Opening Statement of Commissioner Brian D. Quintenz before the CFTC Agricultural Advisory Committee

April 5, 2018

Thank you Commissioner Behnam for your leadership in convening today’s meeting of the Agricultural Advisory Committee (AAC)—the first such meeting since 2015, much too long of a time to have gone by without the input of these experts.  While the practice of prior leadership of this Committee was to hold one meeting a year, I am hopeful that either with your leadership, Commissioner Behnam, or new leadership once additional Commissioners are confirmed, we can take more frequent advantage of this important panel’s significant expertise.

I am delighted to join you and Chairman Giancarlo, and all of the distinguished members of this Committee, for its inaugural meeting in the heartland of America’s farmers and ranchers.  For decades this Committee has provided the Commodity Futures Trading Commission (CFTC) with invaluable insights into the pressing issues of the day: agricultural trade options in the 1990s, the transition from pit to electronic trading in the 2000s, and perennial challenges involving deliverable supply and convergence.  I look forward to a robust discussion today about the state of our futures markets and their ability to serve as an effective price discovery and risk management tool for the Ag community.

It is fitting the AAC is meeting in Overland Park, a town founded by a gentleman named William B. Strang in 1905.[1]  Mr. Strang left home at the age of 15 and ultimately became an American railroad magnate, building railroads all over the country, including the Missouri and Kansas Interurban Railroad (running through Overland Park) that was built along the historic Santa Fe Trail.[2]  An avid believer in innovation, Mr. Strang built the first self-propelled railroad motor car in the world.[3]  Fascinated by progress, he also constructed an airfield in Overland Park in 1909—only six years after the Wright Brothers’ first flight—so that locals could witness the novelty of the new, so-called “flying machines.”    

I highlight Mr. Strang’s accomplishments because I believe they are a reminder of what is possible if we follow our aspirations and of how the vision of one person can have generational economic impacts.  The railroads that Mr. Strang built, in conjunction with America’s natural inland waterways, enabled cities like Chicago and Kansas City to become hubs of commerce and markets for America’s grain, produce and cattle. 

Today, of course, there are different challenges that must be overcome by modern vision, leadership and ingenuity.  As I will discuss in more detail tomorrow, the challenges facing the agricultural industry today—historically low commodity prices, intense international competition, ever slimmer profit margins—make it more important now than ever that the futures markets remain a trusted, effective tool for price discovery and risk management for America’s farmers and ranchers.  

Indeed, the need for futures prices to reflect supply and demand fundamentals impacts even those who choose not to directly participate in the futures markets.  Crop insurance, an essential risk management tool for many farmers, relies upon futures prices to determine the expected income of farmers in the event a payout is made.  Today, over 300 million acres of farmland is covered by crop insurance, with an insured value of over $100 billion.  I am interested to learn more about how the crop insurance program is working today from our first panel and make sure we all understand that a lack of convergence impacts not only risk management hedging, but also the effectiveness of the crop insurance safety net.    

In addition, given the past several years of depressed commodity prices, farmers’ use of credit is rising.  According to the USDA’s Economic Research Service, in 2017 the farm sector’s debt-to-income ratio, which measures a farmer’s ability to pay down liabilities, rose above 6 to 1.[4]  The last time we saw such a high debt-to-income ratio for farmers was the 1980s.[5]  I look forward to hearing from the Farm Credit Administration (FCA) today about the various ways the FCA and the private sector can continue to meet the financing needs of farmers and ranchers.

From our final panel, we will hear from CME about the recent implementation of block trading in certain agricultural products.  I am interested to hear the panel’s observations about how the expanded use of block trades in this space is impacting liquidity and price discovery.

Together, the futures markets and crop insurance are the cornerstones of the farm safety net.  They work together to ensure that farmers do not lose access to credit in a very volatile industry—so that farmers can continue to provide Americans, and the world, with high quality, low cost food.  I commend Commissioner Behnam for hosting this meeting today to explore how these issues are impacting the vitality of the Ag community, and thank Charlie Thornton, the Designated Federal Officer of the Committee, for all of his hard work in planning today’s meeting.