Senators Introduce Bipartisan Legislation to Help Ag Producers, Small Businesses Manage Their Risk
Measure will exempt farmers, ranchers from regulations, strengthen rural economies
(U.S. SENATE) – U.S. Senators Mike Johanns (R-Neb.) and Jon Tester (D-Mont.) are leading a bipartisan group of Senators in introducing a bill to clarify the exemption for farmers, ranchers, manufacturers and small businesses from margin requirements included in the Dodd-Frank financial legislation. These exempted groups, known as end-users, use derivatives to manage their risk and insure against extreme price fluctuations for commodities and inputs – like seed and fertilizer – critical to their business operations.
Joining Johanns and Tester to introduce the bill are Senators Roy Blunt (R-Mo.), Mike Crapo (R-Idaho), Joe Donnelly (D-Ind.), Kay Hagan (D-N.C.), Heidi Heitkamp (D-N.D.), Amy Klobuchar (D-Minn.), Jerry Moran (R-Kan.), Richard Shelby (R-Ala.), Pat Toomey (R-Pa.), and Mark Warner (D-Va.).
The bill introduced by the senators is identical to H.R. 634, which today unanimously passed the House of Representatives’ Financial Services Committee. It clarifies current law by making explicit that commercial end-users are not subject to costly margin requirements, consistent with Congress’ intent in Dodd-Frank.
The National Association of Manufacturers supports the bill, saying:
“The NAM – the nation’s largest industry trade association – applauds the leadership of Sens. Johanns and Tester in introducing a bill to ensure that end-users, including thousands of manufacturers, will not be subject to onerous margin requirements imposed by regulators,” said Dorothy Coleman, Vice President of Tax and Domestic Policy at NAM. “End-users use derivatives as a tool to hedge day-to-day commercial risk to mitigate against changes in currency and interest rate valuations and commodity prices — not for speculative purposes.
“Even a cursory review of the legislative history surrounding the Dodd-Frank Wall Street Reform Act demonstrates that the authors always intended end-users to be exempt from these requirements and this bill ensures that this intention is clearly written into statute. Manufacturers urge the Senate to swiftly pass this bipartisan legislation and provide much needed certainty to end-users.”
Johanns said, “Farmers, ranchers and businesses use every tool available to responsibly protect themselves and their customers from unforeseen risks like drought or fluctuations in fuel, fertilizer or commodity prices. Our bipartisan legislation allows these local businesses to continue doing that without battling burdensome and costly margin requirements meant to cover day-traders playing the markets.”
Tester said, “This bill ensures that Montana farmers and ranchers can continue to effectively manage risks, protect their livelihoods, and provide for their families. Smart risk management strengthens our economy, and this bill clarifies Congress’ intent to give small businesses the flexibility and certainty they need to successfully run their businesses.”
Crapo said, “This bipartisan legislation is an example of a Dodd-Frank provision that must be fixed. Absent Congressional action, the new regulations will make it more expensive for farmers, manufacturers, energy producers and many small business owners across the country to manage their unique business risks associated with their daily operations.”
Donnelly said, “Financial regulations were designed to regulate Wall Street, not Hoosier farmers and manufacturers. We need common sense regulations that protect the banking system from manipulation, while not overly burdening the agriculture community and businesses around the country.”
Toomey said, “There is wide bipartisan agreement that subjecting manufacturing companies to end-user regulations will hurt job creation by diverting capital they would otherwise use to invest and hire new employees. This bill will protect our manufacturing companies from unnecessary regulations, and I hope we can build on the bipartisan momentum to pass this important legislation.”
Warner said, “The bill makes explicit the intent of Dodd-Frank to protect non-financial end-users – whether farmers, manufacturers, or airlines – from burdens that were designed to regulate the financial services industry. This legislation will create certainty, helping to free up capital that Virginia’s businesses can put to work to continue our economic recovery.”
End-users are the final user of a good or product. Ranchers, for example, could purchase derivatives contracts on corn in advance of the harvest to protect themselves against unforeseen market fluctuations. Dodd-Frank included margin requirements forcing non-end-users and those speculating on market prices to post margin to cover the risks associated with their derivative purchases.
Dodd-Frank included an exemption for non-financial end-users based on the low risks they pose to the financial system. Despite Congress’ intent, there has been a debate over how broadly the exemption would apply. The Commodity Futures Trading Commission and Securities and Exchange Commission previously issued a joint rule that would exempt end-users from margin, but the Federal Reserve has issued regulations that would capture many end-users in their regulations.