CFTC Chair Behnam Affirms Importance of Derivatives to Agriculture Markets
Commentary by Steven Lofchie
At the National Grain and Feed Association Convention, CFTC Chair Rostin Behnam reported that the 2023 Farm Bill is being designed to strengthen the resilience, accessibility and cost-effectiveness of the derivatives markets to respond to agricultural market developments. He described the importance of agricultural supply chains in times of increasing global food insecurities, geopolitical events and grain storage challenges.
Mr. Benham affirmed that the CFTC's principles-based approach has helped the derivatives market to perform well in response to recent agricultural value chain and sustainability issues (see related coverage). Mr. Benham stated that the CFTC has heightened its diligence to (i) stop bad actors and (ii) prevent speculative activities that could influence prices and disrupt the balance in a cash-based supply and demand market. He underscored the importance of continuing to incentivize participants to trade and create liquidity while also recognizing that hedging has become more challenging due to the consolidation of market intermediaries.
Further, he stated that the risk management data generated from the derivatives markets supports other USDA-sponsored risk management programs and will serve as a basis for future areas of focus for the CFTC, including:
- access to futures commission merchants for small market players;
- the impacts of the SPAN-2 initial margin framework and agricultural derivatives;
- supply chain volatility and interruption and its impact on prices;
- derivatives data sharing throughout the industry; and
- carbon credit markets on agri-businesses for farmers and lenders.
Commentary
The significantly diminished number of intermediaries in the futures market, to which Chair Behnam briefly refers, is almost certainly one of the foreseeable results of Dodd-Frank. Greatly increased costs of regulation drove many of the midsized FCMs out of the clearing business with negative impact on the smaller clients that those firms served. This is a cost that the regulators should be mindful of, particularly securities regulators, who are now embarked on a rulemaking campaign that seems likely to rival that of the Dodd-Frank era. If all of the proposed regulations are adopted, a comparable diminution in the number of midsized firms in the securities markets is likely.