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Justice,USDA Competition Issues in Agriculture Industry

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PORKER

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Justice Department and USDA to Hold Public Workshops to Explore Competition Issues in the Agriculture Industry



Workshops Will Promote Open Dialogue on Legal and Economic Issues in the Agriculture Industry


WASHINGTON, Aug. 5 /PRNewswire-USNewswire/ -- Attorney General Eric Holder and Agriculture Secretary Tom Vilsack announced today that the Department of Justice and the U.S. Department of Agriculture (USDA) will hold joint public workshops to explore competition issues affecting the agriculture industry in the 21st century and the appropriate role for antitrust and regulatory enforcement in that industry. These are the first joint Department of Justice/USDA workshops ever to be held to discuss competition and regulatory issues in the agriculture industry.


The joint Department of Justice/USDA workshops will address the dynamics of competition in agriculture markets including, among other issues, buyer power (also known as monopsony) and vertical integration. They will examine legal doctrines and jurisprudence and current economic learning, and will provide an opportunity for farmers, ranchers, consumer groups, processors, the agribusinesses, and other interested parties to provide examples of potentially anticompetitive conduct. The workshops will also provide an opportunity for discussion for any concerns about the application of the antitrust laws to the agricultural industry.


The goals of the workshops are to promote dialogue among interested parties and foster learning with respect to the appropriate legal and economic analyses of these issues, as well as to listen to and learn from parties with real-world experience in the agriculture sector.


"Maintaining a robust agricultural sector is crucial to the strength of the American economy and to who we are as a nation," said Attorney General Holder. "Through the dialogue established in these workshops and, ultimately through our actions, we are committed to ensuring that competition and regulatory actions benefit all American consumers and businesses."


"It is important to have a fair and competitive marketplace that benefits agriculture, rural economies and American consumers," said Agriculture Secretary Vilsack. "The joint workshops between the Department of Justice and USDA will allow a dialogue on very important issues facing agriculture today."


The first workshop will be held in early 2010. While some of the workshops may be held in Washington, D.C., others will be held regionally. The Department of Justice and USDA are soliciting public comments from lawyers, economists, agribusinesses, consumer groups, academics, agricultural producers, agricultural cooperatives, and other interested parties.


"For the first time ever, farmers, ranchers, consumers groups, agribusinesses and the federal government will openly discuss legal and economic issues associated with competition in the agriculture industry," said Christine A. Varney, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. 'This is an important step forward in determining the best course of action to address the unique competition issues in agriculture."


The Department of Justice and USDA are interested in receiving comments on the application of antitrust laws to monopsony and vertical integration in the agricultural sector, including the scope, functionality and limits of current or potential rules.


The Department and USDA are also inviting input on additional topics that might be discussed at the workshops, including the impact of agriculture concentration on food costs, the effect of agricultural regulatory statutes or other applicable laws and programs on competition, issues relating to patent and intellectual property affecting agricultural marketing or production, and market practices such as price spreads, forward contracts, packer ownership of livestock before slaughter, market transparency, and increasing retailer concentration.


The public and press are invited to attend the hearings. Additional information about the date, time and location of the workshops will be provided at a later date. Interested parties should submit written comments in both paper and electronic form to the Department of Justice no later than Dec. 31, 2009. All comments received will be publicly posted. Two paper copies should be addressed to the Legal Policy Section, Antitrust Division, U.S. Department of Justice, 450 5(th) Street, N.W., Suite 11700, Washington, D.C. 20001. The Department's Antitrust Division is requesting that the paper copies of each comment be sent by courier or overnight service, if possible. The electronic version of each comment should be submitted to [email protected]. Detailed agendas and schedules for the workshops will be made available on the Antitrust Division's web site at www.usdoj.gov/atr.


SOURCE U.S. Department of Justice
 
Senator Bernie Sanders on an Ag Warpath
Submitted by Editor on Fri, 08/07/2009 - 11:21am.


Steve Taylor
New England Correspondent

BURLINGTON, Vt. — Vermont's U.S. Sen. Bernie Sanders (I-Vt.) wants a federal antitrust investigation of dairy giant Dean Foods, a second increase in USDA's support price for cheese and tighter quality standards for milk going into processing plants.

And those are just the beginnings as his point person on agricultural policy, Jennifer Nelson, explained this week as the dairy industry in Vermont and across the Northeast continued to wobble under depressed milk prices and rising costs.

"Bernie is mounting a broad assault, and he's leaving no stone unturned," Nelson said. A partner in a Ryegate, Vt., dairy farm, Nelson has been on Sanders' staff for the 11 years during which he has served in Congress and, since 2006, the U.S. Senate.

Sanders wants the U.S. Justice Department to look into Dean Foods, the Dallas-based company that markets milk and dairy products under more than 50 different brands and which controls as much as 70 percent of the fluid milk trade in the New England area, primarily through its Garelick Farms brand.

Nelson said Sanders is formalizing a request to the head of antitrust enforcement in the Obama Administration, Christine Varney, to determine if Dean Foods is controlling the regional milk market and to look into broader issues of consolidation and anticompetitive practices in the dairy industry.

Varney has indicated she will take harder line on antitrust enforcement than predecessors in the Bush and Clinton Administrations.

Sanders over the past three weeks has engaged in spirited communication with Gregg Engles, CEO of Dean Foods. Sanders invited Engles to come to Vermont to explain how its prices are set, but so far Engles has declined.

In a letter to Engles, Sanders wrote, "It is our understanding that Dean Foods controls large portions of the market for fluid milk in a number of regions of the United States. It controls 90 percent in Michigan, about 80 percent in Massachusetts, 80 to 90 percent in Tennessee, 70 percent in New England, over 80 percent Northern Alabama and over 70 percent in Northern New Jersey."

Such dominance puts Dean Foods in a powerful position to affect prices throughout the dairy market chain, Sanders argued.

Engles responded by saying the farm milk price decline is "part of the cyclical nature of the dairy industry" and not the fault of Dean Foods.

"Along with our customers and consumers, we need these farmers' businesses to be healthy over the long term," Engles wrote.

But Sanders shot back that "For him to say they have no control over milk price is absolutely absurd." Dean Foods posted earnings of $76 million for the first quarter of 2009, up from $30.8 million in the comparable period a year earlier, while Engles has received compensation averaging $21 million annually over the past six years.

While Sanders was skirmishing with the Dean CEO, he was also calling on USDA Secretary Tom Vilsack to schedule hearings and proceed to modify the federal milk marketing order pricing system to achieve an $18 per hundredweight blend price, which he said would save U.S. taxpayers by eliminating Milk Income Loss Contract (MILC) payments.

"This would come only at the expense of a small handful of processors who continue to make record profits while dairy farmers are going out of business," Sanders wrote Vilsack.

Sanders wants Vilsack to lower the somatic cell count (SCC) standard to 450,000 and to bar Grade B milk for human consumption from the market.

Shipment of canola meal from Canada that's been embargoed should be resumed promptly to help lower grain prices, and USDA should increase purchases of hamburger for nutrition programs to strengthen cull dairy cow prices.

Sanders wants Vilsack to consider supporting legislation to better regulate to importation and use of milk protein concentrates (MPC) that are displacing domestic milk. And he wants the federal Commodities Futures Trading Commission to examine the Chicago Mercantile Exchange's dairy commodity trading and its use by USDA in setting farm milk prices.

As Nelson explains Sanders' multi-pronged dairy crusade to Vermont farm groups she says achieving regional food security and preserving the infrastructure that supports agriculture should be paramount public policy goals in the Northeast.

"While dairy is hurting badly, we need to keep in mind that other areas of agriculture here are doing a lot better and farms numbers are growing. But we need to make sure all sectors are healthy."
 
USDA/DOJ: ag competition issues
Aug 12, 2009 10:11 AM, From the USDA

Agriculture Secretary Tom Vilsack and Attorney General Eric Holder have announced that the U.S. Department of Agriculture (USDA) and the Department of Justice (DOJ) will hold joint public workshops to explore competition issues affecting the agriculture industry in the 21st century and the appropriate role for antitrust and regulatory enforcement in that industry.

These are the first joint USDA/DOJ workshops ever to be held to discuss competition and regulatory issues in the agriculture industry.

The workshops will address the dynamics of competition in agriculture markets including, among other issues, buyer power (also known as monopsony) and vertical integration.

They will examine legal doctrines and jurisprudence and current economic learning, and will provide an opportunity for farmers, ranchers, consumer groups, processors, the agribusinesses, and other interested parties to provide examples of potentially anticompetitive conduct.

The workshops will also provide an opportunity for discussion for any concerns about the application of the antitrust laws to the agricultural industry.

The goals of the workshops are to promote dialogue among interested parties and foster learning with respect to the appropriate legal and economic analyses of these issues as well as to listen to and learn from parties with real-world experience in the agriculture sector.

"It is important to have a fair and competitive marketplace that benefits agriculture, rural economies and American consumers," said Vilsack. "The workshops … will allow a dialogue on very important issues facing agriculture today."

"Maintaining a robust agricultural sector is crucial to the strength of the American economy and to who we are as a nation," said Holder. "Through the dialogue established in these workshops and, ultimately through our actions, we are committed to ensuring that competition and regulatory actions benefit all American consumers and businesses."

The first workshop will be held in early 2010. While some of the workshops may be held in Washington, D.C., others will be held regionally. The Department of Justice and USDA are soliciting public comments from lawyers, economists, agribusinesses, consumer groups, academics, agricultural producers, agricultural cooperatives, and other interested parties.

"For the first time ever, farmers, ranchers, consumers groups, agribusinesses and the federal government will openly discuss legal and economic issues associated with competition in the agriculture industry," said Christine A. Varney, assistant attorney general in charge of the DOJ's Antitrust Division. "This is an important step forward in determining the best course of action to address the unique competition issues in agriculture."

USDA and Department of Justice are interested in receiving comments on the application of antitrust laws to monopsony and vertical integration in the agricultural sector including, the scope, functionality, and limits of current or potential rules. USDA and Department of Justice are also inviting input on additional topics that might be discussed at the workshops, including the impact of agriculture concentration on food costs, the effect of agricultural regulatory statutes or other applicable laws and programs on competition, issues relating to patent and intellectual property affecting agricultural marketing or production, and market practices such as price spreads, forward contracts, packer ownership of livestock before slaughter, market transparency, and increasing retailer concentration.

The public and press are invited to attend the hearings. Additional information about the date, time and location of the workshops will be provided at a later date. Interested parties should submit written comments in both paper and electronic form to the Department of Justice no later than Dec. 31, 2009. All comments received will be publicly posted. Two paper copies should be addressed to the Legal Policy Section, Antitrust Division, U.S. Department of Justice, 450 5th Street, N.W., Suite 11700, Washington, D.C. 20001.

The Department's Antitrust Division is requesting that the paper copies of each comment be sent by courier or overnight service, if possible. The electronic version of each comment should be submitted to [email protected].

Detailed agendas and schedules for the workshops will be made available on the Antitrust Division's web site at www.usdoj.gov/atr.
 
At least they're not calling them listening sessions. Maybe that means they really will listen.
 
More additional topics that might be discussed at the workshops, including the impact of agriculture concentration on food costs, the effect of agricultural regulatory statutes or other applicable laws and programs on competition, issues relating to patent and intellectual property affecting agricultural marketing or production, and market practices such as price spreads, forward contracts, packer ownership of livestock before slaughter, market transparency, and increasing retailer concentration.

Maybe we can get a few licks in on PACKER OWNERSHIP !
 
PORKER said:
More additional topics that might be discussed at the workshops, including the impact of agriculture concentration on food costs, the effect of agricultural regulatory statutes or other applicable laws and programs on competition, issues relating to patent and intellectual property affecting agricultural marketing or production, and market practices such as price spreads, forward contracts, packer ownership of livestock before slaughter, market transparency, and increasing retailer concentration.

Maybe we can get a few licks in on PACKER OWNERSHIP !
Click to expand...

In the end, we need courts and judges to do their jobs and not cater to the big money. If there were just a hand full of judgments that were actually paid in these producer lawsuits, many of these problems would disappear over night.

The problem is that we have the best judges money can buy. It is a case of market failure.

Tex
 
Russ Feingold WI on Criminal Action in Agriculture

At a time when thousands of family dairy farms of all sizes are struggling with low prices for milk and relatively high costs, consumers in many cases are not seeing lower prices for milk and dairy products in stores. In her March confirmation hearing, I raised this issue with Christine Varney, who is now head of the Department of Justice Antitrust Division, and received a commitment to investigate whether the increasingly consolidated middlemen are keeping undue profits.

I also think the USDA and Department of Justice should work together to examine competition in the dairy industry. That is why I am pleased that, at my urging, they are planning to do just that, and consider what actions can be taken to crack down on any abuses.

I will continue to fight for vital short-term assistance for dairy farmers, and also push for important steps to aid the long-term health of the industry that means so much to our state.

-- Feingold,
 
USDA official promises tough, fair enforcement of Packers and Stockyards Act

Dan Looker
Successful Farming magazine Business Editor

8/10/2009, 1:17 PM CDT



'Common horse sense'

J. Dudley Butler, a Mississippi lawyer tapped by the Obama administration to run USDA's Grain Inspection, Packers and Stockyards Administration, Friday promised an active approach to enforcing a 1921 law intended to prevent unfair price discrimination when packers buy livestock from producers.

The 2008 farm bill mandates that GIPSA write rules to clarify enforcement of the law, which critics as prominent at Senator Chuck Grassley (R-IA) say has not been carried out vigorously under both Democratic and Republican administrations.

"I came to Washington to work, that's what I'm going to do and I am going to enforce the Packers and Stockyards Act," Butler said while speaking to the Organization for Competitive Markets at their annual meeting in St. Louis.

The 10-year-old group has had tough setbacks in its efforts to increase competition among meat packers. It offered support to a class action suit, Picket V. Tyson Fresh Meats, Inc, that alleged unfair pricing practices in paying cattle feeders. A Federal appeals court overturned a Jury verdict in favor of the feeders, arguing that they couldn't prove economic harm to society. Butler was applauded when he said he disagreed with that reasoning.

"We want to be able to protect one farmer, 10 farmers or 100 farmers," he said. "But if you've got one man that's been mistreated how can you prove that it had an adverse effect on the economy?" Although the Act has some similarities to antitrust laws, it's not the same and is meant to remedy unfair practices, he said.

Yet Butler provided no details on new Packers and Stockyards Act rules that the 2008 farm bill mandates. He said a draft of the rules will be published this fall to seek comments from the public.

"They're going to be broad. They're going to cover every segment of the industry. I can't say I'm going to make everybody happy and I can't say I'm going to make everybody mad," he said.

"I truly believe that if you're going to regulate, authority has to be tempered with, as my dad used to say, common horse sense," he said.

"We know that we have an imbalance of power in some industries," he added.

On the issue of vertical integration in the livestock industry, he compared it to a western movie scene of stampeding cattle. "It's kind of like the stampeding herd. It's headed toward the cliff. And the cowboys jump on their horses and they try to turn the herd. Well we can't turn the herd on poultry so we have to look at that from the standpoint of dealing what we have to deal with."

"The hog industry is getting closer to the cliff, but I still think we can turn the herd," he added.

He said the new rules will be designed to fit different parts of the livestock industry. "One size fits all does not work when you're writing regs."
He also encouraged livestock producers and others to write comments on the new rules, not only because it informs GIPSA, but also because USDA can use that information to justify its rules if someone sues to strike them down. That's why comments "are probably the most important thing you can do," he said.
 
PORKER said:
USDA official promises tough, fair enforcement of Packers and Stockyards Act

Dan Looker
Successful Farming magazine Business Editor

8/10/2009, 1:17 PM CDT



'Common horse sense'

J. Dudley Butler, a Mississippi lawyer tapped by the Obama administration to run USDA's Grain Inspection, Packers and Stockyards Administration, Friday promised an active approach to enforcing a 1921 law intended to prevent unfair price discrimination when packers buy livestock from producers.

The 2008 farm bill mandates that GIPSA write rules to clarify enforcement of the law, which critics as prominent at Senator Chuck Grassley (R-IA) say has not been carried out vigorously under both Democratic and Republican administrations.

"I came to Washington to work, that's what I'm going to do and I am going to enforce the Packers and Stockyards Act," Butler said while speaking to the Organization for Competitive Markets at their annual meeting in St. Louis.

The 10-year-old group has had tough setbacks in its efforts to increase competition among meat packers. It offered support to a class action suit, Picket V. Tyson Fresh Meats, Inc, that alleged unfair pricing practices in paying cattle feeders. A Federal appeals court overturned a Jury verdict in favor of the feeders, arguing that they couldn't prove economic harm to society. Butler was applauded when he said he disagreed with that reasoning.

"We want to be able to protect one farmer, 10 farmers or 100 farmers," he said. "But if you've got one man that's been mistreated how can you prove that it had an adverse effect on the economy?" Although the Act has some similarities to antitrust laws, it's not the same and is meant to remedy unfair practices, he said.

Yet Butler provided no details on new Packers and Stockyards Act rules that the 2008 farm bill mandates. He said a draft of the rules will be published this fall to seek comments from the public.

"They're going to be broad. They're going to cover every segment of the industry. I can't say I'm going to make everybody happy and I can't say I'm going to make everybody mad," he said.

"I truly believe that if you're going to regulate, authority has to be tempered with, as my dad used to say, common horse sense," he said.

"We know that we have an imbalance of power in some industries," he added.

On the issue of vertical integration in the livestock industry, he compared it to a western movie scene of stampeding cattle. "It's kind of like the stampeding herd. It's headed toward the cliff. And the cowboys jump on their horses and they try to turn the herd. Well we can't turn the herd on poultry so we have to look at that from the standpoint of dealing what we have to deal with."

"The hog industry is getting closer to the cliff, but I still think we can turn the herd," he added.

He said the new rules will be designed to fit different parts of the livestock industry. "One size fits all does not work when you're writing regs."
He also encouraged livestock producers and others to write comments on the new rules, not only because it informs GIPSA, but also because USDA can use that information to justify its rules if someone sues to strike them down. That's why comments "are probably the most important thing you can do," he said.
Click to expand...

The problem in the poultry industry is that there has been NO ENFORCEMENT of the economic laws of the Packers and Stockyards Act.

Consequently, packers or integrators as they are known in the industry, have competed on the value that should rightfully be owned by the producers but has been taken by the abuse of market power by the integrators. Poultry packers or integrators have been given a national market to sell to but allowed to treat each plant differently. They have successfully created local buying markets with their monopsonies and are still allowed to sell to a national market. The industry has been consolidated off of producer's backs and a consequent over supply has hounded that industry while they compete with the red meats with these advantages.

Enforcement will have to include a look at all the meats together, not as a segment, especially since the packers are integrated into the other meat sectors.

Tex
 
J. Dudley Butler, a Mississippi lawyer tapped by the Obama administration to run USDA's Grain Inspection, Packers and Stockyards Administration, Friday promised an active approach to enforcing a 1921 law intended to prevent unfair price discrimination when packers buy livestock from producers.

Maybe he can start anew as the last one JoAnn Waterfield was a criminal...........
 
Loophole in commodities trading closed 21 Aug 2009

The American Feed Industry Association is extremely pleased to learn of a decision this week by federal regulators to close a loophole that permitted certain types of highly speculative trades in agricultural commodities to occur.

The loophole was a significant factor leading to dramatic price increases in commodities such as corn, soybeans and wheat in early 2008.

The Commodity Futures Trading Commission on Aug. 19 said it would close the loophole by withdrawing two "no-action" letters that had resulted in Deutsche Bank and another investment firm exceeding speculative position limits on corn, soybeans and wheat.

The CFTC's action is a good first step toward ensuring dramatic price increases will be less likely to occur in the future as a result of this particular type of trading, according to Joel G. Newman, AFIA president and CEO.

"I believe that position limits should be consistently applied and vigorously enforced," CFTC Chairman Gary Gensler said in an agency news release. "Position limits promote market integrity by guarding against concentrated positions."

AFIA members identified this situation as one of six factors that contributed to last year's most dramatic rise in commodity prices in history. "This is a critical issue that is within our control and should be addressed," Newman said.

"We look forward […] to implement the remaining rule-making and legislative corrections to ensure the commodity markets remain effective tools for customers in agriculture and other industries to establish market prices and hedge against the risk of long-term commodity purchases."
 
Another burst bubble that came about because regulators "on an 8 year coffee break" allowed trading to become "casino gambling" ....

Wheat producers wary of futures market after '08's price collapse
By TOM LUTEY Of The Gazette Staff | Posted: Sunday, August 23, 2009 12:30 am



Last year at this time, Montana was cutting its first $1 billion wheat crop. It should have been cause for celebration, but farmers were nervous.

Grain prices that had quadrupled earlier in the year were heading downward. Fertilizer and fuel prices were racing upward through would-be profits like fire running up a rope. There had been a fragile bubble growing in the grain markets, inflated largely by a new crop of speculators flipping contracts for wheat.

"They were playing poker on the Chicago Board of Trade with our livelihoods," said Sen. Jon Tester, D-Mont.

Tester, who farms wheat near Big Sandy, knows the bubble's aftermath. Assured that high profits would last, farmers added extra zeroes to checks written and loans borrowed for business costs throughout 2008. By fall, farmers planting winter wheat were realizing that their crop wasn't even going to bring enough money to cover the cost of nitrogen, which had doubled over summer.

With prices crashing back to earth, there will be no $1 billion harvest in Montana this year. Profit margins will be razor thin, and some winter wheat farmers won't break even.

In light of the price collapse, the Senate Permanent Subcommittee on Investigations, on which Tester sits, is calling on commodities regulators to rein in excessive speculation in the wheat futures markets.

Betting on the farm, the subcommittee concluded, gave agriculture its own taste of toxic trading and contributed to a 10 percent increase in grocery prices on pasta, cereal and breads. And it more than doubled the inflationary rate for other food products. Rural farm states like Montana, where agriculture is the No. 1 industry, escaped the consequences of risky mortgage trading. They weren't so lucky with futures speculation, which the government now concludes created unwarranted costs and risks for farmers, grain elevators, millers and shoppers.

Futures contracts influence the price of everything, from $4-a-gallon gas to $3 loaves of bread, to breakfast cereal boxes that seem only to get smaller as the prices rise. And last year, as index traders flocked to futures to support hedge funds and pension accounts, the futures market took Americans for a hell of a ride.

The number of futures contracts for wheat, corn and oil shot upward, creating the illusion that demand was much higher than it truly was. Food essentials like wheat and corn more than tripled in price. Fuel doubled, and the daily cost of American life took a hit.

For a look at how that speculation in the commodities markets affected the economy of the West, consider farmers like Helen and Gordy Waller.

Married 57 years, the Wallers farm dryland prairie a mile and a half from Circle, where Gordy was born. The land is marginal and in spots extremely dry, tough soil from which to extract a living, let alone raise five children. Here, clouds can pass over for more than a month without shedding a drop of rain. Then without warning, a seam will rip in the bruised, gray curtain and the land directly below takes a big drink while the remainder of the field remains parched.

"We might get 20 bushels in some patches, might get 30 in others, might get 40 in some," Helen Waller said. "It didn't rain at all this year until the last month or so. We didn't get any in June."

Such variables in farming can make a roulette wheel seem like a sure bet. So the Wallers turn to the futures market to determine months ahead of harvest what they might be paid for their crop. It is their crystal ball, allowing them to engage in what the market calls "price discovery." They look at contracts made months in advance for the future delivery of a specific quality of the grain, at a particular time, in a particular amount, for a specific price. Then they match that information to their own expected harvest date and grain. It's what helps the Wallers determine how big of an operating loan they can take from the bank.

On weekends, when truck bumpers crusted in road dust and grasshoppers line the parking rows of Billings' shopping centers, it's because someone is confident the price they'll be getting for their crop in the fall is strong enough to support the trip.

At the nation's three large commodities markets for grain, thousands of contracts are traded daily. Those contract prices reflect the confidence of buyers certain they're paying the right rate for wheat, either for eventual delivery or for reselling the contract at a profit to yet another buyer.

When the market works, futures prices come close to predicting the actual cash price paid by mills and elevators across the country when crops come in. The futures market getting the cash price right within a few cents is crucial to the nation's food economy.

"It's very much a factor, and our producers watch it every day," said Lola Raska, Montana Grain Growers Association executive vice president. "The futures market is how all cash prices are determined."

Fast-food businesses, farmers and ranchers buying grain feed for cattle are all leery of spending more on raw food expenses than they'll eventually earn on whatever they produce. When the cash price of the day is significantly less than what the futures price predicted months ahead for that day, it means the people who bought wheat on future contract paid too much - in some cases, enough to wipe out years of profits.

"We lost millions of dollars last year when the market was tanking," said Roger Johnson, who last year as North Dakota agriculture commissioner oversaw finances for the largest flour mill and elevator in the United States.

From April to December of 2008, the North Dakota State Mill and Elevator lost $21 million as futures contracts it bought as a safety net turned out to be priced $2 to $3 a bushel more than the cash price. More than a loss to the mill, the losses hit the state budget. North Dakota built the mill 87 years ago in response to its farmers' being low-balled on grain prices by railroads and Minneapolis mills. Half the mill's profits go to the state general fund.

It wasn't the first time the state mill held an overvalued futures contract, but normally the difference between the cash price and the futures prices is about a dime a bushel.

"I would bet there are a lot of people who will need a number of years to dig out from last year's prices," Johnson said. "I know the losses at the mill were greater than many years of profits."

The assumption when contracts were traded, Johnson said, was that futures prices were accurately forecasting the eventual cash price for wheat, a simple forecast of future supply and demand.

But demand wasn't driving the market. The Senate Permanent Subcommittee on Investigations concluded that a few index traders, allowed by regulators to buy more contracts than normally permitted, locked in grain they really didn't want. Traders wanted contracts that could be resold at a profit. At the height of the market frenzy, they held 220,000 contracts, roughly half the paper moving through the Chicago Board of Trade. The trade engine, intended to reflect grain's true value, worked more like a fun house mirror.

For grain buyers like Jason Maisch of Great Harvest Bread Co., it was impossible to determine what was behind the high prices. Crop conditions and grain reserves throughout the world suggested a real wheat shortage, making it probable that record high prices truly were resulting from supply and demand.

"There were a lot of disasters around the world, with the Australian crop, the Egyptian crop," Maisch said. "The price was still in the $12 range, and there was a scare in the white flour market. But talking to millers, they said, 'No, we're not going to run out of white flour, we're fine.' Still, the price kept going up."

Great Harvest doesn't buy its bread on the futures market. It purchases grain directly from farmers in Montana's Golden Triangle. Maisch scrutinizes each farm's grain, fresh grinds it into flour and bakes it to see if it passes muster. The grain that is approved is distributed raw to more than 220 stores nationwide, where it is ground fresh daily.

The bakery still has to be competitive with whatever the futures market offers.

For Maisch, the rise in futures prices was meteoric, from slightly more than $6 a bushel in the fall of 2007 to $24 a bushel in March 2008. Great Harvest steered clear of the highest price but bought a lot of wheat in the $9-a-bushel range. In the worst days of the futures market, Maisch believes speculators might have driven up the price $11 to $14 a bushel, an astronomical amount for grain that in May 2007 sold for $4.86 a bushel.

There's a limit to how much of grain's inflated price can be passed on to consumers. Consequently, bread companies like Great Harvest have been slowly recovering from the price bubble.

Farmers had a different reaction to the market, Maisch said. Expecting another record ramp up, like the one created by the futures bubble in 2008, some held on to their 2008 crop after prices dropped, hoping to sell when the market skyrocketed again. It didn't.

"One of the unfortunate things going on this year is these growers have been very bullish and holding on and holding on, waiting for a better price." Maisch said. "Right now, there's a lot of wheat left to move from last year. Now, the market has been bearish, and I think it's going to continue to go down."

Roger Johnson resigned his state agriculture post to become president of the National Farmers Union, where he is advocating for market reform.

"Unfortunately, as speculators created this market bubble, many farmers ended up locking in higher input and feed costs," Johnson said. "Now, following the market collapse, farmers and ranchers are struggling to pay these higher costs, and rural communities, in turn, are feeling the pinch."

Johnson said the futures market should be transparent, so farmers know when speculation, not demand, is driving up prices.

Tester and members of the Senate Permanent Subcommittee on Investigations want the Commodities Futures Trading Commission to stop allowing traders to buy more contracts than rules allow. They've also told regulators to begin looking at other food commodities for speculation symptoms.

Helen Waller would like to see only farmers and true wheat buyers entering futures contracts. But economists say speculators are essential. The market needs people willing to risk their money in hopes of profiting from commodities. Those people buy contracts for grain that otherwise wouldn't sell. And those sales make it much more difficult to push the market price around under normal conditions.

"You need all those players, and they serve many functions," said J.C. Hoyt, of CashGrainBids.com, a Bozeman company that tracks cash prices at elevators nationwide.

Hoyt said the reforms are in order, but any change to the market will affect the strategies of investors. The futures market won't simply be more stable as a result of reforms; it will just be different.

Gary Brester, an agriculture economist at Montana State University, said blaming the futures market for losses is no more reasonable than a gambler blaming misfortunes on a casino. Bester's standard advice is for farmers and buyers alike to find a price they can live with and not chase the higher profits. The futures market was intended to reduce risk. Only when people began chasing higher profits did the market derail.

"If you're there to reduce your risk, you will not lose the farm on that deal. You might lose, but you won't lose the farm," Brester said. "Everyone in this community that says it's the futures market's fault. They were not in the market hedging, they were speculating."

http://billingsgazette.com/news/state-and-regional/montana/article_aac32494-8f8c-11de-b7c3-001cc4c03286.html
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"Tester and members of the Senate Permanent Subcommittee on Investigations want the Commodities Futures Trading Commission to stop allowing traders to buy more contracts than rules allow. They've also told regulators to begin looking at other food commodities for speculation symptoms."


Someone should be in jail for allowing the market to be cornered in this way. Why weren't the limits enforced? What are "limits" if there is no enforcement of them?

I was talking to a farmer who went in with other farmers and invested in an ethanol plant before all this happened. I asked him this year what happened with his investment in the plant and he told me that ADM now owns the plant.

Can we allow the markets to manipulated in such a way that the oligarchs end up with all of the profitable assets like ethanol plants?

The Commodities Futures regulators need to be investigate to see if their incompetence in enforcing trading limits was an organized crime activity to corner the market and steal assets. We have had such incompetence in all of our regulatory agencies. We can not let ANY political party to use their power of governance to enrich their friends or campaign donors.

Tex
 
We had two ethanol plants in Michigan that were farmer built and lost to the bigg boyys. Now we have a third being builth in North Star Mich. which is built by the farmers themselves ,no banks, no outsiders, and no consulants from the ethanol industry and maybe be we can run it like a farm this time. Even didn't use any gov. funds. Lots of companies want to do the marketing but the farm group told the to kiss off and get in the middle of the road.
 
Cinch: "At least they're not calling them listening sessions. Maybe that means they really will listen."
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What would benefit this industry the most is having industry experts and self proclaimed industry experts having an open ended debate on factors that affect live cattle prices which in turn affect feeder cattle prices.

I would pay to watch Herman and Johnny try to defend their market manipulation conspiracy theories against the facts of corn price fluctuations, boxed beef price fluctuations, consumer demand for beef, beef supplies relative to pork and poultry, imports and exports affecting beef supplies and demand for beef and beef by products, etc. etc.

That would certainly have more value than the "YOU GOTTA ENFORCE THE PACKERS AND STOCKYARDS ACT" (but don't ask me to prove what I want to believe about market manipulation) chronic complaining sessions that I have attended.



~SH~
 
~SH~ said:
Cinch: "At least they're not calling them listening sessions. Maybe that means they really will listen."
Click to expand...

What would benefit this industry the most is having industry experts and self proclaimed industry experts having an open ended debate on factors that affect live cattle prices which in turn affect feeder cattle prices.

I would pay to watch Herman and Johnny try to defend their market manipulation conspiracy theories against the facts of corn price fluctuations, boxed beef price fluctuations, consumer demand for beef, beef supplies relative to pork and poultry, imports and exports affecting beef supplies and demand for beef and beef by products, etc. etc.

That would certainly have more value than the "YOU GOTTA ENFORCE THE PACKERS AND STOCKYARDS ACT" (but don't ask me to prove what I want to believe about market manipulation) chronic complaining sessions that I have attended.



~SH~
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SH, indeed there are other factors that influence the price of cattle but that should never negate economic laws that do not allow price signals to properly be passed on due to market power held by packers. Nice try though.

Perhaps you could work on this since you don't know a thing about economics, the law, or competitive price signals.

Tex
 

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