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Published January 24, 2012, 12:20 PM

Broker collapse costs N.D. state mill

BISMARCK, N.D. — North Dakota’s state-owned flour mill will likely lose at least $60,000 because of the collapse of a commodities broker the mill has used to guarantee prices for the wheat it buys, according to a state audit.

By: Dale Wetzel, Associated Press

BISMARCK, N.D. — North Dakota’s state-owned flour mill will likely lose at least $60,000 because of the collapse of a commodities broker the mill has used to guarantee prices for the wheat it buys, according to a state audit.

The Mill and Elevator was a longtime client of MF Global Holdings Ltd., a New York-based company that filed for bankruptcy last October. Vance Taylor, the mill’s general manager, said Tuesday that the mill had $408,000 in its MF Global account when the company collapsed.

“We’ve been working with them for years. They’re one of the largest brokerage firms and one of the most respected at the time,” Taylor said. “Obviously, they’re not now.”

About $292,000 has been recovered, said Ed Barchenger, the mill’s comptroller. The audit estimates the mill will eventually get back $346,800, which would leave a loss of $61,000. The recovery is not assured.

Investigators say MF Global was using clients’ money for its own operations and that more than $1.2 billion went missing. Auditors and a bankruptcy trustee are sorting through the company’s finances.

The company’s problems have been the subject of congressional hearings. MF Global’s chief executive officer was Jon Corzine, a former New Jersey Democratic governor, U.S. senator and chief executive of Goldman Sachs, an investment banking firm.

Taylor said the mill used MF Global and another brokerage, ADM Investor Services Inc., of Chicago, to buy wheat futures as part of its operations, primarily on the Minneapolis Grain Exchange.

The exchange is one of the primary markets for hard red spring wheat. North Dakota is a leading producer of the wheat variety, which the mill buys to grind into bakery flour.

The loss will put a small dent in the mill’s finances. It made $2.2 million in profits during October, November and December, according to its most recent financial results.

Down but still healthy

The mill saw its profits drop steeply during October, November and December from the previous budget year’s record levels, but they were still among the highest in the history of the state-owned mill, Taylor said Monday.

The mill’s quarterly profit was $2.2 million during the quarter, 36 percent less than the $3.5 million from the previous year, according to a report presented to the state Industrial Commission.

In the first six months of its budget year, which began July 1, the mill has made a profit of $4.9 million, the report said. The mill made almost $6.3 million during the same period last year on its way to an annual profit of $16 million, a number Taylor said he did not expect to match.

“Going forward, we expect the third quarter to be slightly slower, due to the normal New Year’s resolution dieting that we always see,” Taylor said. “I think we’re going to continue to stay busy.”

Gov. Jack Dalrymple, Attorney General Wayne Stenehjem and Agriculture Commissioner make up the commission, which is the mill’s board of directors.

Taylor said flour shipments for the first six months of the year reached an all-time high, of 5.94 million hundredweight. Its sales totaled $163.6 million during the period.

Most of the flour was ground from spring wheat and intended for use in making breads and rolls, although almost 10 percent was durum flour, which is used to make pasta.

The mill sells most of its flour in bulk to customers, although it also markets bags of flour through grocery stores, as well as pancake and bread mixes.

Taylor said he had been concerned about the mill’s ability to obtain good-quality wheat, given the flooding last spring and summer than prevented many farmers from planting crops at all.

“With the late planting and all of that, we were a little bit worried about the crop, but it’s actually been .... really nice milling quality,” Taylor said during an interview with The Associated Press. “The customers like the flour, it’s working very well in the bakeries.”

Copyright 2012 The Associated Press.

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