January 28, 2008 

Mr David Stawick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

7ffi2 FEB 19 Al-1 ll: 38 

OFC. OF THE SECRETARIAT 

COMMENT 

RE: Risk Management Exemption from Speculative Position Limits 

Dear Secretary Stawick: 

On behalf of JBS Swift & Company, thank you for the opportunity to present comments 

on the proposed rule to allow index type funds and futures look-a-like funds an 

exemption to speculative position limits. Our firm is the world's largest beef processor. 

It is vital that the commodity futures markets reflect the fundamental supply and demand 

for the cash markets they are tracking. Over the past few years, however, the cash 

markets are tracking the money flows associated with the commodity futures markets 

rather than the market tracking the cash trade. This divorce between the futures markets 

and the cash trade seems to be due to the incredible growth of money flowing into 

commodities markets. This is distorting basis trends, business hedging practices, and 

increasing the speculative nature of the markets while decreasing the hedging nature of 

the markets. Regardless of your conditions for spot limits the current non-spot limits are 

having an abnormal effect on the spot market. These artificial influences from one time 

period to another are increasing basis variability and reducing hedge effectiveness. 

Promoting all this distortion is the increased flow of speculative money. The commercial 

industry has only a finite ability to hedge, so by allowing an infinite amount of buying to 

overpower that commercial flow will only increase the distortion effects and push 

commercial users into alternative hedging vehicles that do not include the commodity 

futUres markets. Such vehicles are being created and getting support from cash users as a 

way to "do away" with the Exchanges ever increasing risk profile. 

The types of funds you are tracking are speculative in nature. Index funds never have an 

economic reason for using the end product and their involvement only distorts the 

economics of businesses that are using the underlying commodity as well as their use for 

future planning. The sole purpose of many of these funds is to trade future inflation but in 

many cases the funds positions are already larger than the underlying market. As a result, 

there is never enough physical supply to override the massive fund cash flows. This leads 

to forward curve inflation and ultimately causes cash markets to follow this pile of 

money, regardless of supply. By comparison, hedging practices utilize futures markets as 

a vehicle to allow commodities to move from producers to end users at a lower risk, 

resulting in stabilization of pricing, helping increase production and ultimately lower 

prices for consumers. However, recent increases in these hedging costs by way of ever 

increasing volatility and basis variability are directly increasing the cost of moving 

commodities through the system. As basis becomes more and more unpredictable 
commercials will be forced to revert back to the days when they did not use the markets 

for stabilizing prices (and earnings) which will reduce production and raise prices for 

consumers even more. In addition, there are many companies that are significantly 

reducing their exposures or eliminating their participation in deferred purchases and sales 

based on their inability to finance their hedges practices. One example of this effect is the 

inability for companies to forward book annual menu prices for restaurant chains without 

facing continual price increases that continue to run on the order of double digit increases 

year after year. Another effect will be seen in the fonn of increasing the variability and 

predictability of corporate earnings. As these are just a few of the down stream effects 

that eliminating speculative "risk management" position limits can create you shouldn't 

stop here when trying to understand the debacle that this can and will create. 

As a result, we recommend that the CFTC not adopt the proposed rule change related to 

the hedge exemption for the funds, with the understanding that agricultural futures 

markets were established with an economic purpose to serve as an efficient, public 

pricing and hedging vehicle for producers and users. That purpose is not being fulfilled 

and has been certainly adversely affected by the CFTC current adaptation of hedging to 

include these index funds. 

In summary, this proposed rule is not beneficial to the commercial (hedgers) users of the 

market place. JBS Swift & Company is a significant user of grain and livestock 

commodities and we do not support allowing these certain funds to be classified as risk 

managers. 

Thank you for allowing us to share our opinions. If you have further questions, please 

feel free to contact me. 

Sincerely, 

Scott Shepard 

JBS Swift & Company