The first day of May was a watershed moment for agricultural markets, farmers and ranchers. May 1 marked the end of live trading at the Chicago Mercantile Exchange and its subsidiaries, the Chicago Board of Trade, the Kansas City Board of Trade, and the New York Mercantile Exchange.
In March 2020, commercial stands were temporarily closed as a health precaution due to COVID-19. I think we can agree that it was a reasonable decision. However, these entities have gone too far in action.
While there is one advantage to e-commerce – speed – it also has drawbacks for family farmers. In agriculture, producers are at the mercy of agricultural markets, which are listed on the stock exchange. For example, when we negotiate contracts for our calves with a fall delivery date, my feedlot always looks at the fat cattle prices on the futures board for the spring of the following year. The same feedlot uses the futures commission to buy grain that feeds my calves.
I spoke with commodity brokers in other states and asked for their advice on e-commerce only. The biggest concern I heard was the lack of a direct person between buyer and seller in the transaction. Currently, fund traders can configure their computers with algorithms to continuously buy and sell commodities.
The dynamics of the market and the rules that govern it have changed over the years. In the 1970s, individual investors were limited to 600 options positions. As time went on, the regulation increased to 1200, then it became 2400. Now an unlimited number of options is the norm. This leads to higher volatility and larger price fluctuations. The CME is a for-profit company; the more exchanges there are, the greater the income of the CME. But we have to keep in mind that the market is moved by people who do not own cattle and do not harvest grain.
Another problem is that the CME group is almost a monopoly. There are only two commodity exchanges in the United States that the CME Group does not own. Atlanta-based Intercontinental Exchange specializes in energy markets and the Minneapolis Grain Exchange focuses on grains, but specializes in wheat. Other U.S. agricultural products, including livestock and dairy products, are traded only with the CME group. This places the financial livelihoods of agricultural producers in the hands of a single company and the rules that CME deems profitable for their shareholders. As all agricultural producers have learned, the less competition there is, the more farm prices go down.
If you are a company like General Motors, your stocks are traded the same way as commodities. However, GM does not sell pickup trucks and cars on the stock exchange. They price vehicles at a profit based on their costs. However, this system does not work the same for family farms and ranches. It is our production that is sold on the basis of CME prices. Farmers can ask for a price, but the reality is that buyers will look at CME’s futures prices before making a deal.
I think it’s time for producers to start discussing with their elected officials the best approaches to protect farmers from abusive markets, which allow algorithms to automatically buy and sell produce in the blink of an eye. I reached out to both of my senators to help ensure that the people who grow food for American tables are treated fairly in this new computerized commodity trading system.
âBruce Shultz, Raynesford, MT, is vice president of the National Farmers Organization.