The NGFA said both types of transactions, as well as others that could be affected adversely, are valuable marketing tools. That is true especially during a period of higher commodity values and increased market volatility that can lead to substantially greater margin requirements to maintain market positions on exchange-traded futures and options contracts – which, in turn, require additional borrowing of capital at levels several times normal amounts, the NGFA noted.
“For these firms and for their lenders, having alternatives to traditional bank borrowing is critically important to managing their risk and enabling them to perform marketing and risk-management functions on behalf of producers,” the NGFA said. “These are not risky strategies that introduce the type of systemic risk the Dodd-Frank law was designed to address. Rather, they are commonly used, important risk-management tools which, if placed into regulatory limbo, would create additional financial challenges for the U.S. industry and agricultural producers.
“We are pleased that the CFTC is proposing to take quick and appropriate action to stave off these unintended, but potentially damaging, impacts of the Dodd-Frank reform law,” the NGFA concluded.
The NGFA in a previous statement submitted to the CFTC earlier this year had urged the agency to exempt bona-fide hedgers and end-users of agricultural commodities from costly and burdensome regulations – including extensive registration, reporting, recordkeeping and other requirements – that generally will apply to swap dealers under the Dodd-Frank law enacted by Congress last year.