Newman was one of five industry witnesses invited to testify before the House Committee on Agriculture’s Subcommittee on General Farm Commodities & Risk Management at a hearing to review implementation of the Dodd-Frank Wall Street Reform & Consumer Protection Act, and the CFTC’s progress in setting mandated speculative position limits in the nation’s futures market.
“We support effective speculative position limits that work for both the bona fide hedger and the speculator,” said Newman. “However, there is rarely the perfect solution to a complex issue, and waiting for the ‘perfect solution’ for setting speculative position limits will only delay the much needed transparency and controls in these commodity markets. Therefore, we support the implementation of interim limits, which can then be adjusted by CFTC if data confirms the need, over an extended period of time.”
Newman testified that future market open interest is historically comprised of 70% to 85% hedgers and 15% to 30% speculators. In 2008, this reversed, with market open interest comprised of 26% hedgers and 74% speculators. Today, speculators continue to outnumber hedgers.
The magnitude of this scenario is clear in the numbers, Newman explained. In 2003, index speculator investment in 25 physical commodities was $13 billion; in 2008 these investments jumped to $260 billion – a 1,800% increase. In 2010, these investments remain at $265 billion, with three index funds representing 94% of these investments.
AFIA applauds the subcommittee and full House Agriculture Committee for calling the hearing to review the CFTC’s progress on speculative position limits.
“Your individual and collective interest in making sure progress toward implementation is welcomed by AFIA’s members,” Newman said.