ILLINOIS (WCIA) — Because of the rising grain market and regulatory requirements, tens of millions of dollars are flowing through grain elevators from their hedging accounts at local banks.
Grain elevators have to work closely with lenders right now to finance all of their daily operations, says Jeff Adkisson, Executive Vice President of the Grain and Feed Association of Illinois
“This is one of those years we have had a lot of farmer selling early in the fall or in the fall this year and anytime that farmers sell by regulatory standards the industry has to take what we call an equal and offsetting position with the Chicago Mercantile exchange in the futures market,” says Adkisson. “And we have to do that so we are not speculating. We are considered hedgers in the industry. And when you hedge and have a position in the futures market you have to meet margin calls as the market fluctuates.
“And so we’ve had a significant amount of movement in the market as most people know and so we’ve had to send additional margin call money to the Chicago Mercantile Exchange. You combine that to the historical time of year that farmers defer their income until January and we are paying farmers at this time of the year. So we’ve got the capital needs, the cash needs for meeting margin calls. We’ve got the capital or cash needs to pay farmers at this time of the year and so it creates a unique opportunity for us to work with our lenders a little bit closer.”
This year is different because the bull market and early farmer selling amplified the cash needs.
“It is different,” Adkisson says. “Sometimes farmers may hold on to their crop a lot longer and the purchases are strung out throughout the year. And there is still some of that but there was a higher volume of farmers selling this fall than what we have seen in the past. And so that’s why several things kind of all rolled together for these increased cash needs for the industry.”
Adkisson says the system is working as planned.
“The industry is very safe and secure,” he says. “As I say we have to take these equal and off-setting positions in the industry. So that protects the industry, it protects farmers, it protects everybody that they can get paid when they are ready to get paid.”