Ranchers Have a Cow Over FinReg

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Cows waiting to be milked

The funny, far-reaching business of regulatory reform.

"I don't think anybody has read it," says cowboy Brett Crosby of the 2,300-page FinReg bill. "War and peace is only 1,400 pages, for crying out loud, and people don't even read that." ?

Crosby is very concerned that somewhere in the just-signed monumental piece of legislation are rules that will hurt his ability to manage risk at his Wyoming cattle ranch. This self-described "MBA Cowboy" has been using futures contracts for years to provide a hedge against the often volatile price of cattle. Crosby prefers feeder cattle futures, as they most closely match his business.

An agricultural economist for Wells Fargo recently encouraged farmers to use more tools like futures contracts to stabilize cash flow. However, the new legislation will move many futures contracts onto exchanges where they can be better regulated and monitored, and speculators who don't own any of the underlying commodity—in this case, cattle—will have to put up more cash on margin. Some believe even commercial hedgers, people who, like Crosby, actually own cows, will have to also put up more money.

"Feeder cattle futures may not survive," says Crosby, though he admits that is a "doomsday scenario".

Crosby says more than 90 percent of the most recent open positions on feeder cattle were held by speculators or index traders, the very people about to face higher hurdles to trade. If they decide it's not worth it and walk away, there may no longer be enough of a market to make the hedge a hedge.

In the meantime, beef prices are rising, thanks in part to a reduced supply because of the heat.

Hot weather means fewer cows, lighter cows, potentially less corn to feed cows, and less milk from cows.

Still, Crosby says the industry has not returned to the demand seen before the mad cow scare of 2003.

To maintain pricing, the national herd has been thinned as a result.

When do we eat beef and when do we eat beans?

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