Fresh & Local
Farm Risk and MF Global, Part 2
Column #12, Published Dec 9th, 2011
Last week, I wrote about the bankruptcy of a company named MF Global. I am amazed at how little coverage this story is getting. The MF Global story is a very important story about the farm economy. There were some significant developments this week. There is still not much coverage, so I think this story deserves an update.
As I said last week, to understand this story, you have to understand that farming is arguably the financially riskiest business on earth. 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. 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.”
Futures trades are legally binding contracts that guarantee at a specific time in the future, a set price for a specific amount of a commodity. Futures contracts mitigate risk for farmers, and they are a matter of financial life-and-death in modern agriculture.
MF Global was an agricultural 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. Those accounts are not insured. That money belonged not to Wall Street, but to farmers, local grain elevators, and livestock feedlots.
The MF Global CEO was Jon Corzine, who is a former New Jersey governor and U.S. senator. Jon Corzine resigned shortly after the bankruptcy filing.
Last Friday, Fox News ran a story that Jon Corzine was subpoenaed to testify December 8th about his role in the collapse before the House Agriculture Committee. MF Global reportedly gambled $6.3 billion on European debt. Investigators want to know if Corzine authorized the use of client money to be mixed with MF Global money to help cover losses as the European debt crisis deepened.
The story did not explain why Jon Corzine is to testify before the Agriculture Committee, but readers of this column know why.
This week, the New York Post ran a story that just before the collapse, MF Global paid at least $625,000 to an outside consulting firm named Teneo. Teneo’s advisory board members are former President Bill Clinton and former British Prime Minister Tony Blair. Founding partner Douglas Band was a presidential councilor to Bill Clinton. Founding partner Declan Kelly was a fundraiser for Hillary Clinton’s 2008 campaign. VP for Strategy Tom Shea was former Governor Corzine’s Chief of Staff.
A MF Global employee told the NYP, “I don’t know what they did. It was always unclear.”
The NYP story did say that Teneo gave advice to Jon Corzine on European financial investments. That was some great advice.
Reuters reporter Tom Polansek wrote the only news I found that tells the stories of farmers that lost money, including a farmer named Dean Tofteland. Polansek wrote, “In the latest sign of how MF Global's failure is continuing to cascade across the commodity industry, Tofteland and other farmers who have yet to recover more than a third of their money from the bankrupt broker now find themselves in a cash crunch that risks rippling far beyond the futures market.” That is the story that is not being told. Thank you, Mr. Polansek.
The MF Global bankruptcy is a disaster for many in 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 firstname.lastname@example.org