Trick or Treat? Grain hedgers haunted by the ghost of MF Global

Wed Oct 30, 2013 6:06pm EDT
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By Christine Stebbins

CHICAGO (Reuters) - Two years ago on Halloween thousands of U.S. grain farmers got the scare of their lives when broker MF Global collapsed and more than a billion dollars of their money went missing.

MF Global customers have now, through a court-appointed trustee, recovered about 98 percent of the money, which had been in supposedly "safe" margin accounts. The balance is expected by year's end.

The U.S. futures industry has also stepped up its audit trails of customer accounts at brokerages and banks and required more regulatory paperwork.

All that has been a treat for MF Global customers. But looking back at Thursday's anniversary of the debacle, U.S. grain hedgers fear there is little assurance they won't be tricked again. What is haunting them is that, lacking realistic alternatives, they must still use the U.S. futures market and futures commission merchants (FCMs)to hedge price risks.

"They really don't have an alternative," said Dave Smoldt, vice president of grains and oilseeds business for Intl FCStone, one of the firms that has picked up some former MF Global customers. "If you take in 13-14 million bushels of grain in 30 days, somebody has to hold on to it. So you're going to have to hedge it."

Jim Berg, an Ohio farmer and veteran commodities broker, agrees.

"Nobody is doing anything different. Maybe keeping the amount of excess margin down at houses," Berg said. "We need the markets. We're alright until the next violation. The next time, the trust is broken."

That makes many farmers and brokers who trusted MF Global very nervous.   Continued...

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011. REUTERS/Shannon Stapleton