WASHINGTON -- Rep. Jo Ann Emerson, R-Mo., told Commodity Futures Trading Commission Acting Chairman Walt Lukken July 10 that the CFTC's inability to figure out what is going on in the grain markets is leading some to wonder whether the commission can do its job.
The CFTC is a federal government agency that regulates the grain, energy and financial futures markets. As energy and agriculture prices have risen, some critics have contended that speculation in the markets has caused prices of oil and agriculture commodities to rise higher than market fundamentals would indicate. Several congressional committees have held hearings in recent weeks to determine whether the charges are true and whether the CFTC has done its job.
Lack of convergence
At a House Agriculture Appropriations Subcommittee oversight hearing on the CFTC, Emerson said she gets about 20 calls per day from farmers who are having trouble forward contracting grain because elevator operators are worried that grain futures prices may be inaccurate since futures and cash prices have not been converging at the time of delivery.
Lukken said the CFTC is trying to figure out how to resolve the lack of convergence. But Emerson said, "We can't just continue to study and study. The problem of convergence worries me and doesn't inspire confidence in the CFTC's ability to regulate other markets such as energy."
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Lukken testified at what House Agriculture Appropriations Subcommittee Chairman Rosa DeLauro, D-Conn., said was the subcommittee's first oversight hearing on the CFTC in 9 years. DeLauro and other members of the subcommittee told Lukken they are intensely frustrated at the CFTC's slowness in responding to concerns about whether speculation may be driving energy and agricultural commodity prices higher than market fundamentals would indicate.
Lukken said the CFTC has asked critics who think speculation is driving up prices to provide their data, but so far the agency has still has found "no evidence speculation is broadly driving these prices." DeLauro said she found it "disturbing" that Lukken has not addressed any of the critics' views' in his testimonies before Congress.
All are affected
DeLauro's subcommittee provides the CFTC with its budget. DeLauro said she was holding the hearing because all the American people are affected by high energy and agriculture prices. Recalling previous financial scandals such as Enron, the savings and loan institutions, and housing, DeLauro said that when federal regulators do not do their job, "The bubble bursts and the consumers and the taxpayers pay the bill."
In his testimony, Lukken listed the investigations and research projects the agency has recently announced, but DeLauro said the agency's plans not to report to Congress until Sept. 15 "begs the question" of why it has been so slow to respond. Lukken acknowledged that over the counter contracts have made it difficult for regulators to determine the total amount of index trading occurring in the energy markets and is investigating that, but Rep. Maurice Hinchey, D-N.Y., said, "You're not addressing them in any real way. We need your operation to be clearer about this."
Lukken thanked the subcommittee for increasing the agency's appropriation to $135 million for fiscal year 2009 that begins Oct. 1, but praised the Senate Appropriations Financial Services and General Government Subcommittee for providing even more money, $157 million for fiscal year 2009. As the volume of trading has increased and concerns over high energy and food prices have risen, the CFTC "has risen to the occasion" despite a smaller staff Lukken said, but cannot sustain the current workload without more hires.
Funding
De Lauro noted that for fiscal year 2008, the Bush administration had proposed that the CFTC be funded entirely through user fees, but that Congress had rejected that idea and provided the agency's funding through general appropriations. She added that President Bush's budget request for the CFTC for fiscal year 2009 was $130 million and the subcommittee has never received a formal request from the administration or the agency for more money.
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Lukken replied that the CFTC had asked the Office of Management and Budget for $151 million and, as required by law, had shared that information with the subcommittee, even though OMB agreed to only the $130 million. After the 2008 farm bill gave the CFTC additional regulatory responsibilities, the agency asked the House and Senate subcommittees for $6 million more, bringing the total to $157 million.
But DeLauro replied that the only communication her subcommittee received about the $6 million was an email.
"Why now?" DeLauro asked. "Erosion does not occur overnight. Where have you been?"
