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UPDATE 1-Farmers say CME's post-MF Global fund inadequate
February 2, 2012 / 8:50 PM / 6 years ago

UPDATE 1-Farmers say CME's post-MF Global fund inadequate

* CME to launch $100 million fund for ranchers, farmers

* Farmers says fund in adequate

* Fund comes after Oct 1 collapse of MF Global

* MF clients still owed money

(Adds quotes from rice farmer, final three paragraphs)

By K.T. Arasu

CHICAGO, Feb 2 (Reuters) - U.S. farmers and ranchers, still tending raw wounds from the bankruptcy of brokerage giant M.F. Global, said a $100 million plan by the Chicago Mercantile Exchange (CME.O) to protect them against similar fiascos amounted to “window dressing.”

M.F. Global, the once-dominant broker for hedging in agriculture futures, went bust on Oct. 31 after making bad bets on European debt. Thousands of clients have yet to get back about 30 percent of their money, which was supposed to be held in segregated accounts. Investigators are trying to track down about $1.2 billion in missing customer funds.

The CME insurance plan, to be effective from March 1, covers farmers and ranchers who use the exchange for up to $25,000 and cooperatives for up to $100,000 when a clearing member fails.

The move was seen as an effort to lure back customers or sooth their anger after the exchange, MF Global’s main regulator, was criticised for inadequate oversight.

The CME, the world’s largest derivatives exchange, audited MF Global days before it filed for bankruptcy and chilled trading volume at the exchange’s grains and livestock futures markets late last year.

“It seems like a good business decision to restore confidence in the company, but it’s woefully inadequate,” said Dean Tofteland, who farms about 2,000 acres with corn and soybeans in Luverne, Minnesota.

Tofteland, a second generation farmer who has retrieved 72 percent of the $253,000 held in his MF Global account, said he would get back just over $2,000 from the CME fund based on a hypothetical case where $1.2 billion in customer funds are missing -- a scenario similar to MF Global’s current situation.


Tofteland, who uses the CME’s Chicago Board of Trade grain futures to lock in prices for his crops, was also disappointed that there had been no indictment or prosecution in the aftermath of the MF Global collapse. Many Midwest farmers had to delay purchases of seed and equipment in the days after the bankruptcy.

“Many have been hurt by MF Global’s bankruptcy. Though all the facts are not yet in, we do know our industry needs to focus on enhancing protections for customer segregated monies held at the firm level,” CME Group Executive Chairman Terry Duffy said in a statement.

CME spokesman Chris Grams said the exchange’s plan was “new and created to serve as an additional layer of customer protection.”

Joe Ocrant, president of Oak Investment Group whose clients include companies that operate feedyards where cattle are fattened for slaughter, said the fund will help to allay some of his clients’ fears. But he added that the protection offered by the CME was well short of what the “big hedgers” need.

“Some of my bigger clients hedge up to $1 million, and these people will still be leery,” he said. “It’s a start along the path, but they have been stung bad.”

Tony Rohrs, a fourth generation farmer in northwest Ohio who uses the CBOT market to hedge, called the CME fund “window dressing” and noted, “I am not totally reassured.”

“I know they are trying to restore some confidence in the situation, but it’s a little late in the day,” said Rhors, who grows corn, soybeans and wheat.

John Owen, who farms 4,000 acres in northeast Louisiana, welcomed the fund, saying “it’s a real good thing that CME is providing and insurance policy.”

Owen, who by chance switched his clearing house from MF Global to Rosenthal Collins 18 months ago, said:

“I think the Man Financial thing was pretty unprecedented. With them going into segregated funds. I don’t know that that has ever happaned before. I don’t know (if) that was CME’s problem; it was more the poor, unfortunate people that did business at MF Global -- which was me, 18 months ago.”

(Additional reporting by Julie Ingwersen; editing by Jim Marshall and David Gregorio)

(( Messaging: Keywords: CME AGRICULTURE/MFGLOBAL

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