|
Nw Iowa | The problem is that a banker generally wants some kind of collateral after a certain point. If you go to bank and say you need a 500000 to put crop in and than go back to him and say you need 5000000 they are going to get very excited. Even if crop is worth 10 times more , you are going to have very nervous banker, board of directors and fed examiners. Other issue is most banks have a lending limit and after that a lot more issues. The banks the big coops use have a lot of latitude, way more than a local banker, way , way more but imagine if you are bank for multiple coops and their hedging money allowance is 150 million and suddenly you are at 400 million, I guarantee everybody is going to get nervous. Now take it a step further and guy who originally contracted the grain can’t get it planted and suddenly his 6$ hedge is upside down 6 or 7$. Now if he has insurance and he didn’t get too wild it should all work out but there is always risk. On top of that grain is generally a low margin business so on years when you have to pay interest on a 6$ even at 4% for half a year is suddenly .12 cents of margin that is gone and I am guessing most never make that much on whole transaction. Or let’s say you are a smaller outfit hedging thru a much bigger outfit and big outfit files bankruptcy. Suddenly little guy is in the soup. Here when Grainland coop went down, the guys cheap sales were a asset to the bankruptcy court and all that grain got delivered somewhere at original contract price with equity in the contract going to creditors. I am not yelling fire but this is going to get real ugly if market keeps going up. | |
|
Wheat price, elevator margin calls, world wheat uncertainty
