Let's Have a Beer and Talk Derivatives

(page 2 of 2)

The brewers are planning to come with handouts showing the impact of their industry on each state, says one industry official involved in the congressional visits. The handout for Iowa, for example, shows the beer industry was responsible for 14,325 jobs and $704 million in economic activity in the state in 2008.

Anheuser-Busch controls almost half the U.S. beer market and operates a dozen breweries. It owns 11 distributors and works with 600 independent wholesalers. It buys rice in Arkansas and California, grows hops in Idaho, and makes glass bottles in Texas. MillerCoors, which controls about 30% of the U.S. market, brews in nine states. It buys all its corn and most of its barley—some $500 million a year—in the U.S.

The brewers are also generous donors. Anheuser-Busch's political action committee and employees have given $471,000 to federal candidates and political parties for the 2010 election cycle, according to the Center for Responsive Politics. MillerCoors' PAC contributed $79,000 in the same period. The National Beer Wholesalers Assn. donated $1.7 million.

Anheuser-Busch InBev had more than $1 billion in aluminum swaps, $69 million in corn swaps, and interest rate swaps—used to smooth swings in currencies—worth more than $80 billion, according to its financial statements. Anheuser-Busch officials didn't respond to calls for comment.

If aluminum swaps—primarily private contracts between two parties—were forced to go through a clearinghouse, Anheuser-Busch would have to put up as much as 6% of the cost of a contract. "If you impose margin requirements on these companies, you're either taking away their ability to manage their risk or taking away their working capital," the NAM's Coleman says. Anheuser-Busch's $1 billion in aluminum swaps would require collateral whose value could swing by $10 million a day if the price of the metal were to change 1%, says Craig Pirrong, a finance professor at the University of Houston.

Gary Gensler, chairman of the Commodity Futures Trading Commission, which oversees most swaps, says the benefit of a safer capital market outweighs those concerns. "We have a real risk that society is bearing," he says. What does that have to do with the price of beer in Buffalo? Plenty.

Fitzgerald is a reporter for Bloomberg News.

Business Exchange

Track and share business topics across the Web.