D4-Lancaster Farming, Saturday, February 13, 1999 Conservatives, Well-Intentioned Are Target Victims Of Scams VERNON ACHENBACH JR. Lancaster Fanning Staff BLUE BALL (Lancaster Co.) Blue Ball National Bank of Lancaster held its annual agri cultural seminar recently at the Blue Ball Fire Hall. About 150 customers of the agricultural lender attended the event that featured speakers dis cussing issues including dairy pro fitability, financial planning and trust development, business struc tures and tax considerations, the outlook for commodities markets, and environmental considerations at the federal and state level. Speakers included Glenn Shirk, Lancaster County Extension dairy agent, who discussed dairy price volatility and what farmers can do using “put options” to help mod erate the volatility of farmgate price; Attorney Gary Heim, who discussed legal and tax exposure ramifications of various business structures used for farming; Char les Few, trust development officer of Blue Ball National Bank, who talked about financial fraud and how to avoid being a target for fraud; H. Louis Moore, Penn State University professor of agricultur al economics, who discussed the outlook of commodity markets for the coming year, and Bill Adams, environmental specialist for the Pennsylvania Farm Bureau, who discussed several environmental regulatoiy issues, from water use registration, fuel tank regulations, and nutrient management Extension Dairy Agent Shirk talked about the volatility of the dairy industry and how, for those with the aptitude and ability, trad ing exchange commodity trading tools, such as “put” options can be used to help buffer cash flow against extreme drops. Shirk has served as a moderator in recent educational sessions for those enrolled in the limited parti cipation U.S. Department of Agri culture Dairy Options Pilot Program. The USDA’s DOPP program is designed to see how effective the use of “put” options are in serving individual dairy producers with an effective insurance against losing essential cash flow when farm gate milk prices fall below cost-of production. Shirk explained the difference between the USDA’s Basic For mula Price (BFP), which is a price calculated using an USDA milk pricing formula, and the price received in the farmer’s milk check. The dairy industry works in such a way that a dairy farmer doesn’t know his selling price of milk, until after the purchaser uses it. Milk is delivered to the purchas er at the expense of the farmer, the purchasing company decides how best to use the milk to its benefit, the federal government declares a BFP, and then the company calcu lates a price to pay the farmer. Doing business this way spending money to produce a pro duct and not having any idea of how much of a return it will bring is considered pure speculation. As an alternative to being at the mercy and whim of the manufac turing and processing sector of the dairy industry every month, dairy farmers have the opportunity to establish their own “floor price” for their milk. Essentially, the BFP sets a mini mum value on a farmer's milk, and depending upon the location of the farm and the type of business oper ation of the milk buyer, the farmer gets whatever price is calculated. The commodity trading exchanges offer a variety of com modity contracts, mostly not involving the actual exchange of any commodity. According to trading houses, what is traded is risk. For dairy producers, “put” options are considered a safe form of cash flow protection, with the premium the only thing at risk. It is explained as analagous to insurance. Futures contracts on the other hand can lock in a price, but they can also require a considerable amoifrit of cash to settle the margin call. If someone sells a BFP futures contract at a certain level, in effect it says that on the day the contract comes to settlement, the two par ties agree to settle out any value differences from the actual USDA announced BFP. Therefore, if a farmer were to sell a futures contract on a certain weight of milk, he would be doing fine as long as the BFP didn't rise above the contract price. If the BFP would be higher than the future’s contract, then the farmer would have to cash settle the dif ference on a margin call. However, with “put” options, essentially what is being done is that a person is saying they are willing to pay a certain amount for milk (on paper only) if the USDA announced BFP price, upon which the options are based, falls below that level. What the seller of a “put” option does is collect “premium” money in exchange for the promise to pay the buyer (the farmer in this case) the difference between the contract BFP level and the actual BFP, if the actual BFP falls below the BFP level specified in the put option contract. If the announced BFP is the same or more than the BFP level speciGed in the option contract, there is no exchange of money. The farmer collects his regular milk check and is only out the pre mium fee of the option, which should be subtracted and be con sidered as a cost of business. If the actual BFP comes in lower than the BFP speciGed in the option; the seller has to pay the full difference to the farmer. The trad ing houses do the actual settlement. For example, if a farmer pur chased a put oprion on 100,000 pounds of milk at $12.50 per hun dredweight, and the actual BFP was announced at $ll, then the farmer would receive a check from the trading bouse for the differ ence, which would be $1,500. In all cases, the farmer sells his actual milk and collects his milk check through his regular arrange ment with an actual milk buyer. Therefore, in this case, the far mer sells his actual milk for $ll plus his basis, or $1.65 for the Lan caster average, and receives $12.65 from his milk dealer. He also receives a check for $1,500 from the put option. However, what makes using put oprions for risk management tricky is that the premiums vary daily depending upon trader perceptions about the likelihood the USDA BFP will be at a certain level, and the margin of protection that can be offered. If it becomes apparent to the entire industry that the BFP will be at a certain level, the premiums can be expected to rise to the point that the benefit received by the holder of a put option is equal to or less than the premium and broker commission. If volatility and uncertainty is indeed the situation, and/or if the buyer’s analysis of the dairy mark et indicates a probability of a steep BFP decline and that has yet to be reflected in the market, then there is the opportunity to realize mean ingful cash flow protection. The USDA DOPP has addition al restrictions because of it uses federal cost-share funding, and it is not being intended to subsidize far mers in making profits through the program. However, the use of put options is open to all dairy producers at all times. Shirk listed some of the factors that can affect future dairy prices weather, cheese prices, specific component supply and demand situations, feed costs, politics. Class I use, and quality and component premiums. In addressing financial fraud, Charles Few listed 19 different areas where fraudulent practices have arisen. He also strongly warned the audience that Lancaster County is characterized as having a large population with strong religious and Christian ideals and those peo ple arc characterized as being especially susceptible to confi dence artists because of the reli gious community's trust in the goodness of other people. However, Few said that most of the Lancaster County scam artists frequently seek to prey on those of deep faith because they are per ceived as vunerable. “Jesus is the Savior of humani ty. He is not a marketing concept or sales tool." Few said to be especially waiy of any request for money or ser vices or investments into busines ses that offer ways to avoid paying income taxes, or that claim to pro vide strong returns on investment and help a charity at the same time. He said to be cautious of those whose business message is mixed with religious and/or anti-federal government dogma. Few said he did some research and gained some characteristics of con artists. “Con artists are clever and have good people skills," Few said, adding that con artists think their victims deserve their fate and are seldom violent. They are shrewd judges of peo ple with an excellent sense of tim ing. If caught, they will probably strike again later. Con artists are seldom rehabilitated," he said. Few also provided some of the more common traits he said are shared by victims of fraud. He said victims are frequently, but not always, older women living alone; but also they are people who are trusting of others, may be lonely, but have a sense of charity and a willingness to help others. According to Few, intelligence has nothing to do with being a vic tim of fraud, and unfortunately sometimes victims become embarrassed at having been vic timized and then fail to report the incident Few listed a couple of the scams of more recent history in the Lan- caster area. He said to watch for those who offer to protect assets from taxes by putting them into “pure .trusts.” The operators behind this scam targeted mostly farmers and con servative people, held secret meet ings, promised to shield assets from taxes, provide protection from liability and retain their pri vacy, he said. Few said what happened was the victims turned their money over to the con artists and got nothing back that was legal or useful in return. In effect, they gave their money away. An outfit that billed itself as the International Business Associa tion promoted domestic and offs hore trusts to avoid paying United States income taxes. The scam included fictitious paper transac tions, loans and gifts. Few said vic tims paid significant money to set up the phony trusts. The New Era Foundation was broken up and exposed for the Ponzi/pyramid scheme that it was. The person behind it is in prison, but many felt the impact The scam promised to double investments of charitable and non-profit organiza tions in a short period of time, although the organization did no investing. What the organization did was use some of the money collected from new prey to pay some of the first victims in order to make it seem as though the silent investors were actually paying off. Another outfit that changed names frequently and targeted reli gious and charitable-minded peo ple promised up to 400 percent investment returns per year. It went by the names of Kestral Trust Ltd., Agape Christian Church, First Equity International, Agape Financial Services, North Star Publications, and Westmore land Management, among others. No physical church was ever found to be affiliated with the organization. Few also mentioned another Poultry Conservation Workshop LAFOX, 111. Garfield Farm will be the host site for the annual conference of the American Livestock Breeds Conservancy May 21-23. The conference will feature a day-long workshop on Saturday, May 22, entitled “Birds of a Feather.” The workshop will focus on the conservation arid utilization of farm breeds pf chickens, turkeys, ducks, and geese. Speakers for the workshop will include poultry historian Dr. John Skinner presenting the history of poultry in America; poultry scientist Dr. Robert Hawes speaking about genetic conservation; Glenn Drowns, Sandhill Preservation Trust, discussing the promotion of rare breeds of poultry; Paula Johnson of the Society for the Preservation of Poultry Antiquities reporting on a national turkey census; and Lou Horton, waterfowl judge, dis cussing ducks and geese. In addition, there will be an exhibit of rare breeds of poultry outfit headquartered in Florida that has been banned from doing busi ness in Pennsylvania and other states. It goes by the names of Gre ater Ministries International, Faith Promises Program, New Testa ment Church, and Health Benevo lence Christian Fellowship. If was recently found in con tempt of court for ignoring the ban on it doing business in Pennsylvania. Few said state officials have described it as an apparent pyra mid scheme promising to double invested money in 17 months, though it claims to invest the money in precious metals mines in Liberia, Africa. For consideration. Few offered a couple additional thoughts. “If you want to gift money to a worthy cause, gift money to a worthy cause,” he said. “If you want to invest money to provide income or growth, invest money to provide income or growth. “Be extremely careful about mixing the two objectives in one product. If thatis what you are con sidering, consult first with appro priate legal and financial profes sionals," Few said. A spokesperson for state Attor ney General Mike Fisher said this week that Few’s comments should not be attributed to the state ofGce. However, Fisher said, “I urge all consumers to get the facts before financially committing to an investment plan or opportunity. Be extremely skeptical about propos als that offer huge returns on your money in a short period of time. “Remember," Fisher said, “ask for the proposal in writing and don't fall for a salesperson who Is creating confusion as a tactic to make a bogus deal sound legitimate." May 22 and livestock, a Sunday forum on the role of rare breeds in agri culture, and an exhibition of contemporary farm animal art. Registration for all events is open to the public. The American Livestock Breeds Conservancy is a nation al nonprofit member organiza tion based-in Pittsboro, N.C. The ALBC mission is the conserva tion and promotion of rare and endangered breeds of livestock. New members are welcomed and the public is cordially invit ed to attend the conference. For more information about registration for the conference and workshop, contact Cynthia Ehrman at ALBC, PO Box 477, Pittsboro, N.C. 27312, (919) 542- 5704, albc@albc-usa.org, web page www.albc-usa.org. For more information about Garfield Farm, contact Jerome Johnson, Director, Garfield Farm Museum, PO Box 403, LaF*t, 11. 60147, (630) 584- 8485, garfarm@elnet.com, www.elnet. com/-garfarm/gar farm.html.
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