CFTC adds task force, liaisons to monitor markets

The Commodities Future Trading Commission hosted its Agricultural Advisory Committee meeting via teleconference April 22. CFTC recently created a Livestock Market Task Force to monitor activity around major market-moving events.

CFTC Chairman Heath P. Tarbert is the sponsor of the AAC and said agriculture, like so many other sectors of the United States economy, is facing an unprecedented challenge at the hand of the coronavirus.

“This challenge has been exacerbated by the difficult farm economy over the past several years, which is why it’s of the utmost importance we gather leading industry voices to gain further insight into COVID-19’s impact on the markets we regulate,” Tarbert said. “Ensuring our markets are working for American agriculture is critical to fulfilling the CFTC’s mission during these challenging times.”

Agriculture is essential to the basic needs of people around the world, and a pandemic like this reminds us now more than ever the critical role the ag sector plays in the economy.

“If the derivatives markets aren’t working for American agriculture then, in my view, they’re simply not working,” Tarbert said. “Today we face unprecedented uncertainty and price volatility across our ag commodity markets. Many of you rely on these markets to mitigate and hedge risk as agricultural producers, and end users.”

The CFTC is working to understand challenges confronting the ag sector, and to ensure that derivative markets are doing their job of providing opportunities for end users to manage risk. One of the things they implemented after growing concern around livestock markets was the Livestock Market Task Force. It will monitor daily, in real time, livestock contracts.

“We’re talking about the live cattle, the feeder cattle and the lean hogs contracts, specifically,” Tarbert said. “I’m pleased to report that this task force is up and running to ensure market integrity in these uncertain times.”

Working with USDA

CFTC is also appointing a liaison to the U.S. Department of Agriculture for the first time in 45 years as an agency. The predecessor to CFTC was the Commodity Exchange Commission and it was part of USDA.

“But in so doing, the original Commodity Exchange Act that gave rise to the CFTC actually requires that the USDA appoint a liaison officer for the purposes of maintaining a relationship between the USDA and the CFTC now that the CFTC became a independent agency,” Tarbert said.

To facilitate cooperation, the CTFC assigns a member of their division of market oversight staff to be a primary point of contact for the USDA liaison.

“That’s really important again to signify that we have a robust dialogue and continued historical coordination with USDA on matters of mutual interest,” Tarbert said.

Wild ride on volatility

CFTC Commissioner Brian Quintenz recognized the unprecedented times and the ongoing historic levels of prices and volatility in the agricultural cash and futures markets.

“It’s timely that this committee specifically could come together today to share their insights with us on liquidity and market integrity and accessibility of futures markets,” Quintenz said.

He hopes the futures market can help remain a reliable and efficient hedging tool for America’s farmers and ranchers.

“America’s agricultural producers and growers tirelessly dedicate themselves to putting food on our kitchen tables while they themselves constantly struggle to ensure the solvency of their farms and their ranches,” he said.

CFTC along with the futures exchanges and market intermediaries must work just as tirelessly to ensure producers have the tools they need.

“This agency has a unique role to play in protecting America’s farmers and ranchers,” he said.

Checking out the industry

Since becoming a CFTC commissioner, Quintenz has had the privilege of traveling across the U.S. to see the commodities in the fields and livestock being produced.

“I’m currently grateful for those relationships that developed from those travels and in many cases those friendships,” he said. “I’ve been consistently impressed and humbled by these Americans work ethic, their sophistication and dedication to growing their businesses, many of which are family owned, in the face of historically low commodity prices international trade disputes and intense competition.”

Steep declines in commodity prices and global supply demand forces combined have put unrelenting pressure on the American agricultural producer to increase yields cut costs and drive efficiencies, to remain profitable. The COVID-19 challenges have all but made any gains disappear.

“These difficult events make it all the more vital that farmers and ranchers feel like they can depend upon liquid, well functioning agricultural futures and swaps markets to hedge the risk,” Quintenz said.

Performance concerns

Some have expressed concerns regarding the performance of certain futures contracts, and Quintenz takes those concerns seriously.

“I encourage market participants to continue voicing those concerns and experiences to the exchanges, to the CFTC staff and to us as commissioners,” he said. “In particular I commend the chairman for convening the livestock market task force to examine conditions in the cattle markets and ensure contracts are working as intended.”

For more than 150 years, the U.S. futures markets have enabled farmers and ranchers to hedge commercial risks in the most liquid, competitive and vibrant futures markets in the world.

“This is no small accomplishment,” Quintenz said. “It’s taken generations of hard working and creative and aspirational thinkers, to build both today’s agricultural industry, as well as today’s futures marketplace.”

Perdue joins

U.S. Secretary of Agriculture Sonny Perdue joined the conference, and welcomed CFTC back to “it’s roots at USDA.”

“We appreciate very much the liaison,” Perdue said. “Obviously our fortunes are intertwined. Our responsibilities and roles are intertwined more and more so it seems. I appreciate the efforts that you’ve made in a relationship that we enjoy. Thank you for your leadership and engagement on agricultural issues.”

Perdue said the bedrock issue facing agriculture is in futures trading.

“Price discovery and transparency is critical in our sector and appreciate very much what CFTC does and in that effort. I also want to congratulate you for reviving this ag advisory committee and meeting on a regular basis after being inactive for a while.”

Listening to producers necessary

He appreciates the prioritization of agriculture currently, especially the input from the various sectors including farmers and ranchers. Perdue looked back a few months ago when discussing the state of the farm economy and how hard it has been for farmers and ranchers.

“Our whole economy has been hurt hard and agriculture is no exception,” Perdue said. “I think we’ve come to a better appreciation of our farming and food production and food supply chain because of its essentiality.”

Perdue is proud of the individual sectors and the farmers and ranchers, as well as everyone involved—vendors helping farmers; all the way to the consumers “getting it done day in and day out.

“This has been an amazing resilient effort,” Perdue said. “I know that we realize that our food supply chain’s one of the most efficient. It’s sophisticated. It’s integrated. It’s almost synchronized in many ways and just in time so the COVID-19 impacts have rippled through.”

Perdue believes the development in the U.S. has been because of efficiency in the food chain.

“When you think of half of the food being consumed, it’s outside of the home,” he said. “They’ve developed a supply chain that serve restaurant/institutional market very efficiently.

That market has different types of packaging, quantities and products, and when the entire sector has a reduction in consumption, it has a definite ripple effect.

“It’s like a crash on interstate highways where everything gets backed up but we’ve been very active in trying to re allocate and realign the supply and demand with that with the needed demand here across the country,” Perdue said.

Price movements have been primarily driven by significant demand shifts or market expectations for changes in demand in the near future. Perdue said an example of that is how cotton prices are at decade lows and livestock prices at multi-year lows. The loss of institutional and restaurant markets have been very concerning.

“There have been also concerns about potential closures or disruptions in the processing industry as well, so all of those are vital and critical,” Perdue said. “We appreciate your attention to recognizing the need for transparent, markets of integrity that people can depend on.”

Integrity necessary for market

Having integrity in the market can help make future business decisions when it comes to production or consumption decisions, and for Perdue it’s critical the commodity future trading is maintained in the U.S.

“USDA is obviously working as quickly as possible to bring help to those producers have been devastated,” Perdue said.

Recently USDA announced a $19 billion support package for producers. Direct payments as well as an “out-of-the-box food distribution system program” that’s in development. There will also be increased funding to food nutrition programs both for households and schools.

“And I’m hoping our purchase and distribution of both produce, dairy and meat products will be able to begin in a within two weeks,” Perdue said. “Then the direct support will require rulemaking that we hope to have signups beginning in late May—as quickly as we’re able to so more information more details are going to be provided when that rule is published.”

Perdue also said USDA is working with Federal Emergency Management Agency, U.S. Health and Human Services, Centers for Disease Control and Prevention and Occupational Safety and Health Administration on guidance in various sectors. CDC and OSHA are working to provide guidance on best practices for employees in meat, poultry and seafood processing facilities.

“It’s been an interesting time,” Perdue said. “It was one challenge after the other, but I’m very proud of the team at USDA. I think the public would be extremely proud if they saw these people working remotely. Actually in a more difficult environment getting the job done.”

Perdue said they’re monitoring supply-demand disruptions or divergences that are seemingly unreasonable. This includes the investigation after the fire at the Holcomb, Kansas Tyson meat processing plant, and price effects for live cattle and boxed beef variances during the current COVID-19 pandemic.

“So as part of this ongoing investigation our packers and stockyards division will determine if there’s any evidence of price manipulation, collusion, restrictions or competition, or any unfair practices or unfair advantages,” Perdue said. “That’s what our public expects as what our producers expect and I hope that’s what all the people in between expect as well.”

Perdue said USDA looks forward to working with CFTC and their Livestock Market Task Force and liaison. He also said if the investigation using evidence of any violation of the packers and Stockyards Act would begin immediate necessary enforcement action. The Department of Justice will have initial referrals for further consultation.

“I know trade is a huge part,” he said. “That’s why the markets are here in the United States and we’re working hard, even through these difficult times.”

Overseas customers are important, and reducing barriers to doing business with them is critical; especially with the implementation of the Phase One Agreement with China.

Kylene Scott can be reached at 620-227-1804 or [email protected]