Industry expects to see few impacts on agricultural trades


Capital Press

The financial industry overhaul bill recently passed by Congress isn't expected to have a direct impact on farmers, according to an agriculture industry lobbyist.

The Restoring American Financial Stability Act, passed on July 15, creates new rules for financial derivatives, among other provisions.

The law is intended to rein in unregulated financial instruments, but derivative markets for crops and livestock have long been overseen by the government, said Kelli Ludlum, director of congressional relations for the American Farm Bureau Federation.

"From our perspective, it doesn't affect the tools we're using," she said. "This bill makes virtually no changes to the basic commodities futures contracts that growers use to manage risk."

At most, the bill could have an indirect effect on farmers, Ludlum said.

By saddling lenders with new requirements, the new rules could theoretically increase the cost of doing business, which may be passed on to growers and other consumers, she said.

Even so, it's difficult to weigh that possibility against positive potential outcomes, such as averting another taxpayer bailout of banks, she said.

"In our opinion, it's not quantifiable," Ludlum said, noting that the federation has not taken an official position on the bill.

Rich Nelson, director of research for the Allendale brokerage firm, said he's not nervous about the bill hindering risk management in commodities.

"I don't believe it's going to be an impact for us," he said. "We're in a heavily regulated arena that already has a lot of light shed on it."

Not all agricultural derivatives are traded on open exchanges that are supervised by the U.S. Commodities Futures Trading Commission, Nelson said.

Direct deals between farmers and major buyers of agricultural commodities -- known as over-the-counter trades -- may fall under the regulatory purview of the new law, though it's unlikely to result in farm-level disruptions, he said.

The current lack of transparency in over-the-counter deals allows meat packers to hide speculative activities that drive down cattle prices, said Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America.

The new over-the-counter regulations will "prevent mischief in the cattle futures market," he said. "This legislation captures all these ancillary trading practices and brings them into the light of day."

Spokesmen for the National Meat Association and the American Meat Institute -- groups that represent packers -- said the new rules are not a concern for their members.

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