The beleaguered New York Mercantile Exchange today, raised margin requirements on its Maine potato's future contract to $5,000 or 100 per cent of the contract price for those individuals who were involved in last year's potato trading default.
The extraordinary action followed a special meeting of the exchange membership and comes in the wake of new allegations that prices on the exchange are being manipulated by Peter J. Taggares and Jack R. Simplot, two western potato growers and processers who held most of the 1,000 contracts to deliver potatoes that were unfilled at expiration last May.
There was a legal question, however, whether the exchange could raise margins only for specific individuals and not across-the-board.
The increase in margins - from about $500 to $5,000 on a standard-size contract of 50,000 pounds of Maine potatoes - must be paid by Feb. 3. And the move effectively forces individuals subject to this increase to either try to liquidate their positions before then or pay a substantial penalty in order to stay in.
Trading sources have estimated that Taggares holds a "short" position of about 3,000 contracts, which would mean he would have to come up with nearly $15 million to meet the increased margin call. Simplot, who is a partner with Taggares in Simpag Farms, a big Oregon potato-growing operation, is not believed to be currently active in the market in his own name.
The Commodity Futures Trading Commission meanwhile, is looking into questions surrounding reports on export sales originating from Simpag Farm last week. The first report indicated that Simpag had concluded a sale of 150,000 long tons of potatoes to a European broker. The second report the following day was a clarification by Taggares which put the size of the export sale at only 15,000 tons.
Between the two reports the price of potatoes rose sharply and then dropped equally sharply after the clarification was issued.