The National Grain and Feed Association (NGFA) has encouraged the Senate to take a “reasoned approach” during floor consideration of its version of financial regulatory reform legislation (S. 3217), urging that it focus on those financial products and behaviors that led to the 2009 financial crisis and not undermine the ability of financial institutions to provide necessary financing to U.S. businesses.
The NGFA urged the Senate to “take great care” when considering statutory changes that could increase business costs, such as through increased capital and margining requirements imposed upon “legitimate end-users” who use risk-management products to hedge business risk. Specifically, the NGFA urged the Senate to retain a provision in the current version of its bill that would exempt commercial end-users from the requirement to have derivatives (swaps) traded or cleared on exchanges.
The Senate is expected to continue floor debate on the more than 1,500-page bill through much of next week, considering and acting upon some of the nearly 200 amendments offered thus far.
Established in 1896, the NGFA is the nation’s largest trade association comprising commercial hedgers of grains, oilseeds and grain products. It consists of more than 1,000 member companies consisting of grain elevators; feed and feed ingredient manufacturers; grain and oilseed processors and millers; integrated livestock and poultry operations; biofuels manufacturers; exporters; and other grain-related businesses. NGFA-member companies operate more than 7,000 facilities and handle more than 70 percent of the U.S. grain and oilseed crop.
The NGFA supported the Senate bill’s goal of increasing transparency and reporting of trades involving derivative financial instruments, saying that fostering a better understanding of the nature of participants involved in such trading would benefit market participants and the overall stability of U.S. futures and financial markets.
But it cautioned that achieving exchange- trading and clearing of over-the-counter derivatives will be “a daunting task,” dependent upon the extent to which such instruments can be standardized and the willingness of exchange-based clearing organizations to assume such market risks. “Legislation should not simply shift risk from largely unregulated markets to clearing organizations that could, in turn, be put at risk in a future financial crisis,” warned NGFA President Kendell W. Keith.
In addition, the NGFA reiterated the importance of well-functioning agricultural commodity futures markets in providing critical risk-management tools for commercial grain hedgers and agricultural producers, noting these markets continued to perform well during the financial crisis. “The oversight of the Commodity Futures Trading Commission and the rules of the regulated exchanges on which these traditional market participants hedge their risk provide appropriate oversight, and have served our industry and the nation well,” Keith said.
The NGFA’s membership encompasses all sectors of the industry, including country, terminal and export elevators; feed and feed ingredient manufacturers; cash grain and feed merchants; end users of grain and grain products, including processors, flour millers, and livestock and poultry integrators; commodity futures brokers and commission merchants; and allied industries. Canadian and Mexican firms also are NGFA members, and use its Trade Rules and Arbitration System by specific reference in their contracts.
The NGFA also consists of 35 affiliated state and regional grain and feed associations, as well as two international affiliated associations. It has a strategic alliance with Pet Food Institute and is co-located and has a joint operating and services agreement with the North American Export Grain Association.