection (LRP) offering. The RMA dusted off the rarely used LRP from 2003 and supercharged it with subsidies and incentives during the summer of 2020. These changes have obliterated price discovery in the livestock markets. The market most affected has been the CME Feeder Cattle Options.
The CEA can't exempt anyone, including the USDA RMA, in order for the price discovery mechanism to work. All market participants (hedgers, speculators, and market makers) must be in one central location. The LRP removes liquidity from the CME livestock markets. This is a market disaster in the making.
I believe this is a crossroads moment for the CFTC. If the overreach by the RMA is not checked now, there will be no way to prevent them from disrupting the other agriculture markets.
I can provide much more detail to the commission if requested. My phone number is 918-315-0051.
The following is a recent clip from a crop insurance agent touting the LRP. Note the hedging advice and calling the LRP a "subsidized put option":
" There still is potential for weakness in feeder and live cattle contracts, but I believe we are near strong support. In combination with harvest pressure in corn, feeders in particular should find some strength. Clients are starting to wean home-raised calves and buying stockers. While bullish sentiments run high in the marketplace, I believe rallies should be protected when buying cattle. Market swings are more extreme in this environment and profits can quickly disappear amid higher feed and borrowing costs. The Livestock Risk Protection (LRP) policy is a subsidized put option that allows you to protect individual head instead of the minimum 50,000-pound CME contracts. LRP premiums also do not have to be paid upfront, but rather netted off any indemnity due at the end of the policy. This can help with cash flow. "
