Milling & Baking News - September 14, 2004 - 19

W A S H I N G T O N

N.G.F.A. seeks changes in C.F.T.C.
rules on speculative position limits
WASHINGTON - The National Grain
and Feed Association has submitted a
statement to the Commodity Futures
Trading Commission recommending
that the agency eliminate some of the
regulatory burden encountered by
U.S. futures exchanges when changing
federal speculative position limits. At
the same time, the N.G.F.A. proposal
would preserve the C.F.T.C.'s regulatory oversight and the opportunity for
public comment on such changes.
Specifically, the N.G.F.A. supported
a proposal from the three major U.S.
exchanges (the Chicago Board of Trade,
Kansas City Board of Trade and the Minneapolis Grain Exchange) to eliminate
the two-step process required by the
C.F.T.C. for amending federal speculative position limits. Speculative position
limits restrict the size of positions that
may be held by speculators in futures
and options markets to prevent unreasonable or unwarranted price fluctuations.
Currently, C.F.T.C. rules require that
the exchanges petition the C.F.T.C. to
approve amendments of both the exchanges' own regulations and regulations modifying the speculative position
limits. In separate petitions filed earlier
this summer with the C.F.T.C., the grain
exchanges urged the agency to eliminate
the first step of this process, which involves amendments to the exchanges'
own rules. The exchanges' proposal also
would leave in place the second step,
which involves C.F.T.C. review of the
appropriateness of proposed changes
to an exchange's speculative position
limits and the opportunity for public
comment.
The N.G.F.A. said it supported the

C.F.T.C. retaining the right to review
and approve or reject exchange-proposed changes to speculative position
limits for agricultural commodities
under the agency's procedures that
provide for public notice and comment
rulemaking.
"It appears that the C.F.T.C.'s current procedures can be a lengthy process of several months or perhaps
a year or more," wrote Thomas
Coyle, N.G.F.A. second vicechairman and chairman of
the association's risk management committee. "In
our view, the exchanges are
going to be managed in a way
that ultimately serves their collective customers' interests and
therefore can be expected to prudently
use increased flexibility in setting speculative position limits. Importantly,
however, some degree of oversight
(of speculative position limits) by the
C.F.T.C. is necessary and provides
good discipline ... With this C.F.T.C.
oversight still in place, and with the
provision of a public comment period
prior to such changes, we view this as
a general reduction in administrative
burdens with little reduction in actual
regulatory oversight."
The N.G.F.A. noted that non-agricultural commodity futures and options
markets have operated successfully
for several years without specific federal speculative limit guidelines, which
should provide "additional confidence
that this regulatory flexibility can be
successfully transferred to the grain and
oilseeds futures contracts."
If the C.F.T.C. decides to retain its
existing two-stage process for reviewing

U.S.D.A. announces $50 million
food for education program
WASHINGTON - Secretary of Agriculture Ann M. Veneman recently
announced plans for $50 million in
foreign assistance under the U.S. Department of Agriculture's fiscal year
2004 McGovern-Dole International
Food for Education and Child Nutrition Program. The assistance will
include donations for 13 developing countries in Africa, Asia, Latin
America and Eastern Europe and
will feed nearly 2 million children.
"With this announcement, U.S.D.A.'s

20 / Milling & Baking News, September 14, 2004

food for education programs will have
provided nutritious school meals to
some 11 million children in developing
countries since 2001," Ms. Veneman
said. "These programs have increased
access to education, improved child
nutrition, built new classrooms and
extended health care services for some
of the world's poorest children."
The
McGovern-Dole
International Food for Education and Child
Nutrition Program helps support
education, child development and

and approving federal speculative position limits for grains and oilseeds, the
N.G.F.A. urged that it increase the nonspot, individual-month and all-monthscombined limits as requested by the
exchanges. The C.B.O.T. has requested
increases for its corn, soybeans, wheat,
soybean oil, soybean meal and oats
contracts, while the K.C.B.T. and M.G.E.
have requested that speculative position
limits for their wheat futures contracts
be allowed to increase to maintain parity with increases granted to the wheat
positions of the C.B.O.T.
"Our view is that the exchanges should be in the best
position to judge what is
acceptable for spot months
(current delivery month),
given deliverable supplies
and other factors related to
contract liquidation and convergence of cash and future" prices,
the N.G.F.A. said.
In this regard, the N.G.F.A. told the
C.F.T.C. that it did not believe that speculative limits of the exchanges necessarily
control the size of a speculator's position
or affect market volatility per se, since
the speculator may and often does simply use over-the-counter instruments to
take a larger position - above the actual
speculative position limit - that then
subsequently generally is "hedged" by
the over-the-counter operation on the
exchange.
"The N.G.F.A. submits there is merit
in raising speculative limits simply to
improve the accuracy of data reported
on the level of speculative activity in agricultural markets," the association said,
since the "hedge" positions reported
by over-the-counter operations do not
represent what is considered to be a
traditional hedge and likely understates
the true proportion of exchange volume
represented by speculators. MBN

food security in low-income, fooddeficit countries that are committed
to universal education. It provides
for donations of U.S. agricultural
products as well as financial and
technical assistance for school feeding and maternal and child nutrition
projects.
Food for education assistance
includes a variety of commodities
that will be purchased on the U.S.
market and donated by the U.S.D.A.
The commodities this year will go
to private voluntary organizations,
the United Nations' World Food
Programme and one foreign government. MBN

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Milling & Baking News - September 14, 2004

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