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BRIAN HOOPS

By Staff | Nov 23, 2012

A recent U.S. House panel concluded that credit rating agencies and federal regulators contributed to MF Global’s collapse last year. But it pinned most of the blame on ex-chief executive officer Jon Corzine.

The report issued by the House Financial Services Oversight and Investigations subcommittee found Corzine’s risky strategies caused the brokerage firm’s failure. That largely reiterated a statement released by the committee’s Republicans.

MF Global was forced to seek bankruptcy protection last year, the eighth largest in U.S. history. More than $1 billion in customer money went missing. Corzine, a former U.S. senator and governor of New Jersey, stepped down as CEO in November 2011.

“This marked the first time in the history of the U.S. futures industry that a customer suffered a loss due to the mishandling of customer funds,” Rep. Spencer Bachus, R-Ala., chairman of the full Financial Services Committee, said in a statement. But it wouldn’t be the last.

As this went down, I thought of a lesson taught to me a long time ago: “You can’t make a good deal with a bad guy.”

Meaning, no matter how rosy the deal or situation looks, if the person behind the deal is rotten, eventually the deal will blow up.

MF Global is only one recent example. Last summer, Peregrine Financial, located in Cedar Falls, and better known as PFG, also declared bankruptcy. Peregrine filed to liquidate under Chapter 7 of the U.S. bankruptcy code with between $500 million and $1 billion of assets, between $100 million and $500 million of liabilities, and between 10,000 and 25,000 creditors.

PFG, also mishandled client’s money as it was revealed the bank account that PFG reported was holding $225 million in 1,845 customer accounts actually contained only $5 million. PGF owner, Russell Wasendrof, Sr., attempted suicide after the information became public.

Several years ago, another financial brokerage giant collapsed as a result of fraud. Thankfully, no customer funds were lost or missing as a result. In 2004, industry giant, Refco, went public, issuing stock certificates. Only two weeks later, it was revealed that Refco’s accounting practices were fraudulent in an attempt to improve its financial situation and make their company value appear better than it really was to inflate stock prices.

Interesting tidbit of information – Refco stood for Ray E. Freedman Co., who started the company in Sioux City.

The lessons learned from these examples are obvious. Know who you are doing business with. A solid reputation and confidence that your money is safe is worth much more than an extra .5 percent interest rate or a slightly lower commission rate.

CORN ANALYSIS

Corn closed the week $.11 3/4 lower. Last week, private exporters reported a sale of 158,496 metric tons of US. corn to unknown destination.

In the weekly export sales report, corn sales shows 12.3 million bushels slated for 2012/13. This is below the 16.6 mb that is needed to stay on pace with the USDA forecasts of 1.15 billion bushels.

Corn looks to remain in a trading range as supply issues are well known by now and the demand puzzle moves to the front of pricing.

The lack of exportable corn demand looks to cap rallies, while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.

Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop.

SOYBEANS ANALYSIS

Soybeans closed the week $.68 lower from last week. Last week private exporters reported 120,000 mt of US. soybeans sold to China and 72,000 mt of bean oil to an unknown destination.

In the weekly export sales report, soybean sales were 21.5 mb, this is below the 9.1 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb.

NOPA October soybean crush came in sharply above expectations as new crop supplies moved into crushing facilities.

NOPA October soybean crush was reported at 153.5 mb, sharply above market expectation of 144.4 mb, and up from 119.7 mb in September and 141.2 mb last year.

October crush was the highest in three years and up 8.8 percnet from last year.

Prices will need to close above weekly resistance of $15.71 to confirm seasonal lows are in place. This was previous support that was broken and will serve as resistance on rally attempts.

Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.

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