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MF Global, Eastern Top Discussion at Live Cattle Marketing Committee

by Troy Smith for Angus Productions Inc.

NASHVILLE, Tenn. (Feb. 3, 2012) — The National Cattlemen’s Beef Association (NCBA) Live Cattle Marketing Committee met Friday, Feb. 3, during the 2012 Cattle Industry Convention in Nashville, Tenn. Committee chairman and Texas cattleman Paul Colman led discussion regarding impacts to cattle producers stemming from the recent bankruptcy of the commodity brokerage firm MF Global and last year’s disintegration of cattle broker Eastern Livestock Co.

 

Colman introduced Bryan Durkin, COO for CME Group, which provides oversight of brokerage firms and had audited MF Global prior to its bankruptcy in October 2011. According to Durkin, the audit provided no indication that MF Global was not in compliance with regulations. It is suspected, however, that MF Global did not maintain funds in its “segregated accounts” for deposits by clients, including cattle producers. It is further suspected that MF Global may have lost deposit funds through failed investments.

 

Durkin said the MF Global bankruptcy trustee has returned about 72% of customers’ money. Clients are still owed about $100 million of the estimated $1.2 billion missing from MF Global accounts. CME Group is cooperating with federal investigations, which he believes will lead to “refinement of regulations.”

 

“A holistic solution is in order to prevent another MF Global (situation) from ever happening again,” stated Durkin. “All recommendations for a viable solution are up for consideration.”

Protection fund announced

Durkin also announced CME Group’s launch, effective March 1, of a $100 million fund to protect farmers and ranchers who use grains and livestock futures markets in the future. Sort of an insurance plan, the protection fund would provide up to $25,000 for each eligible farmer and rancher and up to $100,000 for cooperatives.

 

Establishment of the protection fund, as a means of restoring confidence in the futures trading system, was received with some skepticism by NCBA committee members. Recognizing the lack of clear understanding of how brokerage firms may or may not invest funds held in clients’ segregated accounts, committee members advanced a directive calling for NCBA to research and provide members with an explanation of applicable Commodity Futures Trading Commission (CFTC) regulations, including changes already scheduled to become effective Feb. 15, 2012.

 

Also advanced was a directive calling for Congressional investigation of the Packers & Stockyards Act, as to why the Grain Inspection Packers & Stockyards Administration (GIPSA) has not audited the failed Eastern Livestock Co. since 2005. Also approved was a directive seeking improvement to the quality and usefulness of mandatory price reports. The measure calls for an NCBA working group to develop recommendations that could include creation of a weighted average price for steers and heifers in reports for all grades of cattle, and a rolling update of net prices for formula cattle.

 

Also discussed during the meeting was the increased use of contracts and formula-based marketing agreements, along with the associated decline in cash market volume. The questionable value of cash price information, on which formula pricing and contracts are based, was said to justify exploration of alternative forms of price discovery.