Opening Declaration of Chairman Rostin Behnam prior to the Agricultural Advisory Committee

Intro

Excellent early morning and welcome to the very first Agricultural Advisory Committee (AAC) conference of 2022 under my sponsorship. The AAC strengthens the strong connection in between the CFTC and its historical duties in guaranteeing that America’s farmers, ranchers, producers, and other business end-users continue to have economical access to CFTC managed markets to handle danger, and supplies an active online forum to go over and deal with emerging problems and effects to the farming markets in near real-time.

Prior to we move into the compound these days’s conference, I wish to thank Commissioners Johnson, Goldsmith Romero, Mersinger, and Pham, for getting involved today and for their contributions to this conversation.

I likewise wish to thank today’s speakers and panelists. We have actually collected a prominent group of speakers, and their preparedness to take part is considerably valued and important to today’s conversation.

I wish to thank Brigitte Weyls, the Committee’s Designated Federal Officer. Brigitte signed up with the Commission in 2008 and brings a wealth of market understanding and experience to the AAC.

I likewise wish to thank the AAC members. Today we invite numerous brand-new members to the Committee which was just recently reconstituted following its September 2021 expiration. You are here today representing a broad variety of interests and viewpoints, which shows the variety of our farming markets. From manufacturers to customers, credit servicers, significant market individuals, consisting of derivatives market intermediaries, and exchanges, and agents from the U.S. Department of Farming, our 35 members will make use of the depth and breadth of their market competence to supply varied and important insight into the problems of biggest effect and issue. I comprehend that your service on this Committee remains in addition to numerous commitments at work and in your home. I value your dedication to guaranteeing the CFTC stays totally notified regarding what is impacting members and individuals in our farming markets so that as we think about regulative and policy actions focused on resolving problems and enhancing market structures, our efforts are targeted and efficient. I eagerly anticipate continuing the crucial work of this Committee.

Program

The Committee last fulfilled in June of 2021. At the time, we were starting to recuperate from the pandemic and analyzing the unpredictability and significance of supply chain interruptions. Ever since, substantial volatility has actually stayed a component in much of the farming and associated markets due to the continuous healing along with growing effects of severe weather condition occasions and geopolitics. To supply standard for us to think about throughout today’s conference, we will start with a discussion by Dr. Cynthia Nickerson, Deputy Chief Economic Expert with the Department of Farming, on the farming economy with a concentrate on the effects of weather-related and geopolitical occasions.

Severe weather condition occasions in the U.S. and around the world continue to affect crop and animals production leading to supply lacks and rate boosts on whatever from butter to child formula. At the AAC’s last assembling, David Rossen, Global Hedging Supervisor for cotton at Louis Dreyfus, reported that worldwide futures and money costs for cotton had actually dropped when the fabric market ground to an abrupt stop throughout the pandemic. Now, dry spells worldwide are triggering the tiniest cotton yields in over a years with costs increasing, however tempered, in part, by storage facility products. The loss in crops is ravaging. While crop insurance coverage assists farmers, countless tasks throughout the supply chain will be impacted from farm employees and truckers to cotton gins and storage facilities.[1] Everything then drips down through the economy to the small-town company where affected workers invest their incomes to the local banks that hold their home mortgages and car loans. Even if crop yields rebound, impacted areas such as the Texas High Plains will take years to recuperate, particularly in towns whose economies are particularly depending on cotton.[2]

The animals markets are likewise being struck hard by severe and unforeseeable weather condition and the effects will likely be felt for years to come. With ranchers making the challenging option in between generating pricey feed to supplement pasture loss or thinning their herd, this year the animals market has actually supposedly auctioned off almost 20% more livestock than it did at this moment in 2015.[3] With numerous ranchers offering animals ahead of schedule, forecasted livestock lacks will likely suggest greater beef costs in the future. There are, nevertheless, sustainable farming strategies and programs being executed by stakeholders throughout the farming neighborhood to deal with these problems. And we will check out sustainability in the farming supply chain with a discussion by Scott Herndon, President of Field to Market.

As extreme dry spell continues to cut river traffic through crucial transport arteries like the Mississippi River basin, half of all U.S. grain exports and approximately 500 million lots of items every year are approximated to be affected, which might cost the economy $20 billion in damages and losses.[4] With a bulk of food circulation in the U.S. being connected to the river eventually, this recommends that boost to shipping business will eventually reach customers at the supermarket. And once again, there are effects to cities the whole time the river whose employees and organizations depend upon that stable circulation of traffic. Considering that dry spells traditionally take place less often than floods, it has actually been explained that federal resources and alternative payment are merely not readily available to organizations that are similarly hurt by dry spell. As the frequency of these severe weather condition occasions gets, there is an increasing require policy service at the nationwide level.[5] On these problems, we will speak with Jessica Stephan, Chair, National Grain and Feed Association Waterborne Commerce Committee, and previous CFTC Commissioner Tom Erickson, of Erickson Law & & Consulting, on the significantly important domestic and worldwide shipping, freight, and storage influence on the grain trade.

The effects of weather condition and the fallout from the pandemic have actually been magnified this year by geopolitical occasions. Russia’s aggressiveness versus Ukraine has actually resulted in severe unpredictability in the worldwide markets for energy, farming, and metals, frequently resulting in unexpected motions in product costs due to the fact that of moving market belief: any choice, at any time can and might move markets in severe methods. This is combined with moving financial policy tightening up by the U.S. Federal Reserve and other primary economies worldwide, focused on slowing inflation levels, and, in doing that, leading to macroeconomic results on the very same products and involved customer and manufacturers more typically. Cost motions in these markets are, for those beyond this nation, additional impacted by currency exchange rate, with the U.S. dollar just recently increasing to a 20-year high versus numerous other significant currencies, putting extra upward pressure on rate boosts. While this pattern might supply a balanced out to inflationary pressures, for business that count on abroad sales and exports for earnings, a strong-dollar environment can suggest lower revenues, intensifying the unfavorable effects of greater U.S. rate of interest and inflation.[6] Supply-side choices bring us to a last consider energy rate pressure and unpredictability, with OPEC’s current choice to reduce production by 2 million barrels daily even while the Ukraine intrusion continues having ripple effects throughout all products.

According to the OECD, Russia’s aggressiveness versus Ukraine has actually weakened the latter’s capability to harvest and export crops, sunflower seed and wheat amongst them. Russia plays a crucial function in worldwide energy and fertilizer markets, serving as the world’s leading exporter of gas and nitrogen fertilizers, and the 2nd and 3rd prominent provider of potassic and phosphorous fertilizers, respectively. Considering that the agri-food sector is highly-energy extensive, the minimized export capability and increasing energy and fertilizer costs equates to greater production expenses, even more increasing food costs and threatening worldwide food insecurity.[7] What does all this mean for our farming derivatives markets when it concerns the capacity for market interruption? Later on today we will speak with Tim Andriesen, Handling Director for Agricultural Products at CME Group, with an introduction of how the farming derivatives markets have actually attended to the effect of these geopolitical occasions through developing rate limitations in the farming markets.

Comprehending and going over the effects of severe weather condition occasions and geopolitics, and the continuous healing from the pandemic and how these market forces will continue to affect American farmers, ranchers, and other market individuals throughout the farming supply chain is vital and highlights the value of this Committee.

We have an aggressive program for our brief conference today, and I eagerly anticipate speaking with all of you throughout the conversations that accompany each discussion. I likewise eagerly anticipate utilizing our last session of the day to scope the AAC’s program for 2023.

Closing

Prior to progressing, reviewing the last a number of years of traditionally high volatility in action to the worldwide pandemic, numerous severe weather condition occasions, and geopolitical problems, the farming futures markets have actually continually supplied transparent rate discovery and precisely showed supply and need principles with merging at expiration. Our objective ought to not be restricted to guaranteeing that the derivatives markets continue to serve their danger management and rate basis functions. We must take a look at and check out manner ins which we can develop even higher durability, functionality, gain access to, and accessibility into our markets and market structures so that the advantages can reach the largest breadth of possible users and market individuals. If there are methods which our coming together can benefit the farming neighborhood beyond direct derivatives market individuals whether through establishing policy suggestions or through tactical collaborations, then we must check out those opportunities.

Once again, I want to thank all of our individuals, all of our prominent visitors, and, obviously, my coworkers at the CFTC who operated in front of and behind the scenes to bring this conference together.