Pursuant to Regulation 1.55 in Part 1 of the Commodity Exchange Act, the Commodity Futures Trading Commission requires that each futures commission merchant provide specific disclosure documents that are intended to explain the risks of opening a commodity futures account in general and to provide information that would be material to a customer's decision to entrust funds to and to do business with a particular futures commission merchant. The information below addresses these requirements.
Financial information regarding the Company, including how the Company invests and holds customer funds, can be found on the NFA website http://www.nfa.futures.org/basicnet/welcome.aspx
Financial information for all FCMs can be found on the CFTC website at http://www.cftc.gov/.
CHS Hedging, LLC (“CHS Hedging” or “Company”) is a Futures Commission Merchant (“FCM”) that provides full-service commodity price risk management and market intelligence to its customers, primarily through the use of exchange-traded futures and options but also through the use of non-cleared, over-the-counter products. The Company has remained focused on the agriculture and energy sectors, which compliments the businesses of its parent, CHS Inc. CHS Hedging utilizes 98% of its assets, for exchange-cleared activity and 0.3% for over-the-counter activity. Of the 98%, 67% is related to customer business and 33% to affiliates of the Company. CHS Hedging utilizes 100% of its net capital, for exchange-cleared activity and 0.0% for over-the-counter activity. Of the 100%, 87% is related to customer business and 13% to affiliates of the Company.
CHS Hedging provides individualized consulting and education in the areas of agriculture, energy and crop nutrients. The Company provides marketing and financial advice to crop and livestock producers under its AgSurion Risk Consulting program. The Energy Risk Management Program puts dedicated energy market expertise to work for commercial energy business. The Crop Nutrient Risk Management Program delivers consultation for crop nutrient dealers and retailers, with a special emphasis on inventory and risk management strategies. CHS Hedging uses approximately 1.2% of its assets and 0% of its net capital for consulting and education.
The Chicago Board of Trade, part of CME Group, Inc., is the DSRO for CHS Hedging. The web address is www.cmegroup.com.
Information about filing a complaint can be found at: http://www.cftc.gov/ConsumerProtection/FileaTiporComplaint/index.htm or http://www.cmegroup.com/market-regulation/dispute-resolution/.
The following items can be found at www.chshedging.com/financial-statements/:
• Annual report information for the most recent fiscal year
• Daily statements of customer segregated, secured and cleared swaps funds for the most current 12-month period
• Monthly 1-FR FCM report information for the most current 12-month period
• Summary monthly capital balances as of the last day of each month for the 12 most recent months
• Protection of Customer Funds Overview, including information about segregation, collateral management, investments and futures commission merchants
Financial information regarding the Company, including how the Company invests and holds customer funds, can be found on the NFA website at http://www.nfa.futures.org/basicnet/welcome.aspx.
Financial information for all FCMs can be found on the CFTC website at https://www.cftc.gov/MarketReports/financialfcmdata/index.htm.
Margin is a good faith deposit for performance of futures contracts; therefore, customers must make margin deposits in a timely manner. Exchange Rules require that customers deposit margin call funds IMMEDIATELY upon notice of the margin call. Regulations also require CHS Hedging to restrict all risk-reducing trades once a margin call is past four days. Additionally, customers will be required to wire funds for any margin call which is $10,000 or greater.* Until the required margin deposit has been received, it is our policy not to permit any customer to withdraw funds from their account, even in the case of favorable market movement. Failure to meet a margin call will preclude customer from initiating new positions and will ultimately result in the closing of the account.
CHS Hedging cannot accept cash or credit cards. In addition, funds coming into the account must match the name on the account.
Security Loan Agreement: Third-party loan agreements between Customer, CHS Hedging and your bank are available. For more information, contact our Compliance Department at 800-814-0505.
*A customer may be allowed to replace a wire transfer with an ACH under certain pre-approved circumstances.
Disclosure of Futures Commission Merchant Material Conflicts of Interest
The purpose of this document is to provide you with information about some of the material conflicts of interest that may arise between you and CHS Hedging LLC. in connection with CHS Hedging LLC. performing services for you with respect to the futures, options on futures, swaps (as defined by the Commodity Exchange Act), forwards or other commodity derivatives (“Contracts”). Conflicts of interests can arise in particular when CHS Hedging LLC. has an economic or other incentive to act, or persuade you to act, in a way that favors CHS Hedging LLC. or its affiliates.
Under applicable law, including regulations of the Commodity Futures Trading Commission (“CFTC”), not all swaps are required to be executed on an exchange or swap execution facility (each, a “Trading Facility”), even if a Trading Facility lists the swap for trading. In such circumstances, it may be financially advantageous for CHS Hedging LLC. or its affiliate to execute a swap with you bilaterally in the over-the-counter market rather than on a Trading Facility and, to the extent permitted by applicable law, we may have an incentive to persuade you to execute your swap bilaterally.
Applicable law may permit you to choose the CFTC-registered derivatives clearing organization (“Clearing House”) to which you submit a swap for clearing. You should be aware that CHS Hedging LLC. may not be a member of, or may not otherwise be able to submit your swap to, the Clearing House of your choice. CHS Hedging LLC. consequently has an incentive to persuade you to use a Clearing House of which CHS Hedging LLC. or its affiliate is a member.
You also should be aware that CHS Hedging LLC. or its affiliate may own stock in, or have some other form of ownership interest in, one or more U.S. or foreign Trading Facilities or Clearing Houses where your transactions in Contracts may be executed and/or cleared. As a result, CHS Hedging LLC. or its affiliate may receive financial or other benefits related to its ownership interest when Contracts are executed on a given Trading Facility or cleared through a given Clearing House, and CHS Hedging LLC would, in such circumstances, have an incentive to cause Contracts to be executed on that Trading Facility or cleared by that Clearing House. In addition, employees and officers of CHS Hedging LLC. or its affiliate may also serve on the board of directors or on one or more committees of a Trading Facility or Clearing House.
In addition, Trading Facilities and Clearing Houses may from time to time have in place other arrangements that provide their members or participants with volume, market-making or other discounts or credits, may call for members or participants to pre-pay fees based on volume thresholds, or may provide other incentive or arrangements that are intended to encourage market participants to trade on or direct trades to that Trading Facility or Clearing House. CHS Hedging LLC. or its affiliate may participate in and obtain financial benefits from such incentive programs.
When we provide execution services to you (either in conjunction with clearing services or in an execution-only capacity), we may direct orders to affiliated or unaffiliated market-makers, other executing firms, individual brokers or brokerage groups for execution. When such affiliated or unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payment in return for receiving such business. Likewise, where permitted by law and the rules of the applicable Trading Facility, we may solicit a counterparty to trade opposite your order or enter into transactions for its own account or the account of other counterparties that may, at times, be adverse to your interests in a Contract. In such circumstances, that counterparty may make payments and/or pay a commission to CHS Hedging LLC. in connection with that transaction. The results of your transactions may differ significantly from the results achieved by us for our own account, our affiliates, or for other customers.
In addition, where permitted by applicable law (including, where applicable, the rules of the applicable Trading Facility), CHS Hedging LLC., its directors, officers, employees and affiliates may act on the other side of your order or transaction by the purchase or sale for an account, or the execution of a transaction with a counterparty, in which CHS Hedging LLC. or a person affiliated with CHS Hedging LLC. has a direct or indirect interest, or may effect any such order with a counterparty that provides CHS Hedging LLC. or its affiliates with discounts related to fees for Contracts or other products. In cases where we have offered you a discounted commission or clearing fee for Contracts executed through CHS Hedging LLC. as agent or with CHS Hedging LLC. or its affiliate acting as counterparty, CHS Hedging LLC. or its affiliate may be doing so because of the enhanced profit potential resulting from acting as executing broker or counterparty.CHS Hedging LLC or its affiliate may act as, among other things, an investor, research provider, placement agent, underwriter, distributor, remarketing agent, structurer, securitizer, lender, investment manager, investment adviser, commodity trading advisor, municipal advisor, market maker, trader, prime broker or clearing broker. In those and other capacities, CHS Hedging LLC, its directors, officers, employees and affiliates may take or hold positions in, or advise other customers and counterparties concerning, or publish research or express a view with respect to, a Contract or a related financial instrument that may be the subject of advice from us to you. Any such positions and other advice may not be consistent with, or may be contrary to, your interests or positions which are the subject of advice previously provided by CHS Hedging LLC or its affiliate to you, and unless otherwise disclosed in writing, we are not necessarily acting in your best interest and are not assessing the suitability for you of any Contract or related financial instrument. Acting in one or more of the capacities noted above may give CHS Hedging LLC or its affiliate access to information relating to markets, investment and products. As a result, CHS Hedging LLC or its affiliate may be in possession of information which, if know to you, might cause you to seek to dispose of, retain or increase your position in one or more Contracts or other financial instruments. CHS Hedging LLC and its affiliate will be under no duty to make any such information available to you, except to the extent we have agreed in writing or as may be required under applicable law.
CHS Inc., the parent of CHS Hedging and other affiliates, is a cooperative that engages in a variety of business activities relating to energy, grains and foods. Operations include refineries, rural retail locations, processing, marketing, and distribution.
CHS has identified a number of material risks that could adversely affect its business, including commodity prices and economic downturns and risks; competition; environmental liabilities; real or perceived quality, safety or health risks associate with its products; seasonality; business interruptions and casualty losses; its cooperative structure; industry consolidation; alternative fuels; volatile agronomy business; technological improvements in agriculture; joint ventures where CHS has limited control; and changes in laws and regulations regarding tax, environment, energy and agriculture. A substantially material adverse event for CHS could affect the Company’s ability to obtain liquidity and capital from CHS on a timely basis. Revenues, results of operations and cash flow could also be adversely affected. Such an event could also damage CHS Hedging’s reputation by association.
A customer, clearinghouse or FCM may fail to meet its obligations to CHS Hedging or other industry participants. The Company has contributed to the guaranty funds of the CME Group and the Minneapolis Grain Exchange. In the event of a default, the guaranty deposits may be accessed to cover unpaid obligations of the defaulting party.
CHS Hedging serves many customers in the agriculture and energy sectors that are similarly situated in terms of their business activities. Consolidation among customers and with other entities that are not customers could affect revenue and operating results of the Company if the customer chooses to move all or part of its business to another FCM. Sustained conditions of either lower prices and volatility or extremely high prices and volatility, which can be driven by factors such as weather and growing conditions, supply and demand and activities of other market participants, could also have a negative effect on revenue, operating results and cash flow.
The regulations governing the FCM industry are subject to change. CHS Hedging is committed to maintaining compliance with the rules and engages with regulators, industry groups and other FCMs to provide input regarding proposed rulemaking. Regulatory changes may affect the Company’s ability to maintain its current structure and profitability.
Liquidity & Capital Risk
CHS Hedging obtains liquidity and capital exclusively from CHS and/or affiliates on an as needed basis. As such, the Company is dependent on the creditworthiness of the parent to ensure that adequate funds are available in case of need. CHS has one or more lines of credit with a consortium of banks that impose specific covenants in order to maintain the financial health of CHS and the safety of the banks’ investments. A breach of the covenants or other catastrophic financial failure of the parent could have a material effect on the Company’s access to liquidity and capital.
Leverage & Liability Risk
The regulatory leverage risk of the Company is primarily driven by the proprietary trading of the parent and affiliates for the purpose of hedging commodity and other business-related risks. CHS Hedging does not itself maintain a proprietary position. If the business attributable to the parent and affiliates rises, there may be additional risk to the Company’s balance sheet if a substantially material event occurs with the parent or an affiliate. Other than proprietary trading, the Company may also carry an intercompany net payable to the parent for settlement of various payables and receivables.
When trading in the futures markets, there are risks if the market moves against your futures positions. These risks may be particularly acute in those instances in which a futures contract settles at a negative price. The circumstances that lead a futures contract to settle at a negative price may vary. One example of when a futures contract with a physical commodity as the underlying asset may settle at a negative price, is when the supply of the commodity faces physical constraints in distribution or storage to such an extent that some suppliers are prepared to pay others to physically take away the commodity. Futures contracts across other asset classes may also settle at negative prices for any number of reasons. Regardless of whether prices are positive or negative, you should keep in mind that if the market moves against your futures positions:
You should contact the compliance department or your broker if you have questions or want additional information.
The business address for all principals is 5500 Cenex Drive, Inver Grove Heights, MN 55077.
C.Nelson Neale, Vice President CHS Inc./President CHS Hedging LLCNelson joined CHS Hedging as vice president, CHS Inc. in May 2019 and currently serves as President, CHS Hedging. As President, Nelson is responsible for management and profitability of its commercial and producer programs. He is a proven risk management, finance and business development leader, with expertise in trading, insurance, agriculture and commodity environments. Prior to joining CHS Hedging, he spent seven years at Land O’Lakes and its subsidiary WinField United, as head of services and member of the leadership team. Other WinField United positions included director and head, finance and risk programs; and president, WinSure Captive Insurance Company. Positions outside of the cooperative system included consulting, senior management, and global risk and commodity trading positions with Oliver Wyman Consulting, Inc., New York, N.Y.; The World Bank, Washington, D.C.; Tyson Foods, Springdale, Ark.; UBS Investment Bank, Stamford, Conn.; and Enron, Inc., Houston, Texas.
Joe has spent 16 years providing commodity price risk management services for agricultural clients of CHS Hedging. He began in the Indianapolis branch office as a commodity broker in 2000. From 2007 to 2014, he was the branch manager of the Kansas City office and spent the several years in the Indianapolis office. Joe served on the Kansas City of Board of Trade and was on the KCBT Clearing Corporation Board of Directors while in Kansas City. He serves on an ad hoc committee for the National Council of Farmer Cooperatives as well as the Ag Advisory Committee for the CFTC, Joe provides industry perspective and policy feedback to the CFTC during its rule-making process related to implementation of the Dodd-Frank Act.
Kent is the marketing manager for Russell Consulting where he focuses on analyzing the commodity and financial markets for all Russell Consulting clients and their associates. In that role, he also leads regular teleconferences and publishes the weekly e-newsletter. In addition, he helps manage the CHS Pro Advantage contract that is a collaboration with CHS Inc., offering growers access to professional pricing for a portion of their crops. Kent has been analyzing markets since 1985 where he had various roles with CHS Hedging and the parent company CHS Inc.
Linda leads the internal processes for promoting and ensuring compliance with the laws, regulations of the CFTC, NFA, Exchanges and other regulators. She is also responsible for implementing company policies and procedures and making sure they are communicated and trained upon across the company. She works to preserve CHS Hedging’s strong track record and reputation for compliance and integrity. She has been in the agriculture industry for more than 25 years and has served Hedging in a compliance role since 2002.
John is responsible for CHS global commodity and renewable fuels trading, supply chain management and risk management, including, CHS Hedging, which offers commodity brokerage services to growers and partner cooperatives. He is a member of many trade associations and serves as a director on numerous boards including the Minneapolis Grain Exchange, North American Export Grain Association, North American Millers Association and the Market Street Terminal LLC.
Dustin, leads the team that handles procurement, merchandising and distribution of ethanol and biodiesel blended into Cenex ® branded an unbranded fuels. He is responsible for Renewable Identification Numbers (RINS) trading and refinery asset compliance with the Renewalbe Fuels Standard (RFS). In addition, he leads quality assurance initiatives and additive supply efforts to ensure the highest quality for CHS refined and renewable fuel products.
Tom is responsible for management and oversight of ethanol and soybean processing facilities and businesses in the U.S., China, and Israel. He serves on the board of managers for CHS Hedging and has previously served on the board of directors of the National Oilseed Processors association (NOPA).
Brent leads the underwriting and collection functions for CHS Capital and the retail credit application and analysis of CHS Capital. Brent’s career began as a location manager at River Country Cooperative in South St. Paul and progressed at CHS including staff auditor, financial analyst, controller, and most recently as Treasury Director where he managed banking relationships, oversaw the cash managemnt function, managed interest rate risk, and supported the Treasurer and the Captial Committee of the CHS Board of Directors. Bret serves on the board of managers for CHS Hedging.
The risk of loss in trading commodity futures contracts can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points:
1. You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
2. The funds you deposit with a futures commission merchant for trading futures positions are not protected by insurance in the event of the bankruptcy or insolvency of the futures commission merchant, or in the event your funds are misappropriated.
3. The funds you deposit with a futures commission merchant for trading futures positions are not protected by the Securities Investor Protection Corporation even if the futures commission merchant is registered with the Securities and Exchange Commission as a broker or dealer.
4. The funds you deposit with a futures commission merchant are generally not guaranteed or insured by a derivatives clearing organization in the event of the bankruptcy or insolvency of the futures commission merchant, or if the futures commission merchant is otherwise unable to refund your funds. Certain derivatives clearing organizations, however, may have programs that provide limited insurance to customers. You should inquire of your futures commission merchant whether your funds will be insured by a derivatives clearing organization and you should understand the benefits and limitations of such insurance programs.
5. The funds you deposit with a futures commission merchant are not held by the futures commission merchant in a separate account for your individual benefit. Futures commission merchants commingle the funds received from customers in one or more accounts and you may be exposed to losses incurred by other customers if the futures commission merchant does not have sufficient capital to cover such other customers' trading losses.
6. The funds you deposit with a futures commission merchant may be invested by the futures commission merchant in certain types of financial instruments that have been approved by the Commission for the purpose of such investments. Permitted investments are listed in Commission Regulation 1.25 and include: U.S. government securities; municipal securities; money market mutual funds; and certain corporate notes and bonds. The futures commission merchant may retain the interest and other earnings realized from its investment of customer funds. You should be familiar with the types of financial instruments that a futures commission merchant may invest customer funds in.
7. Futures commission merchants are permitted to deposit customer funds with affiliated entities, such as affiliated banks, securities brokers or dealers, or foreign brokers. You should inquire as to whether your futures commission merchant deposits funds with affiliates and assess whether such deposits by the futures commission merchant with its affiliates increases the risks to your funds.
8. You should consult your futures commission merchant concerning the nature of the protections available to safeguard funds or property deposited for your account.
9. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit (“limit move”).
10. All futures positions involve risk, and a “spread” position may not be less risky than an outright “long” or “short” position.
11. The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.
12. In addition to the risks noted in the paragraphs enumerated above, you should be familiar with the futures commission merchant you select to entrust your funds for trading futures positions. The Commodity Futures Trading Commission requires each futures commission merchant to make publicly available on its Web site firm specific disclosures and financial information to assist you with your assessment and selection of a futures commission merchant. Information regarding this futures commission merchant may be obtained by visiting our Web site, www.chshedging.com.
ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:
13. Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally “linked” to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction.
14. Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign option contract is liquidated or exercised.
THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS.
CHS Hedging has established a Risk Management Program that is designed to monitor and manage the risks associated with the Company’s role as an FCM. The Company has a Risk Management Unit as established in accordance with CFTC Rule 1.11., that is responsible for identification of risks, establishment of risk tolerance limits, periodic risk exposure reports, and supervision, review and testing of the relevant policies and procedures. CHS Hedging also has a designated Risk Manager who is responsible for monitoring the risks of the Company. Relevant policies and procedures include the Risk Management Program, FCM Compliance Manual, Liquidity, Excess Customer Funds, Information Systems Security, Anti-money Laundering, Privacy, Electronic Communications and Red Flags policies.
As previously disclosed for FY2018, our Parent company identified material weaknesses in its control environment. After two years of remediation efforts by the Parent, all material weaknesses have been remediated and closed as of 8/31/2020, and reported a clean audit on its 10K released November 5th, 2020.