MF Global breakdown dominates Chicago grain market talk

Anywhere traders congregate, the conversation this week starts with MF Global.

That firm’s massive bankruptcy has landed with a thud in Chicago and New York markets. MF Global declared bankruptcy Oct. 31, curiously just after an audit that did not discover the discrepancies that existed deep in the bowels of this futures-trading and debt instrument-trading giant.

That the company has broken faith with its depositors has shaken the foundations of futures trading as we know it.

$650 million short. The rumors I hear are that, when the dust settled in the Chicago portion of the collapse, they were some $650 million short of covering the margin deposits of futures customers.

Futures clearing companies come and go, but the sacrosanct rules the futures regulators go by have heretofore guaranteed the principle of “segregated funds.”

This means that the money you deposit with your broker is deposited in funds that are not commingled with the company’s operating funds. Your money is safe, and is only being accessed for your personal trading requirements.

Somewhere in the recent past, MF Global is said to have broken this covenant. As a result, individual traders are being forced to participate in the problems.

MF Global customer accounts are being absorbed by six companies appointed by overseers at the Chicago Board of Trade. The actual trades and required margins are being transferred from MF Global.

Unfortunately, any trading equity is not transferred, because of the $650 million shortage.

Uncertainty. It remains to be seen what recovery can be made there. Again, rumor has it that MF Global was involved in Greek debt bonds and other European bonds that have been downgraded. In the case of the Greek bonds, they are now considered to be junk bonds.

The effect of this downgrade is said to have rippled through the company’s account. At some point, funds were commingled to cover losses, it seems.

Oh, yes, the market

Against this backdrop, actual trading has not been notable.

Corn futures and wheat futures are showing steady sideways movement on the charts. Corn has had some volatility, but little net price change.

Soybeans, meanwhile, have been in slow general decline, but are sparking higher the last day or so.

December corn futures had a high of 6.64 on Oct. 21, then dipped to 6.32 on Nov. 1. That seems like a big deal, but not with current volatility. We bounced to 6.53 1/4 Monday (Nov. 7), and Tuesday morning after the overnight, we are at 6.55 1/2. These days we call all that “steady.”

The beans have been in a minor downtrend, with a high two months ago at 12.82 January and a low Nov. 1 at 11.91. That is most of a buck down, but we bounced to 12.31 on the 3rd, then dropped back to 11.98 1/2 Monday.

While this is being written, we have opened up and are now back over 12.08.

Harvest progress according to USDA had us with good gains through Sunday, but still way behind the normal and lagging the rest of the country. Ohio has 34 percent of the corn off, a gain of 16 percent in a week. The nation is at 87 percent, and the leading Corn Belt states are in the 90s. Indiana is in the middle, with 74 percent done. The soybeans are getting done, with the U.S. showing 92 percent harvested. Ohio is at 67 percent, though. That is a 16 percent gain for the week, but last year we were at 92 percent.