The collapse of MF Global could be felt as much by lenders as by farmers and elevators which had placed hedges, but have lost all or part of their margin account. In a paper released last week, KSU’s ag economics professor Art Barnaby called it a “debacle, and probably more important to farmers than the Farm Bill.”
His contentions, if confirmed, could have a wide ranging impact on agriculture and its relationship with lenders in the process of hedging and managing risk through the use of commodity exchanges. Barnaby says if the regional banks, which are not too big to fail, in his estimation, and the Farm Credit system lose confidence in the marketing system and those hedge accounts from unauthorized use, that spells trouble for the entire marketing chain.
The Farm Bill has been around since the Agricultural Adjustment Act of 1933, providing a financial safety net for farmers, and a food supply safety net for consumers. If the MF Global bankruptcy turns out to have more impact on agriculture than the Farm Bill, that would be unprecedented.
Barnaby says “elevators need margin money to manage the price risk for stored grain.”
To read the paper, click here