The American Feed Industry Association submitted supplemental comments on the Commodity Futures Trading Commission’s Notice of Proposed Rulemaking regarding conditional spot-month position limits for commodity derivatives.
In its comments, AFIA said that when input prices become distorted and do not accurately reflect supply and demand conditions, the results are felt throughout the entire supply chain, from producers to consumers. AFIA said its members are concerned with a proposal that would allow speculators in financial contracts, who do not hold positions in core agricultural commodities futures contracts, to hold up to five times a core contract's spot month limit, while also holding up to one-quarter of the core agricultural commodity futures contracts deliverable supplies.
AFIA said this proposal is in conflict with the Dodd-Frank Act in providing position limits and will not meet the following stated objectives: diminish, eliminate or prevent excessive speculation; deter and prevent market manipulation, squeezes and corners; ensure sufficient market liquidity for bona fide hedgers; and ensure that the price discovery function of the underlying market is not disputed.
The proposed expansion would increase volatility and potentially reduce liquidity, resulting in increased costs, according to AFIA.
“AFIA urges the Commission to begin with position limit parity between the physically-settled contract and the cash-settled 'look alike' contract," Joel G. Newman, AFIA's president and CEO, stated in the letter. "This would meet the purpose of the Commodity Exchange Act and the four objectives set forth in the Dodd-Frank Act for speculative position limits.”