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Published October 12, 2010, 10:07 AM

Crabtree: Restore indemnity fund

FARGO, N.D. — Brad Crabtree, the Democratic nominee for the North Dakota Public Service Commission, says, if elected, he’d push to restore the original level of a self-funded indemnity fund that protects farmers from elevator insolvencies if they have price-later grain in the elevators.

By: Mikkel Pates, Agweek

FARGO, N.D. — Brad Crabtree, the Democratic nominee for the North Dakota Public Service Commission, says, if elected, he’d push to restore the original level of a self-funded indemnity fund that protects farmers from elevator insolvencies if they have price-later grain in the elevators.

Crabtree also says he’d push for other protections for farmers. Failing to do so is “malpractice on the part of Kevin Cramer of the PSC,” says Crabtree, who spoke at a news conference Oct. 7. in Fargo, N.D.

At his side on the issue is Mike Clemens, a Wimbledon, N.D., farmer, who was among those caught up in the Wimbledon Grain Co. elevator insolvency at Christmastime in 2001. It was one of 10 such insolvencies in North Dakota elevators in the past 10 years. Clemens, a director for the National Sunflower Association and North Dakota Corn Growers, and former president of both groups, says he’s “not particularly” endorsing Crabtree’s candidacy, but supports the issue of beefing up the indemnity fund.

Farmers in the Wimbledon case spent more than two years in court, ending at the North Dakota Supreme Court. They ultimately recovered only 32 cents on a dollar. Clemens was among those who pushed for the creation of the indemnity fund of $10 million in the 2003 Legislature. The fund is created by farmers who use price-later contracts contributing two-tenths of 1 percent of the value of the contracts — one penny on a $5 bushel of wheat, or $200 on $100,000 of product.

Clemens says instead of getting $331,000 in payments, farmers would have received $829,000 had the fund been in place. He says the assessment for farmers, had the fund been in place, would have been $2,074.

Republicans in the 2007 Legislature cut to $6 million the level at which farmer pay-ins would stop. It would then contract pay-ins only when the fund drops to $3 million. Crabtree says that “fails to recognize the risk exposure of the fund,” especially if there is a case of “multiple insolvency.” If the fund runs short, it could lead to “political pressure for a taxpayer-funded bailout,” he says, and even one large bankruptcy could exceed the capacity of the fund. Clemens and Crabtree say the PSC, including Cramer, has not opposed cutting the fund to $6 million.

Crabtree says the size of elevator capacities have increased 15-fold since the 1950s, with more reliance on credit-sales contracts. In 2008, during a big run-up in grain prices, 10 North Dakota elevators had price-later liabilities of more than $10 million, compared with one in 2006. Crabtree says it’s not possible for farmers to address the financial health of elevators and grain buyers, so protections are needed.

His other recommendations:

n The PSC should “thoroughly review farmers’ risk exposure” with other grain buying facilities, including ethanol plants, to avoid exposure as in the recent threats by a VeraSun Energy L.L.C. bankruptcy trustee to sue farmers for possible repayment if they’d been paid for grain within 90 days before the bankruptcy.

Crabtree acknowledges those threats now have been dropped without any expanded protections. Clemens notes that in 2008, the VeraSun plant was going through $12 million in corn a month but had a bond of $380,000.

n The PSC should recommend that the Legislature change the basis for elevator bonding from the current licensed storage capacity formula to volumetric measure of sales to reflect actual liabilities. He says large facilities with shuttle trains turn over their storage capacity more than elevators did in the past. He acknowledges he didn’t know how much this would cost the elevators to increase bonding protection. He notes that Tony Clark, a PSC member, has suggested the same.

Steve Strege, executive director of the North Dakota Grain Dealers Association, says shifting to a volume basis was studied by the PSC in 2009, but no change was made. He says the bonding requirements are among the highest in the country and most problems are in the processing part. He says it would cost more and isn’t clear whether bonding firms would issue larger bonds.

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