Fresh & Local
Farm Risk and MF Global
Column #11, Published Dec 2nd, 2011

It never ceases to amaze me how many important news stories get almost no coverage. About four weeks ago, a company named MF Global filed for bankruptcy. There were only a handful of news articles written, and most of them called MF Global a “brokerage firm” and mentioned that the CEO was Jon Corzine. Jon Corzine, a former New Jersey governor and U.S. senator, resigned shortly after the bankruptcy filing. That was pretty much the extent of most of the MF Global reporting. At the same time, the reporting on the trial of Michael Jackson’s doctor has gone on continuously for weeks.

The MF Global story is an important story, and it is a story about farming. This column is about locally grown food, but this bankruptcy touches on an issue I have talked about. Grant me some leeway, and I will explain.

To understand this story, you have to understand that farming is arguably the financially riskiest business on earth. Rex Tugwell, an under secretary of agriculture in the 1930s, once wrote, “Of all the kinds of men, the farmer is the greatest speculator. He does not think of himself as a gambler, but he lives every day subject to such risks as would give a professional Wall Street operator nervous chills.” There are so many events that can affect supply and demand for agricultural commodities that prices can change wildly literally overnight.

U.S. history is full of sudden crashes in farm prices that wiped out large numbers of famers. If you Google the words “farm economic panic” you might be amazed at the results. That is why we have a federal Department of Agriculture. If you have ever listened to the radio in a rural area, then you have heard the farm reports of commodity prices. Because farming is such a risky business, up-to-the-minute commodity prices are important news.

To mitigate the risk from price crashes, commodity markets like the Chicago Board of Trade and the Chicago Mercantile Exchange developed something called “futures trading.”

I told this story in a previous column. We farmed as a part-time business for many years. Ramping up production to make the jump to full-time would take months of work and a significant amount of money. After all that investment, would we be able to sell what we had? That was a big risk. We talked to a wholesaler who offered us an agreement to buy a certain amount from us each week, at certain prices, for a certain period of time. That agreement removed most of the risk. We accepted the agreement and made the jump.

I said in that column that one of the important functions of a wholesaler is their ability to mitigate risk for growers. The concept of futures trading is very similar. It is a legally binding contract that guarantees at a specific time in the future, a set price for a specific amount of a commodity. The key words are “guarantees future price.” Futures contracts are a matter of financial life-and-death in modern agriculture.

Getting back to MF Global, they were a commodities broker. $5.45 billion in customer accounts were immediately frozen after the bankruptcy filing, and as much as $1.2 billion might be missing from those accounts. That money belonged not to Wall Street, but to farmers, local grain elevators, and livestock feedlots. The MF Global bankruptcy is a disaster for the farm economy, and it deserves a lot more coverage than it has received so far.

Bryant Osborn and his wife Terry own Corvallis Farms in Culpeper County. His column on fresh and locally grown food runs every Friday. He can be reached at