01/21./2008 02:02 7035241921 PAGE 01/02 

AMERICAN FEED INDUSTRY ASSOCIATION 

January 22, 2008 

Mr- David Stav.-i.ck 

Secretary 

Commodity Futures Trading Commjssion 

Three Lafayette Centre 

1155 21 Sl Street, NW 

Washington, DC 20581 

... 

COMMENT 

Re: ProposedRevision of Federal Speculative Position Limit.~ 

Dear Mr. Stawick: 

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I write to provide you with the American Feed Industry Association's (AFIA) position 

regarding the Commodity Futures Trading Commis..~ion (CFTC) proposal to increase 

federal speculative position limits, published November 27, 2007, in the Federal 

Register. 

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AFIA is one of the nation's'foremost agribusiness associations, devoted exdusively to 

representing the: business, legislative, regulatory advocacy and educational needs ofthe 

animal feed industry and its suppliers. AFJA membership includes 560 domestic and 

international companies, as well as state, national and regional agribusiness associations. 

Member firms include feed and pet food manufacturers, livestock and poultry integrators, 

anjmaJ health companies, ingredient suppliers, equipment manufacturers and companies 

which supply other products., services and supplies to feed manufacturers. AFIA 

members represent over 70% of the commercial feed and pet food manufactured in the 

United States each year. 

The feed industry makes a critical and significant contribution to food safety, nutrition 

and the environmenL Given feed represents approximately 700/o. of the on-fann cost of 

raising livestock and poultry, our industry plays a critical role in the safe and affordable 

production of meat, milk and eggs. 

The U.S. feed industry is the single largest purchaser and user of com and soybeans, as 

well a<; their processed meals and byproducts. It is critical the grain, oilseed and 

ingredient commodity markets accurately :reflect true supply and demand situations for 

these commodities. Rapidly rising commodity values over the last few years based upon 

an increasing competition for corn and oilseeds, coupled with rising export demand, have 

significantly increased the borro~ing needs foT the feed and livestock processing 

industry. These higher :financing costs (open interest and trading liquidity) occur at a 

time when margins are very tight. These companies do not speculate in the markets~ but 

manage the price risk of their future purchase commitment...c:: through the use of hedging 

2101 Wilson Blvd., Suite 916, Arlington, VA 22201 

. Tel.: 703/524-0810 FAX: 703/524-1921 E-mail: af~fia.org \N'WW.afia.org 

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81/21/2808 82:02 7835241 '321 AFIA PAGE 02/02 

~FI~ AMERICAN FEED INDUSTRY ASSOCIATION 

insfnnnents. The proposed revision by CFTC would result in increased price volatility 

and distortion of these markets. 

The primary reason for position Jimits is to reduce potential for market manipulation. 

However. with significant incre..'t.c;ed commodity prices, there is mOT"e interest in these 

contracts as investment options. This causes a lack of convergence between the cash and 

futures markets, depending on the delivery period. This lack of convergence between the 

futures and physical markets puts the business hedger of these markets at additional 

exposure and risk. 

The increase in speculative investments in these commodity markets demonstrates there 

is ample opportunity for increased participation today, and thus no reason to.change 

position limits to stimulate participation. Increasing the speculative position Jjmits is not 

necessary; in fact,. increased limits wiU hurt end-user businesses that depend on these 

markets as a relative hedging tool. 

APIA is also aware the CFTC is considering providjng an exemption for index funds, 

while classifying them as hedgers. While these funds may be hedging the invested 

capitaJ, the initial investments are speculative and thus this exemption should not be 

allowed. This proposed revision would further distort the relationship between the 

financial and physical markets. APIA \l.riU address this further in separate comments to 

CITe. 

AFIA opposes the Commission's recommendation to increase limits for speculators, 

while exempting index funds from speculative limits. Both these moves will result in 

increased volatility and reduced ability for the feed and livestock processing induc;try to 

effectively manage business risk. The agriculture markets were established to provide an 

efficient, price discovery mechanism and a hedging/risk control vehicle for the grains and 

ingredients markets. These functions for the end-user must be preserved in any changes 

considered by the CFTC. 

AFIA appreciates the opportmrity to provide comments. Please do not hesitate to contact 

me if I can provide further infonnation or you have questions regarding the feed 

industry's position on this recommendation. AFIA Iooks forward to working with the 

Commission to ensure the markets remain an effective tool for the end-users. 

Respectfully submitted, 

2101 Wilson Blvd., Suite 916, Arlington, VA 22201 

Tel.: 703/524-0810 FAX: 703/524-1921 E-mail: afia@afia.org www.afia.org