Monday, April 21, 2008

NEW YOR TIMES: New Threat to Farmers: The Market Hedge


New Threat to Farmers: The Market Hedge

Kristen Schmid Schurter for The New York Times

Fred Grieder, a farmer near Bloomington, Ill., has more to worry about these days than hard work, crops and rain. If the market for commodities futures turns the wrong way, he could be wiped out.

Published: April 21, 2008

Fred Grieder has been farming for 30 years on 1,500 acres near Bloomington, in central Illinois. That has meant 30 years of long days plowing, planting, fertilizing, and hoping that nothing happens to damage his crop.

The Food Chain

Articles in this series are examining growing demands on, and changes in, the world's production of food.

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"It can be 12 hours or 20 hours, depending," Mr. Grieder said.

But Mr. Grieder's days on the farm in Carlock, Ill., are getting even longer. He now has to keep a closer eye on the derivatives markets in Chicago, trying to hedge his risks so that he knows how much he will be paid in the future for crops he is planting now. And the financial tools he uses to make such bets are getting more expensive and less reliable.

In what little free time he has, Mr. Grieder attends Illinois Farm Bureau meetings to join other frustrated farmers who are lobbying officials in Chicago and Washington to fix a system that was designed half a century ago to reduce uncertainty for food producers but is now increasing it.

Mr. Grieder, 49, is shy about complaining amid so much prosperity. Prices for his crops are soaring on the updraft of growing worldwide demand, and a weak dollar is making those crops more competitive in global markets.

But today's crop prices are not just much higher, they also are much more volatile. For example, a widely used measure of volatility showed that traders in March expected wheat prices to swing up or down by more than 72 percent in the coming year, three times the average volatility for that month and the highest level since at least 1980. The price swing expected in March for soybeans was three times its monthly average, and the expected volatility in corn prices was twice its monthly average.

Those wild swings in expected prices are damaging the mechanisms — like futures contracts and options — that in the past have cushioned the jolts of farming, turning already-busy farmers into reluctant day-traders and part-time lobbyists.

One measure of the farming industry's frustration is the overflow crowd expected at apublic forum on Tuesday at the Commodity Futures Trading Commission in Washington. Interest is so high that the commission, for the first time ever, will provide a Webcast of the forum, which it says is being held to gather information about whether key markets for hedging the price of crops "are properly performing their risk management and price discovery roles." The Webcast link is available on the commission's Web site, www.cftc.gov.

The additional costs that stem from volatility in grain prices — higher crop insurance premiums, for example — are not just a problem for farmers. "Eventually, those costs are going to come out of the pockets of the American consumer," said William P. Jackson, general manager of AGRIServices, a grain-elevator complex on the Missouri River.

Prices of broad commodity indexes have climbed as much as 40 percent in the last year and grain prices have gained even more — about 65 percent for corn, 91 percent for soybeans and more than 100 percent for some types of wheat. This price boom has attracted a torrent of new investment from Wall Street, estimated to be as much as $300 billion.

Whether new investors are causing the market's problems or keeping them from getting worse is in dispute. But there is no question that the grain markets are now experiencing levels of volatility that are running well above the average levels over the last quarter-century.

Mr. Grieder's crop insurance premiums rise with the volatility. So does the cost of trading in options, which is the financial tool he has used to hedge against falling prices. Some grain elevators are coping with the volatility and hedging problems by refusing to buy crops in advance, foreclosing the most common way farmers lock in prices.

"The system is really beginning to break down," Mr. Grieder said. "When you see elevators start pulling their bids for your crop, that tells me we've got a real problem."

Until recently, that system had worked well for generations. Since 1959, grain producers have been able to hedge the price of their wheat, corn and soybean crops on the Chicago Board of Trade through the use of futures contracts, which are agreements to buy or sell a specific amount of a commodity for a fixed price on some future date.

More recently, the exchange has offered another tool: options on those futures contracts, which allow option holders to carry out the futures trade, but do not require that they do so. Trading in options is not as effective a hedge, farmers say, but it does not require them to put up as much cash as required to trade futures.

These tools have long provided a way to lock in the price of a crop as it is planted, eliminating the risk that prices will drop before it is harvested. With these hedging tools, grain elevators could afford to buy crops from farmers in advance, sometimes a year or more before the harvest.

But that was yesterday. It simply is not working that way today.

Futures, for example, are less reliable. They work as a hedge only if they fall due at a price that roughly matches prices in the cash market, where the grain is actually sold. Increasingly — for disputed reasons — grain futures are expiring at prices well above the cash-market price.

When that happens, farmers or elevator owners wind up owing more on their futures hedge than the crops are worth in the cash market. Such anomalies create uncertainty about which price accurately reflects supply and demand — a critical issue, since the C.B.O.T. futures price is the benchmark for grain prices around the world.

"I can't honestly sit here and tell you who is determining the price of grain," said Christopher Hausman, a farmer in Pesotum, Ill. "I've lost confidence in the Chicago Board of Trade."

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Final Push for Democrats in Pennsylvania

Final Push for Democrats in Pennsylvania


Ozier Muhammad/The New York Times

Senator Barack Obama greeted patrons at a diner in Scranton, Pa., on Monday. More Photos >

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Published: April 22, 2008

SCRANTON, Pa. — Senators Hillary Rodham Clinton and Barack Obama opened their final push across Pennsylvania here on Monday, rallying their committed supporters and seeking to win over a dwindling lot of undecided voters in the most expensive — and exhaustive — presidential primary in state history.


Pennsylvania's Political LandscapeGraphic

Pennsylvania's Political Landscape

Clinton and Obama in PennsylvaniaSlide Show

Clinton and Obama in Pennsylvania


The Caucus: In New Ad, Clinton Says She Can Stand the Heat (April 21, 2008)

In Push Before Vote, Obama Sharpens Tone (April 21, 2008)


The Caucus

The CaucusThe latest political news from around the nation.Join the discussion.

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Béatrice de Géa for The New York Times

Senator Hillary Rodham Clinton at a campaign rally in Scranton, Pa., on Monday. More Photos »

After a weekend of sharp exchanges, the Clinton campaign began airing a new television commercial featuring images of Osama bin Laden and the attack on Pearl Harbor, and closing with a terse question: "Who do you think has what it takes?" The Obama campaign circulated a flyer from Bill Clinton's 1992 presidential campaign, saying: "Vote your hopes, not your fears."

Bill Burton, a spokesman for Mr. Obama, responded sharply to Mrs. Clinton's new ad. "It's ironic that she would borrow the president's tactics in her own campaign and invoke bin Laden to score political points," he said. "We already have a president who plays the politics of fear, and we don't need another."

Reinforcing the message of her new advertisement on the stump, Mrs. Clinton told a crowd in her father's hometown of Scranton on Monday morning that it would be dangerous for voters to "take a leap of faith" by electing Mr. Obama, who she argues is untested.

"I don't want you to take a leap of faith or have any guesswork" about the next president, she said. "We've had enough of that," she said, referring to President Bush.

She also asserted that Mr. Obama was offering promises while she was offering solutions. "Some people say. 'Yes we can,' but that doesn't mean you will," she said. "I believe we will, if we have the right leadership."

As the Democratic rivals dashed across Pennsylvania on Monday in the final hours of the six-week primary campaign, a new poll by Quinnipiac University showed Mrs. Clinton leading Mr. Obama by 51 percent to 44 percent, with a margin of error of 3 percentage points.

"I'm not predicting a win," Mr. Obama said in a round of morning-radio interviews, before arriving at the Glider Diner here to greet voters. "I'm predicting it's going to be close and that we are going to do a lot better than people expect."

Mrs. Clinton's campaign manager, Maggie Williams, sent out a mass e-mail pleading for volunteers to help work phone banks and perform other get-out-the-vote work on Election Day.

"I can't emphasize enough what a difference it makes to have Hillary's best supporters — people just like you — making calls and speaking directly with voters" Ms. Williams wrote. "To put it as simply as I can, more calls equal more votes."

The e-mail also solicited donations but made no mention of the campaign's difficult financial situation.

Mrs. Clinton is scheduled to swing through Pittsburgh, Harrisburg and Philadelphia by nightfall. Mr. Obama plans to close his day with a rally in Pittsburgh.

On Sunday, Mr. Obama had sharpened his tone against Mrs. Clinton. In television commercials and in appearances before crowded rallies, he cast her in one of the most negative lights of the entire 16-month campaign, calling her a compromised Washington insider. Mrs. Clinton responded by suggesting that Mr. Obama's message of hope had given way to old-style politics and asked Democrats to take a harder look at him.

Over the weekend, both campaigns deployed thousands of paid workers, volunteers and surrogates to strategic points across the state. Mr. Obama, seeking to lock up the nomination, was outspending Mrs. Clinton two-to-one on television advertising in the state, with a barrage of commercials assailing her health care plan and suggesting that she was captive to special interests. Mrs. Clinton fired back on Sunday, criticizing his health care plan and saying he was going negative to mask his poor performance in last week's debate.

Voters in Pennsylvania go to the polls Tuesday, the first to cast ballots since Mr. Obama won the Mississippi primary on March 11. The gap made for the longest campaign in a single state since the opening bell of the presidential contest, in Iowa on Jan. 3, and left time for the candidates to bruise each other, and themselves.

"There's been a lot of discussion over the last several days about how this campaign gets so negative, how we get distracted, how we exploit divisions," Mr. Obama told voters in Reading on Sunday afternoon. "Look, our campaign's not perfect. There've been times where, you know, if you get elbowed enough, eventually you start elbowing back."

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Tom Peters Times--April 2008
Real People: The Latest from Tom

In Search of Excellence flipped the conventional wisdom of its day. Instead of characterizing strategy as all-important and implementation as a by-product, the book told stories of "'excellence in execution-implementation,' with 'strategy' secondary." Thus Tom introduces "Real People," his latest entry on our Free Stuff page at TomPeters.com. He goes on:

[I]t's the numbers and the plans that are "soft." (And this was pre-Enron, pre-super-derivatives.) And it's the people and the relationships throughout the "supply chain," from receptionist-to-bench scientist-to-customer-to-vendor-to-community, that is the truly "hard stuff"--that is, the Bedrock upon which all else stands, including any damn strategy you care to concoct.
You can get the rest of Tom's "Real People" manifesto by downloading the PDF (552 KB).

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Most Popular Blog Entries

Tom loves a good debate. At Tom's blog on tompeters.com, we're fortunate to have a growing community of commenters adding their voices to the conversation. With this in mind, we decided to try out a new feature in the TP Times: The Most Popular Blog Entry. This past month, the blog entry that gathered the highest number of comments, that is, provoked the most discourse, is Tom's "Ten Years in the Making!" announcing his Healthcare PPT, with Madeleine McGrath's "So, Work Really Does Matter..." coming in a close second. Read these entries now to see if you think they're worthy of the attention they got. And add a comment if you'd like to join the crowd.

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Tom Day in London, 28 April

Though Tom Day in London is sold out, there may be a chance to attend depending on possible cancellations. That's why we want to give TP Times readers a final heads-up for what is the only London public event in Tom's 2008 speaking schedule. It will take place at the QEII Conference Centre on Monday, 28 April, and Tom will be sharing the stage with Kjell Nordstrom, of Funky Business fame. You might remember him as a Cool Friend along with coauthor Jonas Ridderstrale.

"Look Beyond Change" is the theme for the day, and it should be a lively event. Details can be found on benchmarkforbusiness.com, or email us at team@tompeters.co.uk if you have any other questions.

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Web Seminar in May

If you miss Tom Day, there is another chance for you to hear his message, albeit without Tom himself. The next free Web Seminar from TPC!UK will be taking place on 22 May at 12 midday (British Summer Time) and 12 midday (Eastern Daylight Time), titled "Navigating in Turbulent Times." If you'd like to keep your organization on track for future success, or maybe you are struggling right now to find some smart moves for these tough times, conventional management thinking might see these as conflicting agendas. In Tom Peters Company, we don't!

Over many years of working with Tom Peters and his evolving prescription of business excellence, the Tom Peters Company has developed what we call our Future Shape of the Winner framework. We have also developed something new and exciting to accompany it, the Navigation Aid. In times of uncertainty and change, we have always believed that the best way to predict the future is to invent it for yourself. With this new combination, we can help you to do just that.

By assessing results of Navigation Aid survey results within the framework of Future Shape of the Winner, leaders and executive teams can make informed decisions about their priorities for change that are consistent with their picture of what future excellence looks like for their business. Sound like nirvana to you? Why not check it out for yourself?

You can find out much more by investing 60 minutes of your time in attending our free Web Seminar on 22 May. Sign up by email to team@tompeters.co.uk. More information can be found on futureshapeofthewinner.com.

Madeleine McGrath
Managing Director International
Tom Peters Company

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People Are Twittering about Tom's Daily Quote

Have you signed up yet? On April 10th we sent out the first Tom Peters Daily Quote. At the urging of a reader who missed the quotes that had rotated on our TP.com banner, we put them back. But the space available on the front page of TP.com is limited, so in order to bring you larger doses of Tom's wisdom, we have implemented a new subscription-only feature in the form of a quote-a-day. Recent evidence is that people are sending these quotes to each other by means of Twitter, a "social networking and microblogging service utilizing instant messaging, SMS, or a web interface." In our estimation, when we've made an impact in an arena that defines itself with at least three hot buzz words, we have a success! You can subscribe now to get the Tom Peters Daily Quote delivered to your inbox.

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Cool Friend: Fred Krupp
Cool Friend: Fred Krupp
President of Environmental Defense Fund, and coauthor of Earth: The Sequel--The Race to Reinvent Energy and Stop Global Warming, Fred Krupp is our new Cool Friend. The book is a field guide to innovation in the alternative energy industry, primarily through a cap and trade law. Not familiar with cap and trade? Read the Cool Friends interview to get up to speed.

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Consulten, opinen y escriban
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