This week on the show: farmers in the Midwest still have some of their money in limbo after a huge bankruptcy late last year. Plus, Governor Nixon touts his new plan for job creation in Missouri, just as Republicans question his past efforts.
Farmers hit hard by MF Global flub
When MF Global went bankrupt late last year, it was the eighth-largest bankruptcy in U.S. history. What’s worse? The derivatives trading firm somehow lost track of $1.2 billion of customer money, much of it belonging to Midwest farmers. As Harvest Public Media’s Eric Durban and Jeremy Bernfeld report, the shock has left many farmers wondering just what they’re risking in the commodities markets, and pondering their options.
Would you trust the banking system if the money in your account was here one day, gone the next – with no explanation?
“I had over $30,000 in an account,” said Brian Dunn, a farmer and rancher from St. John, Kansas, in the central part of the state
That’s $30,000. Gone.
Dunn is among those caught up in the MF Global collapse.
MF Global brokered trades in the commodities market. A market that farmers often use to lock in a price for the wheat, corn, soybeans or whatever they plan to sell in the future. This “hedging” is a way to mitigate risk in an industry that has a lot of variables beyond the farmer’s control.
Hedging was an important business tool this year for Dunn, who was dealing with the uncertainly of drought.
“I’m like any other farmer, rancher and totally understand the risk associated with trading commodities, and you either win or lose depending on where the market goes,” Dunn said.
But Dunn argues the risk should lie in the markets - the actual hedging. The missing money at MF Global involves funds that were simply set aside in customers’ accounts, like a bank account.
Now, that money is gone.
Many farmers are asking, if it can happen at MF Global, where else can it happen? With farmers in the commodities market clearly on edge, will they pull their money back?
“That’s the key issue, is whether or not farmers lose faith in the futures market,” said Pat Roberts a U.S. Senator from Kansas.
Roberts is a member of the senate’s agriculture committee, which has some oversight of agricultural futures trading, part of a $40 trillion commodities marketplace. He says his office has been swamped with angry farmers calling about the bankruptcy.
“It’s going to be hard not to jump to assumptions or get down in the dumps here about the futures market, but let it play out, let the facts come out as they will,” Roberts said.
Lynn Wagnon, an ag broker in Coldwater, Kansas, has seen some immediate impacts.
Although no clients have pulled out completely, many are removing excess money from their accounts. That Excess money helps farmers act quickly when the markets change, and helps brokers make commissions.
“I had people that felt like their money was safer here than in a bank,” Wagnon said.
Some people didn’t just lose money, Wagnon said, they lost faith.
“I grew up where a handshake is your bond, and most ag people were raised that way. A lot of people tell me they’re more saddened by that than maybe even losing their money,” Wagnon said.
Even though he’s seen a recent dip in trading, Wagnon says he doesn’t think the crisis at MF Global will have a long term impact on the market, as long as farmers can get assurances that this won’t happen again.
Many observers – including those commodities traders -- say that farmers don’t have much choice. They need the commodities market to ensure stability and profits, and once the missing money is sorted out, faith in the markets will be restored.
“Gets sorted out!? There’s a billion-two of customer money missing! How are they going to sort it out?” said Harold Bradley is a former executive at the Kansas City Board of Trade, one of the largest commodities markets in the country. He was also a commodities trader and stock investor.
Bradley doesn’t quite believe that the MF Global mess is only a momentary blip in the market. He says the breakdown shows flaws in the system.
If investors are jittery, he says, they’ll pull the excess money from their accounts, brokerages won’t be able to make enough money and the entire industry may have to change.
“This will have long term negative impact on risk capital in the commodity markets and people will run for the hills and they won’t come back,” Bradley said.
At this point, it’s not clear if farmers are running for the hills, or if they are, how far they’ll actually run.
Out in the middle of Kansas, farmer Brian Dunn has recovered most of the $30,000 that went missing from his account. But, he’s still waiting on about $9,000 and it’s not clear if he’s going to get it. Dunn doesn’t plan on completely abandoning the commodities market — he just wants the system to work.
“So that I can sleep at night and the thing I have to worry about then is producing the crop. I don’t have to worry about everyday are the markets up or down. Once I know I’ve reached a point of profitability I can go about doing what I do best, and that’s growing crops and cattle,” Dunn said.
Nixon introduces job creation plans while Republicans critique past efforts
Governor Jay Nixon has been traveling the state to promote a new set of incentives in his overall strategy to create jobs in Missouri. The proposal is called “Missouri Works.” KSMU’s Jennifer Moore reports on the details of the plan.
At the Custom Powder Systems manufacturing plant in Springfield, Nixon said his top priorities as governor once again this year are to get more Missourians working and to keep the economy moving forward. There are many parts to his Missouri Works proposal, which would need to get lawmakers’ approval:
First, Nixon wants to expand Missouri exports by providing state assistance and resources to Missouri businesses hoping to sell their goods outside of the US.
“Now, we’re also working to make sure small business have the opportunity to explore export operations. As we see that 35 percent increase in 2010, a 14 percent increase in 2011 in exports, we clearly know that selling Missouri around the world is a responsibility that we have, and we’re gonna make sure we have the resources to do just that,” Nixon said.
The Missouri Works proposal would also provide incentives for auto-suppliers like Ford and GM to invest in Missouri. It would invest $4 million to help high-tech businesses create science and technology jobs. It would offer performance-based incentives for businesses to hire in rural parts of the state. The strategy would expand the mission of “Show-Me Heroes,” which is an initiative to encourage employers to recruit and interview military veterans. And the proposal would put money toward training workers in high-tech careers.
Nixon did not give a price tag on the entire Missouri Works proposal, but said he will talk money on Tuesday when he delivers his State of the State address.
Missouri Republicans criticized Nixon Monday, saying some of his job-creation tax breaks have been failures. During a House committee hearing Monday, figures showed a wide gap between the number of jobs anticipated and those actually created by businesses who were approved for aid under Missouri’s Quality Jobs Program. Two representatives suggested that projects that have not created any jobs should be seen as failures.
Moore asked the governor about that. He began by saying the vast majority of the incentives under the Quality Jobs Act are only paid after the jobs are created.
“Does every business deal work out like everyone hoped it would? No. This is America. I mean, does everything we step at come out perfect? No. But I’ll tell you one thing, I’m not going to stand still. The people who want to spend their time standing still and have a critique on what have been problems in the past, instead of joining together and coming forward with where we have to lead this economy, I really don’t have a lot of time for them,” Nixon said.
And as for how likely it is that a Republican-controlled House and Senate will be willing to support the Democratic governor’s plan, especially in an election year, Nixon says he’s optimistic that when the dust settles from the opening of a new session, lawmakers will join hands for the sake of the state’s economy.
According to the Department of Economic Development, Missouri added nearly 11,000 new manufacturing jobs in the first 11 months of 2011. The unemployment rate in Missouri is now at its lowest point in 34 months.