Shock Waves From MF Global Collapse Felt On Farms

MINNEAPOLIS (AP) — The shock waves from the collapse of commodities trading firm MF Global Inc. are hitting hard across rural America, where farmers, ranchers and agricultural business owners are nervously waiting to learn how much money they’ve lost.

Many of the farmers who traded with MF Global, which is being investigated over what federal regulators say is an estimated $1.2 billion that may be missing from customer accounts, used the futures markets to reduce the risks of volatile prices. Locking in prices through the futures market — something farmers have been doing for a century — allows them to plan ahead while knowing what their costs will be.

Mike Mouw, co-owner of Mouw’s Feed and Grain Inc. in the southwestern Minnesota town of Leota, said his business relies on the futures markets both when it buys grain from farmers and when it sells feed to hog producers. That makes it possible to for the company to plan two or three years ahead. Now, though, Mouw estimates he’s out about $250,000.

“I’m praying that I get it back,” he said.

Farmers, ranchers and rural businesses such as grain elevators and feed mills were among the hardest hit when they were cut off from the cash in their hedging accounts at MF Global, which sought bankruptcy protection in October after making a disastrous bet on European government debt. The number of people harmed and the extent of their losses isn’t clear yet.

“This thing should not be taken lightly by anybody,” Mouw said. “This has a far greater trickle-down than people realize.”

Federal regulators are investigating whether MF Global, as its financial condition worsened, tapped client funds that were supposed to be kept safe in strictly segregated accounts. They’re also trying to determine what became of the money — it’s not clear if the cash is parked somewhere or if it’s gone. Violating the rules for segregated accounts can lead to civil and criminal penalties.

The chairmen of the Commodity Futures Trading Commission and the Securities and Exchange Commission said Thursday that all those affected should get back at least two-thirds of their money.

Dean Tofteland, who raises corn, soybeans and pigs near Luverne in southwestern Minnesota, has about $200,000 tied up with MF Global, said Sen. Amy Klobuchar at an Senate Agriculture Committee hearing. She said his situation shows how the firm’s $6.3 billion bad bet on European bonds is being felt in small towns across America.

Klobuchar, a Minnesota Democrat, said afterward that recovering two-thirds of the funds “clearly isn’t good enough” for farmers threatened with deep losses to their life savings.

Tofteland said in an interview that he never imagined money that belongs to him would just disappear.

“It’s like having your house burn down without insurance,” Tofteland said.

Grain farmer and rancher Marty Klinker of Fairfield, Mont., has lost about $336,000, said Sen. Max Baucus, D-Montana. Baucus said Klinker got about 60 percent of his money at MF Global back, but his prospects for the rest seem pretty grim.

He told CFTC Chairman Gary Gensler that Klinker trusted the system, and it let him down.

“You’re absolutely right, the system has to work for the farmers and ranchers and the energy companies and all of the people that need to lock in a price, and segregation is at the absolute core of this system that’s been existent for decades,” Gensler said.

But the chairman did not venture a guess about when, if, or how much of Klinker’s remaining money — or anyone else’s — might be returned.

Agricultural prices frequently fluctuate due to ever-changing supply and demand, which are driven by many factors ranging from the weather to exports. Trading on the futures markets helps farmers shield themselves from the risks of prices for their products falling and costs for things such as feed increasing.

Hog producers who rode out tough years in 2008 and 2009 came to rely heavily on risk management tools and were starting to lock in some pretty good profits before MF Global collapsed, said Mark Greenwood, a senior vice president and swine expert at AgStar Financial Services, which serves farmers mainly in Minnesota and Wisconsin.

Greenwood estimates that about half of the hog producers his company serves have been affected, with combined losses probably more than $40 million. The 300 to 400 clients have individual losses of $50,000 to over $1 million, he said.

They’re wondering if they can trust the futures trading system again — whether there are sufficient guarantees to ensure that another MF Global doesn’t happen, Greenwood said.

“They’re frustrated, angry,” Greenwood said. “I think the word is disgusted. We’re trying to do everything we can to manage a very volatile industry. This was one risk we never thought we’d see.”

Preserving confidence in the system is essential, because farmers who don’t trust traditional risk management tools might end up taking on even greater risks, said Scott Cordes, president of Country Hedging Inc., an MF Global competitor that is a subsidiary of CHS Inc., the nation’s largest farmer-owned cooperative.

“At the end of the day it gets down to, who do you know and who do you trust?” Cordes said.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

  • keel

    More quality Wall Street characters at work. And this one was a Democrat. It’s all about greed.

  • Jake

    You are right, keel. First, Corzine trashed Goldman Sachs. Then he went on to trash the entire state of NJ. Now, THIS. I can’t understand why he isn’t in a maximum security PRISON right now. C’mon occupyers, where is the OUTRAGE over this psychopath’s continued PONZI schemes??

    • huh?

      Uh, Jake. That’s one of the many things that the ccupiers are out there for. If you didn’t slander them so much, you’d know that. They aren’t out there just to get their college loans freed up like you think.

      • Jake

        Uh, Like DUH, huh?, there is more than one ‘Jake’ expressing themselves here, so don’t assume that *I* am the only one opining under that name. A lot of uber libs here, trying to discredit decent, honest, sincere people on this site.

        • huh?

          My apologies. But, thanks for the wrath of condescension.

    • Jake

      Because Holder is not going after a fellow demacrat. Why do you think there hasn’t been anyone from Countryside or City Bank prosecuted. Frank and Dodd were up to their elbows in the scam.

  • insignificant

    futures markets and hedgefunding= gambling,eh?…when the heck is this stuff tgonna get out-lawed,huh?…

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    […] Coast Nosh friends XYandZ, the Sample Room is selling a half pig’s head special for $15, the collapse of a commodities trading firm reverberates among local farmers, Dara’s best new bars of 2011. » Urban Aquaculture Meets […]

  • Ordinary Guy

    If the federal government put a quarter-percent tax on securities transactions, it would be unnoticeable to ma and pa trading, but to the automated volume traders it would slow things down and reduce the volatility right away. They trade for fractions of a cent and can dump it all in seconds. The political power of that is undeniable, because moves can send policy signals. Risky trades are encouraged even though failure means begging for federal bailouts. Who wants that.

  • keel

    BTW….I am not a Republican….just a good old-fashioned Minnesota Independent. Gotta realize that…regardless of party affiliation…the crooks in Washington get their palms greased by the crooks on Wall Street. That’s what happened in 1929….and it’s even worse now. My kids and grandkids will be in debt for the rest of their lives because of these crooks.

  • Commodities brokerage firms

    Whenever you repeat the phrase, ‘investment,ha the majority of peoples’ thoughts proceed directly to trading stocks. Shares are widely accepted as one of the most favored forms of investment.Commodities

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