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UPDATE 1-US cotton farmer group says Cargill cost it $35 mln
* Farmers say Cargill prematurely dropped market hedges
* Cargill says claim is unfounded
Oct 29 (Reuters) - A small group of U.S. cotton farmers has filed a complaint against major commodities trader Cargill Inc , accusing it of costing them $35 million by failing to hedge on their behalf market swings in cotton prices.
The Autauga Quality Cotton Association, in its complaint filed with the Memphis Cotton Exchange, illustrates the reliance of small cotton growers on large commodities merchants such as Cargill, Louis Dreyfus Holding BV and Noble Group.
These merchants trade in the futures market on behalf of farmers, helping hedge their exposure to price swings. They are also middlemen who help find buyers for the cotton produced by growers.
Alabama-based Autauga alleges that Cargill was supposed to put on hedges in the futures market on behalf of the farmers to help them get a good price for their cotton. Instead, Autauga says, Cargill prematurely removed the hedges it put on for its farmers, leaving them exposed to tumbling prices.
The complaint by Autauga was reported by the Wall Street Journal earlier on Monday.
"Cargill moved ... beyond the traditional merchant role to a Las Vegas mind-set of ... risking someone else's money without their knowledge," the WSJ quoted Autauga President James Sanford as saying in a May letter to Cargill's head of cotton, Doug Christie.
Wild price swings in recent years have tested long-standing relationships between merchants and cotton farmers. For instance, last year, cotton futures prices soared 51 percent in a little over two months to a record $2.1515 a pound in March. The market then tumbled about 60 percent through the end of the year.
Autauga says that in Sept. 2011, its farmers received just 77 cents a pound for their cotton, instead of the $1.10 to $1.20 they had been expecting, after Cargill dropped hedges for its farmers without their permission.
Producing cotton that year cost about 85 cents a pound, the farmers said.
Cargill's removal of the hedges initially put on for the Autauga members cost the farmers about $35 million in losses for their 164,000 bales of cotton, Autauga says.
Miller Girvin, a spokesman for the cotton farmers group, said Autauga's complaint was filed in September and the Memphis Cotton Exchange was still mediating.
"We can't say more, other than that we are supportive of the process undertaken by the exchange," Girvin told Reuters by telephone.
Cargill backed the cotton exchange's involvement, while rejecting the allegations by Autauga.
"Cargill respects the confidentiality of the arbitration process and will not comment, other than to say we believe the claim is unfounded and that we will prevail in this matter," spokesman Mark Klein said in an email to Reuters.
The Journal said that since February, Autauga, which had at least 500 members, had stopped business with Cargill after a 45-year relationship with the company and its predecessor.
Although it is a small cooperative, Autauga had been Cargill's largest cotton customer.
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