Grain traders worry over recording rule

A new proposal from the Commodity Futures Trade Commission, if passed, could require all oral communication between a farmer and country elevator to be tape recorded and has many people within the industry concerned and frustrated.

The proposal, outlined in a 48-page commodities document in the Federal Register was published on June 7 but somehow flew under the industry’s radar until the first of August. The proposal makes a number of “conforming changes” for the commodity industry in line with the landmark Dodd-Frank market reform legislation signed in July 2010.

The legislation, passed in the wake of the financial crisis in the fall of 2008, aims to “reduce risk, increase transparency, and promote market integrity,” the agency notes.

Grain traders have zeroed in on a section that would require firms that are members of futures exchanges “to record all oral communications that lead to the execution of transactions in a commodity interest or cash commodity.” The recordings, which must be stored for five years in addition to full electronic records of transactions, will need to “be identifiable by counterparty and transaction.”“What they’re trying to do, in my mind, is overstepping their bounds,” said Paul Dubravec, merchandising and ag price risk management consultant for Advance Trading Inc. “They’re trying to link this to the 2008 financial debacle and that just doesn’t make sense. This is just more regulation that does nothing to promote growth within the industry.”

Although some elevators do currently record communication with farmers, it is typically in the interest of protecting themselves. With government imposed restrictions, elevators that do not already have the proper procuring systems to record all oral conversations are looking at spending thousands of dollars to meet the proposed standards. According to the documents in the Federal Register the FCTC estimates startup costs for a large grain entity to be $55,000 and at least $10,000 for smaller entities that do not already have a system in place. That does not include the burden elevator owners would incur when spending and estimated 135 hours to set up the system or the amount of money they would be forced to pay a computer specialist at a recommended rate upward of $50 per hour.

“It’s a knee jerk reaction to issues in the past,” says Barry Evans, owner of Evans Grain in Kress, Texas. “A contract should be sufficient. I can’t imagine recorded conversations being necessary. That’s just not practical at all.”

NSP expects the CFTC proposal to gain little traction after the comment period as the resulting effect, if implemented, would severely limit elevator willingness to forward contract grain from producers.

Let’s get real. With economic downfall, drought, flooding and legislative turmoil, why would the government even consider suffocating the industry with yet another regulation? Rural America isn’t Wall Street, and a firm handshake and a signature means something here.