National Farmers Organization

National Farmers endorses Senate committee testimony recommending overhaul of ag and energy commodity markets

    AMES, IOWA (June 26, 2008)-A national farm group agrees with testimony provided Tuesday to the Senate Committee on Homeland Security that would alter agriculture and energy commodity markets regulation. It includes imposing firm limits on the size of energy speculator positions, closes the swaps loophole and severely limits index fund investing in commodity markets.
     "Much of agriculture is tied to the price of crude oil, and our members believe tighter ag and energy commodity markets regulation will not only help on the fuel and fertilizer fronts, but would also restore true price discovery," says National Farmers President, Paul Olson.
     The organization agrees with Michael Masters testimony Tuesday to the U.S. Senate Committee on Homeland Security's hearing on legislatively ending excessive speculation in commodity markets.
     The veteran equity hedge fund manager key points includes:

Commodities futures markets exist solely for the benefit of bona fide physical hedgers, the producers and consumers of actual physical commodities
In the present system, price changes for key ag and energy commodities originate in the futures markets and then are transmitted directly to the spot markets
Index speculators have driven futures and spot prices higher and damage the price discovery function

National Farmers agrees with Masters recommendations to restore the true price discovery function of the markets by:

Establishing trading limits for all market participants
Place limits on speculation
Prohibit index fund investments
Ignore threats of offshore futures trading

     "National Farmers believes that institutional investors have distorted commodity markets.as Masters notes-hijacking them," Olson says. Commodity markets were originally intended for usage by producers and consumers of those physical commodities. So, price discovery and the ability to offset price risk are paramount to farmers.
     Meanwhile, other approaches attempting to address skyrocketing farmer and rancher input costs would not be necessary. For instance, the waiver of the renewable fuel standards. "A waiver of the Renewable Fuel Standards would not be needed if the new legislation were put into place, and several studies conclude it would not lead to lower food prices. Instead, raising fuel prices from 29-40 cents per gallon, if ethanol were not a blend component.
     A Texas A&M report studied the effects of ethanol on Texas food and feed, and concluded relaxing RFS would not result in significantly lower corn prices. Texas A&M researchers also concluded the major agriculture and broader economy influencer was higher crude oil prices.
     Energy Secretary Samuel Bodman and Agriculture Secretary Ed Schafer have both stated biofuels production contributes to lower gasoline prices at the pump, and plays only a small role in global food supply and pricing.
     National Farmers is an ag marketing and price negotiation organization for the nation's farmers and ranchers. Masters testimony can be found at http://hsgac.senate.gov/public.