MF Global Collapse Could Hurt Ag Retail
I’ve just gotten back from the annual Agricultural Retailers Association (ARA) meeting and it was a wonderful show. The overall mood among attendees and exhibitors was very positive, with the general feeling being that 2012 should continue to be another strong year for ag retail from the The Great Recession years of 2008 and 2009.
There was, however, one note of caution. For the past three years, our magazine has hosted a roundtable discussion at ARA as part of our State of the Industry coverage and special report. This year, nine ag retailers sat in on the meeting and most seemed very satisfied with how 2011 has played out financially, with the anticipation that 2012 would mirror this kind of performance.
However, one panel member was a little more fearful of the future, pointing to the failure of commodity trading company MF Global as the culprit. While not a household name among ag retailers, MF Global nonetheless was at one time the third largest commodities trading company on the grain side of the ag business. When the company filed for bankruptcy last month, federal investigators found that up to $1.2 billion was missing from customer accounts. Unfortunately, several of these customers are ag retailers with large grain businesses.
“In most years, grain is the part of our company that drives growth,” said this panelist. “Fertilizer outpaced this growth for 2011, but grain was still a big part of our profits for the year.”
And this is true for many companies ranked among CropLife 100 retailers. According to the 2011 survey, the nation’s largest retailers had over $13 billion in grain sales for the year – approximately half the total for all other inputs and services combined.
Will MF Global’s collapse lead to a marketplace panic like Lehman Brothers’ failure did to financial markets back in 2008? Right now, it’s too early to tell. However, hearing about any kind of unexpected threat to the financial security of the ag retail market is always a cause for concern, and one that should be watched going forward.