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Andersons Ends New Crop HTA Program

Turbulent markets and huge margin calls pressure elevators as prices surge higher.

The Andersons, one of the larger regional players in the eastern Corn Belt market, has suspended its hedge-to-arrive contracting program for 2008 and beyond crops, according to a notice posted Tuesday on the Toledo, Ohio, firm's website.

The move comes at a time for increasing financial pressure on elevators caused by the dramatic surge in prices for corn, soybeans and wheat over the last six months. These firms face huge margin calls on their hedges at a time when commercial credit is harder to find due to the fallout from the subprime mortgage mess.

According the The Andersons' notice, the firm will continue to write HTAs on grain delivered through August. But, as confirmed by a poll over the last week, the fees charged on the contracts are much higher than the industry charged traditionally. The firm will charge three cents per bushel for corn, seven cents for soybeans and three cents for wheat.

In addition, the notice said the firm will purchase grain for delivery from September 2008 through August 2009 on a flat price or basis-fixed contract only, with no HTA's written. For September 2009 and beyond, only basis only contracts will be used, with not HTA or traditional flat price contracts done.

In addition to their margin call problems, elevators face increasing volatile in the cash market, where basis has not followed typical delivery patterns. That has forced some to significantly weaken their cash bids as a way of protection.

 "We are living through some tremendous times, are we not?!," The Andersons said on its website.  "The early 1970s come to mind as similar to this time, but markets in 2008 are even larger, with more players than back in that 'bull market.'"
Andersons has been preaching and selling "risk management" for years. We have always tried to apply or understand risk management principles in light of the current environment and in light of our customers' situations."

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