Dodd-Frank implementation must preserve risk management options for producers

Washington, D.C. (October 12, 2011)—As the Commodity Future Trading Commission continues to implement the Dodd-Frank Act, a representative of the National Council of Farmer Cooperatives (NCFC) said that legislation may be needed to clarify which entities should be defined as “swaps dealers” under the law.

The comments were made by Scott Cordes, President of Country Hedging , a commodity brokerage subsidiary of CHS Inc., a  diversified energy, grain, and food farmer-owned cooperative.  Cordes also serves on the National Council of Farmer Cooperatives’ CFTC Working Group. He testified at a House Committee on Agriculture hearing looking at implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“Even though it has been more than a year since the Dodd-Frank Act was signed into law, we are still uncertain as to how farmer cooperatives will be classified and what regulations they will be subject to,” Cordes testified. “The resulting uncertainty has put business plans on hold and has delayed investment to increase the capacity for cooperatives to expand their risk mitigation services.”

Perhaps the greatest source of uncertainty going forward, Cordes testified, was how the CFTC is going to define “swaps dealers.” Some farmer co-ops could be swept up under the definition; having to comply with reporting and margin requirements meant for large, systematically important financial institutions could make it uneconomical for farmer co-ops to offer customized risk management products to their members.

“Therefore, we support legislation to clarify what entities would be classified and regulated as swap dealers.  The proposed legislation clarifies that swap dealers do not include those using swaps to hedge, or which enter into swaps ancillary to one’s business as a producer, processor, or commercial user of a commodity,” Cordes said.

In addition to the defining swap dealers, Cordes touch on other important issues including the need to maintain a bona fide hedge definition that includes common commercial hedging practices, and that the aggregate costs associated with the new regulations that impact agriculture be considered.

“By providing commodity price risk management tools to their member-owners, farmer cooperatives help mitigate commercial risk in the production, processing and selling of a broad range of agricultural and food products,” Cordes testified. “America’s farmers and ranchers must continue to have access to new and innovative risk management products that enable them to feed, clothe and provide fuel to consumers here at home and around the world. Any regulatory action that could jeopardize access to these tools should be avoided.”

About NCFC

NCFC is a national association representing America’s farmer cooperatives. There are nearly 3,000 farmer cooperatives across the U.S. whose members include a majority of our nation’s more than 2 million farmers, ranchers and growers. These farmer cooperative businesses handle, process, and market agricultural commodities and related products; furnish farm supplies; and provide credit and associated financial services. Earnings from these activities are returned to their members on a patronage basis. Farmer cooperatives also provide jobs for nearly 250,000 Americans, many in rural areas, with a combined payroll of over $8 billion.

Additional information about NCFC can be found at

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