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Published May 02, 2013, 02:28 PM

Judge won’t reverse Anderson Seed ruling

An Aberdeen, S.D., district judge has denied a request to reverse a ruling that makes Ray Martinmaas of Orient, S.D., eligible for a bond payment in the Anderson Seed Co. insolvency. The request was made by three managers of prominent grain elevator companies in the state.

By: Mikkel Pates, Agweek

FARGO, N.D. — An Aberdeen, S.D., district judge has denied a request to reverse a ruling that makes Ray Martinmaas of Orient, S.D., eligible for a bond payment in the Anderson Seed Co. insolvency. The request was made by three managers of prominent grain elevator companies in the state.

Martinmaas claims Anderson Seed, with its sunflower processing plant in Redfield, S.D., and its headquarters in Mentor, Minn., owes his family $47,000 for seed delivered in late 2011. Martinmaas acknowledges he had orally agreed to a delayed pricing contract, but argued no contract was signed. He argued he should be eligible for his share of a bond because he did not sign paperwork perfecting the contract.

Dozens of South Dakota and North Dakota farmers claim they’re owed a total of some $5 million from the financially troubled company. In February 2012, Anderson Seed sold many of its assets to the U.S. subsidiary of Legumex Walker, based in Winnipeg, Manitoba.

The three South Dakota elevator men told the judge they disagreed with his ruling and agreed with the South Dakota Public Utilities Commission, which on Feb. 11 ruled against Martinmaas’ bond claim. The three elevator operators are Milton Handcock, general manager of CHS Inc., doing business as Midwest Cooperatives of Pierre, S.D.; Mike Nickolas, general manager of North Central Farmers Elevator in Ipswich; and Jerry Cope, grain manager for Dakota Mill & Grain, Rapid City. Nickolas declined to comment to Agweek and the others didn’t immediately return phone calls.

Martinmaas had disagreed with the SDPUC and took the case to court, representing himself in the hearings. On April 4, Fifth Circuit Court Judge Tony Porta in Aberdeen, S.D., had ruled that Martinmaas indeed was eligible for his proportional share of the bond.

Subsequently, the elevator operators say the SDPUC issued a notice on April 15 to grain sellers and grain buyers, notifying them that “all grain purchases more than 30 days old must be considered cash sales and must be paid by the buyer unless the grain buyer has in its possession a VCS (Voluntary Credit Sale) signed by both parties.”

Primer on delayed price

On April 26, the three elevator operators wrote to Porta, asking him to reconsider his decision, warning that his ruling would “change the way grain business is done in South Dakota and it will be at odds with grain business in all other states.” They suggested the judge could “vacate or modify” his own judgment and that “no final order” had yet been entered.

In their letter, the three offered the judge background information on delayed pricing contracts. Delayed pricing contracts “pass title from the seller (farmer) to the buyer (receiving elevator) but no price is established,” they said. The agreements are uniquely negotiated terms and can specify the number of bushels, duration for which the grain is unpriced, plus pricing deadlines and charges. The contracts have been developed for farmer delivery convenience, or for tax or budget planning.

“The second reason is it gives the elevator the ability to ship grain out in order to accommodate incoming grain of a larger quantity than the physical capacity of the elevator,” they wrote. “This is accomplished by the title transfer feature of the DP contract.

“The alternative is for incoming grain to be placed into open storage with the farmer as owner of record and no title passed. Under this scenario, the grain becomes a storage liability for the elevator and must be physically accounted for at all times. The risk is that the storage liability quantity becomes greater than the owned grain, the elevator fills up and cannot ship until enough grain is purchased to offset the storage liability. The elevator is not only unable to ship, but is unable to take in more grain because it is full, limiting the ability of farmers to conduct business.”

Up the food chain?

In Porta’s April 29 reply to the parties, he wrote, “I am mindful of the effects my decision may have on the grain buying industry, but I cannot change my decision because of that fact. My job is to interpret and apply the law as best I’m able, which I’ve done in this case.” He advised them of their appeal rights to the South Dakota Supreme Court, and their option to ask the Legislature to change the law.

Martinmaas says he was surprised at the elevators’ effort, but was pleased by the judge’s response.

The elevator operators represented only their own companies, which together involve numerous elevators in central and western South Dakota. Kathy Zander, executive director of the South Dakota Grain and Feed Association, didn’t immediately respond to say whether the organization has a position on the issue.

The three elevator managers say one result of the judge’s earlier order is that farmers might be forced to “accept prices for their property both at a time and a price that is not in their control.” They say the 30-day limit “adds risk and confusion for the farmer and elevator … Grain markets change constantly so an issue would arise over what day to use for pricing regarding contracts that go unsigned past 30 days.”

Further, they say elevators cover their risk by offsetting hedging or sales when grain is purchased.

“If grain were to be priced at any point in this scenario and then goes higher, under this ruling, delaying the signing of the contract would mean there is no binding contract and the farmer could opt for the highest price,” they write. “This would leave the elevator at risk of the price change.

“The conscientious elevators will accommodate the added risk by assuming multiple contracts to adhere to the law,” they write. “However, the added volume of paperwork would become confusing or simply ignored.” The elevator might stop offering the contracts and the farmer might take “business to those companies who knowingly operate outside the rules,” the three men write.

They also cite the following reasons:

•Farmers are not always the ones hauling and may not tell the hired man, the custom harvester, or the trucker his intentions.

•Farmers often start or stop hauling without notifying the elevator of their intent.

•Weather conditions can cause the period of hauling unpriced grain to an elevator to stretch more than 30 days.

•Commodity harvest plans can change — “for example, from corn to soybeans and then back” — causing each commodity’s harvest to stretch more than 30 days.

•Some farmers are “gone during the off season,” hire out trucking and may not return contracts within 30 days.

No signing, no bones

Martinmaas acknowledges that he’d verbally agreed to the delayed price contract, but that when he got the contract to sign, there were rumors that Anderson Seed was having problems. He says he tried in vain to contact Anderson Seed to say he wanted his money immediately.

Martinmaas, who is also in the cattle business and has operated a commercial feedlot, says crop farmers should be no less protected than livestock producers. “They’re selling my cattle at the livestock auction today,” he said, reached on May 1. “When they’ve got ‘em sold, we settle up. Why doesn’t the (South Dakota Public Utilities Commission) grain division operate like the Packers and Stockyards Administration?”

He says the SDPUC should be as concerned with the farmers as they seem to be with the elevators. “There’s certainly got to be a way to do this so that the farmer is protected,” he says. “Why isn’t the farmer the first secured creditor on his grain? If the elevator sells it to somebody else, which they do, and the elevator doesn’t pay, whoever buys the grain should pay the farmer.”

In a separate but related issue, Midwest Cooperatives and its CHS Inc. parent company, in Polk County, Minn., are suing Anderson Seed and its principals, Ron Anderson of Mentor, Minn., and his daughter, Stephanie, of Fosston, who managed the company, for a total of $1.4 million. The case is set to go to a jury trial in November. Also, the North Dakota Public Service Commission has hired a special assistant attorney general to help deal with the case, which involves three states.

In another separate issue, Sue Richter, licensing director for the North Dakota PSC, acknowledged that specially appointed assistant attorney general Jon Jenson of Grand Forks, N.D., on Jan. 7 presented PSC staff with a “draft complaint,” saying $1.5 million paid by Legumex Walker to Anderson Seed might belong to North Dakota farmers embroiled in the case, rather than Anderson Seed, and the state might challenge the case.

Jensen, who was hired by the PSC to handle the case and its tri-state jurisdictions, filed an amended draft on Jan. 24, Richter said May 2, acknowledging that the state still had not made a final decision on whether to challenge.

“Hopefully we will be close to a final” draft that would be taken to the PSC for potential action. She said the case has been slowed by the PSC’s attention to the Legislature, by other insolvencies, changes in agency staffing and by a change in legal representation for Legumex Walker.