Johanns Introduces Bipartisan Legislation to Help Ag Producers, Small Businesses Manage Their Risk
WASHINGTON – U.S. Sens. Mike Johanns (R-Neb.) and Jon Tester (D-Mont.) are leading a bipartisan coalition of Senators in introducing a bill to clarify the exemption for farmers, ranchers, manufacturers and small businesses from margin requirements included in the Dodd-Frank financial legislation. These exempted groups, known as end-users, use derivatives to manage their risk and insure against extreme price fluctuations for commodities and inputs – like seed and fertilizer – critical to their business operations.
Johanns said, “Farmers, ranchers and businesses use every tool available to responsibly protect themselves and their customers from unforeseen risks like drought or fluctuations in fuel, fertilizer or commodity prices. Our bipartisan legislation allows these local businesses to continue doing that without battling burdensome and costly margin requirements meant to cover day-traders playing the markets.”
Tester said, “This bill ensures that Montana farmers and ranchers can continue to effectively manage risks, protect their livelihoods, and provide for their families. Smart risk management strengthens our economy, and this bill clarifies Congress’ intent to give small businesses the flexibility and certainty they need to successfully run their businesses.”
Text of the Johanns-Tester bill is available HERE.
Joining Johanns and Tester are Sens. Roy Blunt (R-Mo.), Mike Crapo (R-Idaho), Joe Donnelly (D-Ind.), Kay Hagan (D-N.C.), Heidi Heitkamp (D-N.D.), Amy Klobuchar (D-Minn.), Jerry Moran (R-Kan.), Richard Shelby (R-Ala.), Pat Toomey (R-Pa.), and Mark Warner (D-Va.).
The bill is identical to H.R. 634, which today unanimously passed the House of Representatives’ Financial Services Committee. It clarifies current law by making explicit that commercial end-users are not subject to costly margin requirements, consistent with Congress’ intent in Dodd-Frank.
End-users are the final user of a good or product. Ranchers, for example, could purchase derivatives contracts on corn in advance of the harvest to protect themselves against unforeseen market fluctuations. Dodd-Frank included margin requirements forcing non-end-users and those speculating on market prices to post margin to cover the risks associated with their derivative purchases.
Dodd-Frank included an exemption for non-financial end-users based on the low risks they pose to the financial system. Despite Congress’ intent, there has been a debate over how broadly the exemption would apply. The Commodity Futures Trading Commission and Securities and Exchange Commission previously issued a joint rule that would exempt end-users from margin, but the Federal Reserve has issued regulations that would capture many end-users in their regulations.