The Dodd-Frank financial reform bill could adversely impact how dairy farmers manage price risk, a division of the Dairy Farmers of America warns.

Edward Gallagher, the president of DFA subsidiary Dairy Risk Management Services, told the House Agriculture Committee last week that Dodd-Frank could require farmer cooperatives to be classified as swap dealers – an appellation that would require them to post both capital and margin when they trade derivatives.

Capital and margin requirements would make derivatives trading more expensive for farmers, however. Over-the-counter derivatives are widely used to "help producers manage price risk and assist them in locking in margins or creating insurance-like margin safety nets," Gallagher indicated – and an increase in trading costs would make its harder for them to manage their risk exposure.

"It is vitally important that our members are able to utilize forward contracting transactions with their cooperatives to mitigate their commercial business risk," Gallagher went on to say. He added that farmer cooperatives should be classified by regulators as derivatives end-users.

The DFA's comments illustrate how new derivatives regulation can affect even nonfinancial companies.