A Call for Commodity Crackdown on Banks

September 4, 2013 10:14 PM

By Ed Clark and Julie Deering

Bart Chilton

The Federal Reserve was called upon by Bart Chilton (at right) of the Commodity Futures Trading Commission to reverse a decade-old ruling that lets banks trade physical commodities.

"I don’t want a bank owning an electric service, cotton, corn or feedlots," Chilton said during an August cotton conference.

"I don’t want banks owning warehouses, whether they have aluminum, gold, silver or anything else in them."

Chilton wrote a letter to the Federal Reserve urging them to draft the final Volcker Rule in a way that ensures banks can no longer speculate in commodity markets. He explains that a decade ago, in the shifting climate to allow banks more freedom, several policy changes took place.

One such change was the allowance for the ownership of totally unrelated businesses.

"The idea was that it was a good thing for the banks to be diversified," Chilton says. "Banks got into all sorts of other businesses."

The problem here, he explains, is that if banks own the physical commodities, warehousing or delivery mechanisms, they might then contend that their legitimate business interests should allow them to hedge those risks, in addition to hedging their financial proprietary risks.

This muddies everything up. "There needs to be a culture shift in the financial sector," he says.

If Chilton gets his way and banks can no longer speculate, the whole game changes.

Is Agriculture Beginning to Cycle Down?

I see a "4" in front for December corn prices in 2014, 2015 and 2016, says Thomas Grisafi, Indiana Grain Company trader. Most corn prices at the Chicago Board of Trade have a "4" in front of them, and that’s a reality, not a speculation. Same thing for soybeans going from $16 to $11.50.

If you take those numbers and look at the ag-related stocks—anyone involved in chemicals, equipment and seed—those stocks are all taking a hit, while the U.S. stock market is only 100 points from an all-time high, Grisafi says. This might be the turning point for agriculture as the U.S. economy improves.

Brazilian Agriculture Expected to Climb

The gross value of agriculture production in Brazil is expected to increase approximately 9% in 2013 from its previous season, according to the Brazilian Ministry of Agriculture (MAPA).

In 2012, grains accounted for 53% of production, sugarcane comprised 18% of agricultural production and 29% was made up by other agricultural ventures.

Finance rates for Brazilian farmers have been in the 3% to 3.5% range this year, according to the Brazilian Association of Machinery and Equipment.

Additionally, Brazil’s beef shipments rose by 22% during the first six months of 2013, compared to the same time period in 2012. The value of those shipments rose by 14.6%.

Gross value ag


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