Farm state lawmakers in Washington, D.C., are becoming increasingly restless with the lack of answers related to the MF Global bankruptcy. Not only did the firm’s recent collapse take between $600 million and $1.2 billion dollars of people’s money with it, many of those clients involved farmers who now do not have the funds to secure seed, fertilizer and equipment they will need for the 2012 production year.
Even when, or if, a portion of the money is recovered, the damage it has done to farmers’ confidence in using the futures market as a risk management strategy could be long term phenomenon. “Farmers use hedging to manage their risk, and most days that’s a good practice,” says Bob Young, chief economist with the American Farm Bureau Federation. “But any kind of action like this creates a confidence challenge among producers going forward—and that puts them at that much more price risk.”
Producers have trusted futures in part because of provisions that required producer funds must be segregated from brokerage funds. The point of this is to protect customers’ margins in the event of a default or bankruptcy. That, of course is at the core of the MF Global controversy.
At last week’s U.S. House Agriculture Committee hearings on the MF Global bankruptcy, Rep. Frank Lucas (R-Okla.), committee chairman, admitted there’s still much more to learn before confidence in the futures market will be restored.
This week, the Senate Agriculture Committee is taking its turn. Appearing in front of the Senate panel on Tuesday, Jon Corzine, former MF Global chief has said he does not know what happened to the customers’ money.
He reiterated what he told the House committee last week, that “I never gave any instructions to misuse customer funds, I never intended anyone at MF Global to misuse customer funds.”
Still, that’s what happened. The futures brokerage had used $6.3 billion to bet on European sovereign debt. MF Global filed for bankruptcy on Oct. 31.
“Funds don’t simply disappear,” Sen. Pat Roberts (R-Kan.), and ranking member on the Senate Ag Committee, said at Tuesday’s hearing. “Someone took action, whether legal or illegal, to move that money; and the effect of that decision is being felt across the countryside.”
Roberts cited the timeline between Oct. 26 to Oct. 28, when the funds remained with MF Global, and by Oct. 31, “they were gone.”