More than 87,000 farmers have been affected by the MF Global meltdown through their grain co-op ownership, even if they have never traded futures or options, as their co-op earnings may drop if the bankruptcy court doesn’t make the firm’s clients whole. Even the value of their co-op stock could be affected.

Futures and options traders, including commercial buyers and producers, who had accounts at MF Global at the time of its bankruptcy, Oct. 31, have waited with varying degrees of patience as investigations into the missing customer funds have employed dozens of forensic accountants, hearings have been held regarding the supposed sanctity of customer “segregated” funds and claims were filed and reviewed.

The amount of funds estimated to be missing from segregated customer accounts has risen to $1.6 billion from the earlier $1.2 billion.

On average, about 72% of customer funds have been returned. However, clients were treated differently depending whether they held futures positions, long versus short options positions, cash only, or securities in their accounts. Even among hedgers, the treatment varies depends on which exchange’s futures they were trading and that exchange’s margin policies.

All the claims in the bankruptcy are listed online.

Keith Banta, a commodity broker in Minnesota, identified 34 grain co-ops with which he’s personally acquainted. Here’s his list of co-ops by state (there are others involved, but with smaller amounts), approximate members and value of exposure on Oct. 31, when MF Global declared bankruptcy.

“These farmers and co-ops are not happy that their claim forms appeared on the bankruptcy docket’s website,” he told Brock Associates. “Customers had hoped to be treated as something more than creditors given that their funds were supposed to be segregated.”

Friday, the bankruptcy trustee James Giddens reported that he was through about half the more than 25,000 commodity customer claims and had approved 12,143 and denied only three. This means those claims are valid and will receive a share of the proceeds, but does not guarantee they will receive all their funds. These clients are receiving official letters today.

“In some cases, elevators are hit harder by this than farmers because any loss represents a bigger share of their profits on a bushel of grain,” says Banta. Some farmers are making record income from corn this year, may have hedged only a portion of their crop and had relatively limited exposure in their margin accounts. Elevators, on the other hand, tend to hedge more of the grain they purchase and only expect to make a few cents a bushel on the buy-sell spread.

Banta also pointed out that hedgers who trade electronically may have had more difficulty with the claims process since they don’t have a broker to help fill out claims – or possibly make good on the account if the bankruptcy distributions fall short.

“Typically, if a client doesn’t make a margin call, the broker becomes responsible, and if broker can’t make the margin call, the IB (introducing broker) does, then the FCM (futures commission merchant), so the counter party never loses,” he explains. “This time, it is top-down and there the way to handle that hasn’t been spelled out.”

The bankruptcy proceedings don’t take into account at all hedge positions that had to be closed or losses due to not being able to trade for several days due to paperwork nightmares or lack of brokers to handle orders. Nor will they address possible changes in cash contract offerings by elevators that may no longer want to be exposed on contracts that require underlying futures/options positions such as hedged-to-arrive or min-max contracts, to name a few.

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.