The bankruptcy of a New York brokerage house seems far removed from the corn fields of Minnesota. But worldwide fallout from the collapse of MF Global is spreading to the state's grain elevators and commodity traders.
The bankruptcy has frozen funds the grain traders say they need to stay in business.
The 10 days since MF Global filed bankruptcy have been one of the toughest stretches ever in Chuck Mastel's nearly 40 years in business. His Minneapolis company, Mastel Grain, was an MF Global customer.
Mastel said when the New York securities dealer went belly up, nearly $10 million of his customers' money was instantly tied up in bankruptcy court. Normally, his customers would use that pool of money to buy and sell grain futures.
"We're almost completely shut down," Mastel said. "Our customer funds are completely frozen with MF Global and we're just unable to do any business until those funds are released."
Mastel calls the situation unprecedented. He said the customers' money does not belong to MF Global and should be released back to them by the bankruptcy court.
He also said MF Global's woes are adversely affecting his business and the grain brokers who work for him who are due commissions.
Mastel said his firm is unable to access more than $100,000.
Unless MF Global's situation is resolved quickly, Mastel said it will threaten the future of many companies — including his own.
The bankruptcy trustee handling the MF Global filing is hearing those sorts of concerns from all over the country. In a statement Thursday, trustee James Giddens wrote that he is investigating "complex cash movements at MF Global." Some funds are unaccounted for.
Giddens said sorting through the financial mess is delaying action on refunds owed to customers. He said the investigation is going on around the clock and that he hopes to distribute funds back to qualifying clients as soon as possible.
Mastel said Giddens should hurry, and not just for his sake. The situation is crimping the finances of grain elevators, he said.
"Some country elevators have just so much of a line of credit and some are extended," Mastel said. "It's having a devastating effect."
Those grain elevators are one of the top concerns of Minnesota officials.
Bob Zelenka, executive director of the Minnesota Grain and Feed Association, said the biggest problem area is what's known as "margin money" — funds that grain elevators have to pay when buying a grain futures contract. He said about 80 percent of the margin money owed elevators has been returned to them by the bankruptcy court.
But Zelenka said the remaining 20 percent is still a substantial amount of money in a business which operates on slim profit margins. That's sparked concern at the grain elevators, and at the banks that lend them money.
"Most all the elevators that are involved in this have had long conversations with their lenders," Zelenka said. "And yes, there's a lot of concern both on the minds of the elevator managers but also in the lenders that they do business with. And certainly it does create a problem, at least short term anyway, for them to be effective in buying grain."
No one is certain exactly how many elevators are caught up in the MF Global breakdown or how much money is owed to them. But U.S. Sen. Al Franken said MF Global mismanaged millions of dollars turned over to them by the elevators and their farmer customers.
So far, Zelenka said, no elevator has had to suspend operations because of the MF Global bankruptcy. But he said there is concern over what will happen if the elevators are unable to recover all the funds they're owed.
Zelenka said the longer the situation drags on the more it will affect the bottom lines of grain elevators statewide.