or-/ 

National Milk Producers Federation @ 

2101 Wilson Blvd., Suite400, Arlington, VA 22201 

703.243.6111 • www.nmpf.org 

NATIONAL MILK 

PRODUCERS FEDERATION "Connecting Cows, Cooperatives, Capitol Hill, and Consumers" 

Agri-Mark, Inc. 

Arkansas Dairy 

Cooperative Association 

Associated Milk 

Producers, Inc. 

Continental Dairy 

Products, Inc. 

Cooperative Milk 

Producers Assn. 

Dairy Farmers 

of America, Inc. 

Dairymen's Marketing 

Cooperative, Inc. 

Dairylea Cooperative Inc. 

Ellsworth Cooperative 

Creamery 

Farmers Cooperativ~ 

Creamery 

First District 

Association 

Foremost Farms USA 

Humboldt Creamery 

Just Jersey 

Cooperative, Inc. 

land O'lakes,lnc. 

Lone Star Milk 

Producers, Inc. 

Manitowoc Milk 

Producers Coop. 

MD&VAMilk 

Producers CooperatWe 

Association, Inc. 

Michigan Milk 

Producers Assn. 

Mid-West Dairymen's 

Company 

Northwest Dairy 

Association 

Prairie Farms 

Dairy,lnc. 

St. Albans Cooperative 

Creamery,lnc. 

Scioto County Co-op 

Milk Producers' Assn. 

Select Milk 

Producers, Inc. 

Southeast Milk, Inc. 

Swiss Valley Fanns, Co. 

Tillamook County 

Creamery Assn. 

United Dairymen 

of Arizona 

Upstate Niagara 

Cooperative, Inc. 

Zia Milk Producers 

June 16, 2009 

David Stawick, Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21 51 Street, N.W. 

Washington, D.C. 20581 

COMMENT 

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RE: "Whether to Eliminate the Bona Fide Hedge Exemption for Certain Swap 

Dealers and Create a New Limited Risk Management Exemption from 

Speculative Position Limits." (74 FR 12283) 

To the Secretary and the Commission: 

The National Milk Producers Federation is the voice of three-fifths of America's 

60,000 dairy farmers, through their membership in NMPF's 31 constituent 

cooperative associations. It is our mission to advance the well-being of these farmers 

and the cooperatives that they own. As a member of the CFTC's Agricultural 

Advisory Committee, NMPF appreciates the opportunity to comment on speculative 

limits and bona fide hedging. 

The farmer-owners of our member cooperative associations have bona fide hedging 

interests as sellers of milk and dairy products; as buyers offeed, fuel, and other inputs; 

and as both buyers and sellers of cattle. They are involved as buyers and sellers in 

delivery- and cash-settled futures and options markets, as well as in off-exchange 

swaps and forward pricing. Their cooperative enterprises are similarly engaged in 

managing price risk - as buyers of milk, as manufacturers and sellers of dairy 

products, and as service providers to their farmer-members. 

As such, our members' interests are uniquely balanced in support of fair and unbiased 

markets. In particular, we urge the CFTC to renew its traditional commitment to the 

protection offarmers from the "undue and unnecessary burden" of"excessive 

speculation" in agricultural commodity markets. We agree that there is a vital need 

for speculative limits, and believe that defining bona fide hedging becomes clear in 

principle and practice when that commitment is honored. 

Futures markets, broadly defined, serve the important purposes of price discovery and 

risk management for producers and users of agricultural commodities. Speculative 

interests are suffered to the extent that they contribute to these purposes. 

Jerry Kozak, President/Chief Executive Officer Randy Mooney, Chairman 

www.nmpf.org 
As we have learned from last year's financial market meltdown, market regulation 

must take into account the overall health of the market, not simply the impact of an 

individual market participant ceteris paribus. Overall speculative interest may get too 

high, even if each participant is within its limit. Ideally, speculation would not be 

allowed to reach the point where it begins to add, rather than reduce, risk for the 

commodity producers and users involved in the market. 

A swap dealer that could be defined as a hedger, with respect to its own interest, 

should not be so defined by the CFTC when it is serving speculative interests. The 

blanket exemption clearly missed the point offutures market regulation, allowing a fig 

leaf to redefine speculation as hedging. This must be ended. 

Nevertheless, it is very important that farmers, who often operate on a much smaller 

scale than other financial actors, have access to a range of choices to manage price 

and marketing risk, through dealers and cooperatives who can tailor risk management 

strategies to their specific needs and circumstances. As such, the swap dealer who 

acts on behalf of a farmer (or commodity user) deserves special exemption from 

speculative limits exactly to the extent that the farmer himself would deserve such 

exemption. 

With respect to exempting swap dealers from speculative limits, we would draw the 

line as follows: 

- Swap dealers who lay off the risk of serving producers and users of the commodities 

involved (directly or as proxy) are bonafide hedgers. 

- Swap dealers who lay off the risk of serving speculative interests are not. 

Consistent with this, NMPF supports Recommendation 5 of the September 2008 

report, as outlined at 74 FR 12285. The bonafide hedge exemption for swap dealers 

should be replaced with a limited risk management exemption, subject to audit and 

reporting requirements. Swap dealers act in place of an exchange; to the extent that 

any swap dealer wishes to claim exemption from speculative limits on an exchange, 

the basis for that exemption should be as transparent as would be required of an 

exchange. 

Regarding the specific questions outlined in the request for comments: 

1. Should swap dealers no longer be allowed to qualifY for exemption under the 

existing bona fide hedge definition? 

The exemption should be eliminated. 

2. If so, should the Commission create a limited risk-management exemption for swap 

dealers based upon the nature of their clients (e.g., being allowed an exemption to the 

extent a client is a traditional commercial hedger)? 

Such a limited exemption is appropriate, in order to facilitate true hedging for 

diverse needs. 

5. If a new limited risk management exemption were to be permitted to the extent a 

swap dealer is taking on risk on behalf of commercial clients, how should the rules 

define what constitutes a commercial client? 

A commercial client should be one that produces or uses the commodity in question 

(or one for which the commodity is an effective proxy), and uses a swap or futures 

position to offset a legitimate commercial price risk. 

Jerry Kozak, President/Chief Executive Officer Randy Mooney, Chairman 

www.nmpf.org 
6. How should the Commission (and, if applicable, the responsible industry selfregulatory organization (SRO)) and the swap dealer itself verify that a dealer's clients 

are commercial? Is certification by the dealer sufficient or would something more be 

required from either the dealer or the client? If so, what should be reported and how 

often--weekly, monthly, etc.? 

Any exemption should be subject to audit on a risk-adjusted schedule. It would be 

appropriate to establish a specific and separate category of swap dealers with no 

noncommercial clients, whose audit burden could be appropriately reduced. 

7. For a swap dealer's noncommercial clients, should the rules distinguish between 

· different classes of noncommercials ... 

There is no reason to distinguish among such clients, except to the extent that 

another swap dealer can establish the volume of his business that is undertaken on 

behalf of commercial interests. Passively managed commodity index funds are a 

simple and sluggish form of speculation; they are less useful to the market than 

active speculators, and deserve no special consideration or exemption. 

9. If a swap dealer were allowed an exemption for risk taken on against another 

intermediary, how would the dealer satisfy the Commission that its intermediary client 

does not in turn have noncommercial clients that are in excess of position limits? Is 

certification by the dealer or second intermediary sufficient or should the dealer or 

intermediary be required to separately identify the intermediary's largest clients? 

No exemption should be allowed if it cannot be verified through audit; and no 

exemption should be allowed except for bona fide hedging by producers and users. 

11. If none of a swap dealer's clients exceed required reporting levels in a given 

commodity, or none of such clients exceed reporting levels in any commodity, what 

type of report should be filed with the Commission--e.g., a certification by the swap 

dealer to the Commission to that effect? 

Swap dealers with noncommercial clients should be subject to reporting analogous 

to that required of exchanges. 

Thank you again for the opportunity to comment on this very important issue. Please 

call me if you have any questions. 

Sincerely, 

Roger Cryan, 

V.P. for Milk Marketing and Economics 

National Milk Producers Federation 

Jerry Kozak, President/Chief Executive Officer Randy Mooney, Chairman 

www.nmpf.org