Washington, 9 December 2010

The incoming chairman of the U.S. House Agriculture Committee said on Thursday he wants to be sure "end users" are treated fairly in an expansion of federal control of derivatives markets.

Frank Lucas, an Oklahoma Republican, said during a Reuters interview he expected the committee to review Agriculture Department revisions to fair-play rules in livestock marketing. USDA is going farther than Congress intended, he said.

Oversight of Obama administration activities "will be the big thing" for the committee next year, he said. Action on a new farm policy law will be deferred until 2012 when the 2008 law expires. Budget cuts are possible in 2011 but not certain.

"My perspective is making sure end users, in an affordable way ... can access these tools to mitigate risk," Lucas said when asked about this year's reforms that brought over-the-counter derivatives under federal regulation.

Farm-state lawmakers including Lucas sought an exemption for end users, which was included in the law, from the general requirement to send swaps deals through clearing houses. End users include airlines, utilities, processors and manufacturers who use derivatives to assure a supply of raw materials.

End users say they often pledge assets as part of swaps deals, so they have offset the risk of default, and do not have the cash to meet margin requirements at a clearing house.

The Commodity Futures Trading Commission was working on rules to implement the financial reform law on provisions affecting futures and related markets. Lucas said he has no complaints about CFTC's work so far.

"As the rules evolve, the committee will look at them," he said. An subcommittee hearing is set for Wednesday to look at CFTC progress on setting position limits on futures and derivatives. Position limits would restrict market share by dealers and market participants. The CFTC outlined potential exemptions from the limits on Thursday.

Lucas listed USDA's proposal on livestock marketing as a topic for review along with Environmental Protection Agency work on spray drift and dust from agricultural operations.

"I personally believe they (USDA) in a general sense overstepped the spirit of the past three farm bills," said Lucas, referring to marketing rules. "That is going to be a subject matter legitimately for the committee."

Meat processors along with cattle and hog farmers say USDA's proposal on livestock marketing would be a disastrous change. It would impede arrangements that pay producers a premium for steps such as assuring lean meat, they say.

The USDA said the rule will give cattle, hog and poultry producers move leverage in sales. For example, it would bar packers from offer better prices to large feeders than small operators without good reason.

A conservative from western Oklahoma, Lucas believes a farm safety net is vital because of the uncertainties of weather and market prices. Earlier this year, he said sweeping changes in farm supports are not needed although funding will be tight for the 2012 law.

"If we have as much money to write the the '12 farm bill as the '08 bill, we'd be the luckiest people around," he said on Thursday.

Funding for three dozen programs, including a disaster relief fund, costing $9 billion expires with the 2008 law.

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