Risk management: An exchange's view

The Federal Agriculture Improvement and Reform Act, better known as the Freedom to Farm Act, has changed the marketing environment for producers. Combine this with the fact that global competition is increasing, and the net result appears to be a market orientation with greater volatility. While it has always been in the best interest of the producer to have a marketing plan, the potential for increased price volatility now makes creating a marketing plan a vital part of production agriculture. The Kansas City Board of Trade has been in the risk management business for more than 120 years. As the need for risk management tools has grown, so has the number of tools available to the industry. There are 3 groups that look over the shoulders of traders at all times. The federal government regulates all futures exchanges through the Commodity Futures Trading Commission. The National Futures Association regulates registration of commodity traders as individuals. The exchange itself watches and monitors every trade that takes place there.