Farm-state lawmakers in Washington, D.C., are becoming increasingly restless with the lack of answers related to the MF Global bankruptcy. Not only did the firm’s recent collapse take between $600 million and $1.2 billion dollars of people’s money with it, many of those clients involved farmers who now do not have the funds to secure seed, fertilizer and equipment they will need for the 2012 production year.

Even if a portion of the money is recovered, the damage it has done to farmers’ confidence in using the futures market as a risk-management strategy could be long-term phenomenon.

Farmers use hedging to manage their risk, and most days that’s a good practice, says Bob Young, chief economist with the American Farm Bureau Federation. But, “any kind of activity like this (involving MF Global) just creates a crisis of confidence among producers about whether or not this is the right thing to do.”

Producers have trusted futures, in part, because of provisions requiring that customer funds be segregated from brokerage funds. This, in turn, protects customers’ money in the event of a default or bankruptcy. Yet, it in the case of MF Global, it appears those funds were co-mingled.

At last week’s U.S. House Agriculture Committee hearings on the MF Global bankruptcy, Rep. Frank Lucas (R-Okla.), committee chairman, admitted there’s still much more to learn before confidence in the futures market will be restored.  

This week, the Senate Agriculture Committee is taking its turn. Appearing in front of the Senate panel on Tuesday, former MF Global chief Jon Corzine has said he does not know what happened to the customers’ money.

He reiterated what he told the House committee last week that “I never gave any instructions to misuse customer funds. I never intended anyone at MF Global to misuse customer funds.”

Still, that’s what happened. The futures brokerage had used $6.3 billion to bet on European sovereign debt. MF Global filed for bankruptcy on Oct. 31.

“Funds don’t simply disappear,” Sen. Pat Roberts (R-Kan.), and ranking member on the Senate Ag Committee, said at Tuesday’s hearing. “Someone took action, whether legal or illegal, to move that money; and the effect of that decision is being felt across the countryside.”

Roberts cited the timeline between Oct. 26 to Oct. 28, when the funds remained with MF Global, and by Oct. 31, “they were gone.”

“Producers must have faith in the safety and stability afforded by the futures market…to manage one’s own risk,” Roberts said, “which is why we need to get to the bottom of what happened. The buck stops somewhere.”

Several farmers have been in Washington to testify both last week and again this week.

There are already laws on the books to prevent such fund usage. “It’s almost like a terrorist attack…you get an individual or two who decides to do something to get around the law and it’s pretty hard to defend against something like this,” Young notes. “It’s absolutely wrong to co-mingle funds; they (MF Global) should have never been in that situation.”  

Regarding a possible timeline to recover funds to MF Global clients, few specifics are being offered. “As soon as possible,” is the timeline offered by MF Global Trustee James Kobak, who is charged with the task. That answer isn’t sitting well with lawmakers, as Rep. Tim Johnson of Illinois, said he and farmers needed a more specific answer.

As Kobak noted, there’s a 60-day claim period, and claims are in the process of being reviewed. He did not further elaborate on a timeline, but told the House committee that customers would like recover only 70 percent of their losses.  

For more, check out “Corzine amends comments about MF fund transfers.”