The US Commodity Futures Trading Commission's Agricultural Advisory Committee held a discussion on 19 July on improving access to futures markets for agricultural end-users as well as a presentation about Mississippi River disruptions to grain flows and markets.
CFTC Chairman Behnam used his opening statement to address the challenges we are facing from a geopolitical, climate and volatile market perspective which makes end-user’s access to futures market more critical. Behnam noted his goal is to explore those trends and determine if there is anything they can do as a market regulator to improve access for the agricultural community.
CFTC Commissioner Caroline Pham highlighted concerns in her opening remarks about bank capital standards that punitively impact the clearing of futures. She explained that the increased cost of providing clearing services has contributed to a decline in the number of futures commission merchants (FCMs) and has impacted agricultural end-user access to risk management tools critical to their business.
Improving access for agricultural end-users
Gerry Corcoran, Chief Executive Officer of RJ O'Brien & Associates (RJO) and member of the FIA Board of Directors, led the panel discussion about improving access to futures markets.
Corcoran highlighted that FCMs are essential partners of the agriculture end-user community and that they perform several critical functions in the trading and clearing lifecycle on behalf of their customers.
While there has been nearly a 50% decline in the number of FCMs providing clearing services to customers over the past two decades, Corcoran emphasized that there is a strong network of FCMs available to connect agricultural end-users with a global network of markets and risk management tools needed to manage their unique businesses.
Corcoran also emphasized the importance of education and highlighted the work of FIA, the Institute for Financial Markets, and RJO in providing the tools necessary for farmers to learn about the risks, and opportunities, of futures markets. Corcoran emphasized FIA’s support for expanding access to, and resources for, education to small and mid-size farmers.
Curt Strubhar, an independent introducing broker, spoke on behalf of the Grain and Feed Association of Illinois. Strubhar shared many of the same thoughts as Corcoran, noting that there has been a decline in the number of FCMs over recent years. Strubhar said the failure of MF Global over a decade ago has led to their clients’ wanting to have relationships with multiple FCMs, rather than a single FCM. He also noted that the decline of FCMs has created some challenges because not all FCMs will take on the clients of independent introducing brokers.
Strubhar stressed that he is a strong advocate of FCMs and the role they play on behalf of his clients, as opposed to direct clearing models that attempt to combine the role of FCM, exchange and clearinghouse into a single entity. Some cryptocurrency exchanges use that model for trading bitcoin and other cryptocurrencies, and several have talked about applying that model to commodity futures.
Layne Carlson, the Treasurer and Corporate Secretary of the Minneapolis Grain Exchange, said the exchange has heard concerns from the rural agriculture communities about the consolidation among FCMs. Carlson went on to say that the existing network of introducing brokers and FCMs is working well, but there may be opportunities for improvements.
Derek Sammann, Global Head of Commodities, Options and International Markets at the CME Group, offered his support for Corcoran’s comments related to the importance of education. He also emphasized CME’s engagement with state fairs and 4-H events and the National Association of Farm Broadcasting.
Behnam said it is important to pinpoint where best to position the CFTC in education for producers and end-users, along with the existing infrastructure of introducing brokers and FCMs, so hopefully there continues to be stable access for producers and end-users, if not increased access. While Behnam acknowledged the consolidation of the FCM community over the past two decades he seemed optimistic that the landscape has stabilized.
Official statements and documents
- View Webcast
- Statement of Commissioner Christy Goldsmith Romero
- Statement of Commissioner Summer K. Mersinger
- Statement of Commissioner Caroline D. Pham
- News & Commentary