Market volatility creates uncertainty for farmers, ranchers

Thursday, April 24, 2008 2:48 PM MDT

BOZEMAN, Mont. - Sky-high futures prices might sound like farmers are harvesting plenty of money, but that’s not really the case.

American Farm Bureau President Bob Stallman presented the views of farmers and ranchers nationwide when he addressed the Commodity Futures Trading Commission (CFTC) today at a hearing in Washington, D.C., that included a range of individuals representing organizations interested in the success and stability of agricultural markets.

“Federal regulators must keep a close eye on the situation, engage as needed and be ready to consider reform measures,” Stallman told CFTC members. “We have witnessed extreme price volatility, expanding and volatile cash/futures basis relationships, and the difficulty of hedgers to meet margin calls,” Stallman said. “In addition, the role of speculative and commodity-index-related trading in agriculture futures markets, while growing for some time, has reached historic levels and added to the uncertainty in these markets.”

Montana Farm Bureau President Dave McClure echoed those sentiments.

“The volatile markets have affected the cash and futures markets where farmers and ranchers sell their grains, oilseeds, cotton and livestock," he said. "It’s difficult enough to be in the farming business and deciding what to plant when, and be at the whim of Mother Nature, but when you have to become a day-trader whiz to market your crops in an extremely volatile market, the task can be almost impossible, and potentially devastating, for many.”

In March, traders expected wheat prices to swing up or down by more than 72 percent in the coming year n three times the average volatility for that month and the highest level since at least 1980. The price swing expected in March for soybeans was three times the historical monthly average, as well, while the expected volatility in corn prices was twice its monthly average.

“For the futures markets to fill their role in helping everyone discover the appropriate value of commodities, the cash and futures markets need to converge at the end of the contract period in some consistent fashion," McClure concluded. "Otherwise, the futures markets are no different than a no-limit poker game in which farmers who can only put $100 in the pot are being driven out of the game by speculators who can bet 100 times as much."

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