American Bakers Association 

&rving rht Baking Indus"! Sinct 1897 

Mr. David Stawick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre, 1155 21st St. NW 

Washington, DC 20581 

COMMENT 

Re: Proposed "Revision of Federal Speculative Position Limits" 

Federal Register, November 21, 2007; Page 65483 

Dear Secretary Stawick: 

. ' , ' l ::~ Fi'i 6: I 7 

January 17 2008 

The American Bakers Association {ABA) appreciates the opportunity to provide these 

comments for the record in response to the proposed revision of federal speculative position 

limits by the Commodity Futures Trading Commission (CFTC). 

ABA is the leading advocate for the baking industry. It has been the voice of the baking 

industry since 1897, representing its members before the U.S. Congress, federal agencies, state 

legislatures, and international regulatory authorities. ABA tackles issues facing the baking 

industry and initiates positive reforms benefiting the industry and its customer, the consumer. 

ABA member companies produce approximately 85% of all baked goods consumed in 

the United States. Membership includes large and small producers of all segments of grainbased foods, from bread and rolls to crackers, tortillas, sweet goods and other baked food items. 

ABA commends CFTC for its continued efforts to safeguard participating market entities 

from unreasonable fluctuations within the commodity futures market. The commodities 

purchased and sold on the Chicago, Kansas City and Minneapolis Exchanges are vital to every 

ABA member. It is of the utmost importance that these markets maintain their availability to all 

participants and are protected against unwarranted market manipulation. 

As stated in the Federal Register vol. 72, No. 224, "Speculative position limits have been 

a tool for the regulation of the U.S. futures markets since the adoption of the Commodity 

Exchange Act of 1936 (CEA)." The Act states that "excessive speculation in any commodity 

under contracts of sale of such commodity for future delivery ... causing sudden or unreasonable 

fluctuations or unwarranted changes in the price of such commodity, is an undue and 

unnecessary burden on interstate commerce in such commodity." The Commodity Futures 

Modernization Act of 2000 (CFMA) states the purpose of those limits is "to reduce the potential 

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threat of market manipulation ... the board of trade shall adopt limitations or positions 

accountability for speculators ... " 

ABA believes the current proposal to increase federal speculative position limits 

contradicts directives in both the CEA and CFMA, because such action could increase the threat 

of market manipulation and cause unreasonable fluctuations within the commodities market. 

ABA has identified three inherent concerns if speculative limits are increased: increased and 

unwarranted escalation of futures volatility and daily trading ranges; significant fmancial impact 

on small businesses that participate in the exchanges; and disproportionately allowing 

speculators the opportunity to significantly influence the price of commodities, especially wheat. 

Increased and unwarranted escalation of futures volatility and daily trading ranges 

Examining data compiled from January 2005 to December 2007, the daily average 

trading ranges for wheat at CBT for the last 12 months have increased 158% (from $0.06 to 

$0.16), KCBT 132% (from $0.06 to $0.15), and MGE 136% (from $0.06 to $0.14). Further 

analysis reveals that these ranges have increased even more dramatically over the last six months 

as compared to 2005 (CBT, 226%; KCBT 195%; and MGE 202%). 

Implied volatility has also increased at an alarming rate. Since 2005, the daily volatility 

of the wheat pit at CBT has increased 34%, KCBT 29%,and MGE 17%. A similar pattern exists 

when looking at the average wheat futures market volatility within the last six months compared 

to 2005 (CBT 39%, KCBT 35%, and MGE 31%). 

ABA believes these increases in both daily trading ranges and volatility are a result of the 

increase in speculative position limits implemented in 2005. Implementing a new increase could 

exacerbate this situation even more. 

Significant financial impact on small businesses 

ABA is also concerned small businesses could be adversely affected if speculative limits 

are increased. As stated in the Federal Register Vol. 72, No 224, "the Commission believes that 

raising limits would only impact large traders and thus, the action taken will not have a 

significant impact. .. on small entities." Since increasing speculative limits in 2005, the required 

wheat hedging margins at the CBT have increased 114% from the initial $700 per contract to the 

current requirement of $1500 per contract. During a nine day time span in October 2006, these 

required margins were raised by $450, a 56% increase due to the upward volatility of the wheat 

market. Any increase in hedging margins or the financial outlay necessary to satisfy margin calls 

requires businesses to shift monetary resources to this unanticipated requirement. 

ABA contends that if speculative limits are increased as proposed, hedging margins will 

likely continue to increase, requiring small businesses to allocate more fmancial resources to this 

portion of their business to the detriment of their core business monetary needs. This could 

possibly force a country elevator, small flour miller or regional baker to alter their hedging 

strategies to the point where they will look at alternative hedging mechanisms or forego hedging 

in the agricultural futures market altogether. Either path could cause significant additional risk 

to the business owner. 
Disproportionately allow aggregate traders the opportunity to significantly influence the 

price of commodities, especially wheat 

ABA believes that increasing the speculative position limits for most commodities, 

especially wheat, could also increase the risk of a few speculators controlling large portions of 

the market. If these new speculative limits are enacted, a single speculative entity could 

purchase or sell over 20% of last year's soft wheat crop, over 7% of last year's hard wheat crop 

and over 16% oflast year's spring wheat crop. 

Based on recent data, CBT wheat futures open interest is approximately three times this 

year's U.S. soft wheat production. It is possible that if these new limits are imposed, CBT wheat 

futures open interest could balloon to five or six times the average U.S. soft wheat production. 

This increase in futures volume traded has the significant potential to raise the volatility above 

safe and equitable market levels. With these proposed increased limits, ABA believes that the 

wheat markets have the potential to be less competitive and efficient. Also, price discovery and 

risk functions could be jeopardized due to the potential for market manipulation by a relatively 

small number of speculators with a misappropriate market presence in the wheat futures. 

Summary 

ABA believes increasing the speculative position limits for commodities bought and sold 

on the Chicago, Kansas City and Minneapolis Exchanges would not be beneficial to the original 

producers and users of the physical product. This proposal moves away from the original intent 

of the exchanges, which was to allow commodity producers to sell their product to entities, 

including bakers, who use the physical product. This proposal, if enacted, could also increase 

market volatility, decrease market participation and create a situation where a few speculators 

could control major portions of the wheat market. Overall, ABA believes the proposed increase 

in speculative position limits will further fuel an already volatile commodity market and is not in 

the best interest of market users, including the baking industry and consumers. 

ABA thanks you for your time and consideration of these comments on this issue of key 

importance to the baking industry. If you have any questions regarding ABA's position on this 

issue, please contact Cory Martin, Federal Government Relations Manager, at (202) 789-0300 I 

cmartin@americanbakers.org. 

Sincerely, 

RobbMacKie 

President & CEO 

American Bakers Association 

Lee Sanders 

Senior Vice President 

Government Relations & Public Affairs 

American Bakers Association