Trusting the Futures Trading System

The futures industry is supposed to help farmers and ranchers reduce the risks of volatile prices by locking in prices through the futures market; allowing them to plan ahead, knowing what their costs will be. This has been a done by farmers and ranchers for a good century. Now with the bankruptcy of the commodities trading firm MF Global farmers, ranchers, and rural ag businesses across the United States are left in a state of shock wondering if they will ever be able to trust the futures trading system again; not only because of the collapse of MF Global, but because there is an estimated $1.2 billion that may be missing from customer accounts. In what seems to be becoming a common occurrence amongst trading firms, it appears that MF Global, as its financial condition deteriorated, milked client funds; funds that were supposed to be kept strictly separate in safe segregated accounts. As Scott Cordes, president of an MF Global competitor stated, “Preserving confidence in the system is essential, because farmers who don’t trust traditional risk management tools might end up taking on even greater risks.” The question now is, who can farmers trust?