Andrew Abraham

andy-0101 My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I adhere to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets me apart from other traders is that I am not only concerned about the return on investment but how much risk I will have to tolerate to achieve my goals.

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MF Global actions may cost farmers, elevators millions

From an article
http://www.postbulletin.com/news/stories/display.php?id=1475278

On Halloween, the commodities firm MF Global Inc. filed for bankruptcy, and the effect is being felt in rural Minnesota.

It was three years to the day since VeraSun filed for bankruptcy, which also had an effect.

VeraSun was a clear bankruptcy situation, said Bob Zelenka, executive director of the Minnesota Grain and Feed Association. The impact was more isolated and the amount of money involved was less than what’s possible with the bankruptcy of MF Global.

MF Global is a major derivatives broker that appears to have mismanaged millions of dollars invested by grain elevators and farmers. The money was supposed to be kept in segregated accounts for hedging grain and the futures market.

However, several hundred million dollars were missing from the segregated accounts when a bankruptcy trustee took over on Oct. 31.

As authorities sort through the paperwork, some commodities accounts have been frozen.

It’s a real problem for regulators to track down the money, Zelenka said. The situation is in a state of flux, with some suggesting that elevators and farmers prepare for a 10 percent to 11 percent loss.

“Depending on how much money you have at stake, this could be financially challenging,” Zelenka said.

Lenders on alert

Not only are farmers and grain elevators worried, but their lenders are as well. A lot of money is unaccounted for.

“The elevators and farmers who worked through MF Global, they did everything right,” Zelenka said.

According to news reports, MF Global bet on European sovereign debt.

Answers to questions regarding MF Global have been in short supply. Minnesota’s two U.S. senators have stepped up to help, with Sen. Al Franken arranging a call with federal commodity and securities regulators to answer questions regarding the bankruptcy.

“The conference call that Sen. Franken helped us facilitate (Nov. 9) was very helpful, even though there’s still a lot of questions out there and our guys are still having their sleepless nights worrying about millions of dollars that are at stake here,” Zelenka said.

Many farmers or elevators may not have even known they were working through MF Global. Most work through an intermediary to conduct trades. Those intermediaries are as devastated as grain elevators by this situation, Zelenka said.

Recovery efforts

Thus far, the bankruptcy judge has been able to recover 86 percent of the margin money, he said. It was redistributed to affected parties and their new brokerage houses.

“Our hope is that they do locate 100 percent of the funds and not force farmers and elevators who are affected to have to go through the bankruptcy proceedings … file a claim with the likelihood of not recovering 100 percent of their money,” Zelenka said. “That’s just going to put undue pressure on these elevators and farmers.”

Franken has requested federal regulators expedite their investigation, and he plans to continue to monitor this issue.

A statement from Franken’s office said he “is also eager for the conclusion of the investigations that are under way, as he hopes that they’ll help reveal what steps might need to be taken next, be it changes in regulation, legislation or possible legal actions.”

Zelenka doesn’t know if more regulations would have helped in the MF Global situation. If people are going to do something illegal, they’ll probably find their way around a regulation, he said.

“This does shake your faith in the futures market for sure,” Zelenka said. “You just have faith that things are being done legally and properly, and our faith has been shaken.”

National Public Radio contributed to this report.


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