In the Midst of Plenty Hedge Contracts Threaten Some Corn Farmers

Article excerpt

Corn and soybeans are thriving in another steaming Iowa summer while crop prices hover at record levels, but there are few smiles in this tiny town in the heart of grain country.

"I am concerned that this is the stuff that homicides and suicides are made of," said William Peake, pastor of First Reformed Church of Buffalo Center, about 150 miles north of Des Moines.

Peake is talking about the fight over hedge-to-arrive contracts - risky, unregulated grain trading mechanisms that grew increasingly popular in recent years and now threaten the financial livelihood of farmers and elevators across the Midwest.

Hedge-to-arrive contracts are profitable when the price of grain drops, such as after a big harvest. But a small crop and soaring demand have driven prices through the roof this year, making the hedge-to-arrive contracts big money losers.

In many cases, the elevators sold farmers these contracts, then hedged their own positions on futures markets and got hit with margin calls.

For small towns like Buffalo Center, the controversy is ripping apart the community, pitting neighbors against one another.

Grain elevators long held a special place in small towns, providing both a social and financial lifeline to farmers and their families. Many are cooperatives, owned by farmers who gain shares, or dividends, in the business by selling their grain there and buying fertilizer and other supplies.

"These cooperatives are kind of a modern day extension of the old effort of barn-building, where all the neighbors would cooperate," said Richard Updegraff, a Des Moines lawyer representing the Farmers Co-Op Elevator of Buffalo Center. …