House bill would take grain regulation from PSC
BISMARCK, N.D. — Bad checks from a roving grain trader are making the North Dakota Legislature consider finding better ways to protect farmers.
Rep. Dennis Johnson, R-Devils Lake, chairman of the House Agriculture Committee, on Jan. 14 introduced a bill that would move the grain responsibilities from the Public Service Commission to the North Dakota Department of Agriculture.
"It appears to me the concern is there in the ag department," Johnson said. "I introduced this bill to start the conversation about how to best fix this."
Meanwhile, Sen. Terry Wanzek, R-Jamestown, on Jan. 21 introduced a competing bill that would expand an indemnity fund to cover not only credit sales (deferred or delayed pricing), but all contracts including cash sales of grain and oilseeds.
"This bill would go up to $10 million, and drop down to $6 million" before fees would be reinstated, Wanzek said. The current fund collects two-tenths of 1 percent of the value, while the expanded version would collect half that or one-tenth of 1 percent, applied to all grain and oilseed sales. That would be $100 fee on $200,000 in sales. Producers could apply for a refund on the fee, but then couldn't be covered by the fund if their grain company goes insolvent.
Johnson signed onto Wanzek's bill to "start the debate," but has concerns about why "farmers should be insuring each other on the bad activities of buyers or other farmers making poor marketing decisions." Hearing dates have not been scheduled on either bill.
PSC vs ag
The PSC walks a fine line in handling grain complaints.
On Nov. 9, the PSC received its first complaints about Midwest Grain Trading of Devils Lake with its roving grain buyers license and with sister company NoDak Grain, also of Devils Lake, a warehouse license covering facilities near Rugby and Devils Lake.
Owner Hunter Brian Hanson, 21, of Leeds, N.D., used a radio advertising campaign and social media to make grain deals but also did business through at least one broker. Hanson told Agweek he traded some $23 million in less than two years of operation.
Farmers and elevators reported some $2 million in troubled transactions. Later, the PSC counted complaints on more than $5 million in transactions, although the PSC has verified all of the claims.
Randy Christmann, a Public Service Commissioner who heads its grain trading regulation portfolio, says his agency in the past two sessions of the Legislature asked for the authority and personnel to more thoroughly, confidentially conduct financial audits of grain dealers.
"For the most part, we have been forced to do a lot of our financial analysis based on what the bonding company finds in their (audit)," Christmann says.
The Legislature had considered widening the indemnity fund in the past two session, but declined to do so. Christmann said some legislators have suggested going the other direction — dropping bonds entirely on grounds that they offer a false sense of security for people. He said bonding is "far from a total solution but is an important part of the puzzle and should remain there at some level."
Increasing bonds is politically unpopular and Christmann says bonding companies only will increase bonds to "certain limits." Any costs ultimately are passed along to farmers through grain prices, he says.
Waiting for courts
The PSC issued a cease-and-desist order against Hanson's companies on Dec. 21, preventing any new buying and selling of grain, and requiring the company to hold onto any money that comes in from grain transactions.
"That money is not for him to spend," Christmann said.
The PSC filed court cases against Hanson's companies on Dec. 22. Neither of the district courts has appointed the agency as trustee and there is no particular deadline to do it, Christmann said. There had been more than $5 million of phoned-in complaints, but the agency hasn't decided how many of those are valid. Most are grain-related.
"We have not been provided all of the information we've requested," Christmann said.
If appointed trustee, the PSC would "capture whatever grain was in those two facilities" near Rugby and Devils Lake, and come up with a marketing plan, "as well as request the bond, and capture that." Then the PSC would determine which contracts are credit sales contracts, where a state indemnity fund is applicable, or whether they are cash sales contracts, where the bond would apply.
There would be criminal consequences for violating the order, Christmann said. "At this point, we have to rely on the system, that it will work," he added.
A roving grain buyer's minimum bond license is $50,000. Midwest Grain Trading's bond increased to $400,000 based on monthly reports of the grain he intended to purchase. When Hanson opened warehouse facilities at Devils Lake and Rugby under the NoDak Grain title, he got separate additional warehouse bonds for those facilities, totaling $150,000. The PSC couldn't say how much grain they thought he was trading, citing confidentiality.
"North Dakota has, I think, higher bonding requirements than neighboring states and federal facilities, but the bonds are just typically never enough to solve the problems ag producers were having," Christmann said.
The Legislature a few years ago increased bonding requirements for companies less than seven years old "because that's where we've seen more troubles over the years," Christmann said. The commissioner says that two years ago he'd checked on bond costs and was told then that it costs about $4,000 to protect a company for a half-million dollars in losses.
The issue is creating some uncomfortable differences among Republican allies.
Agriculture Commissioner Doug Goehring said he's heard from a lot farmers who are frustrated with the PSC. He said farmers are perplexed by the fact that "issues haven't been dealt with over the years." Goehring said farmers and elevators had reached out to the PSC and expressed concerns about Hunter Hanson's businesses "and felt they went unanswered."
Goehring, also a Republican, said elevators have seen "one problem after another" and that he is "willing to step up and do what I need to, and work with the PSC, or take the program (on) if the Legislature wants to give it to me."
"With all due respect to the commissioner (Goehring), whom I'm a big supporter of, and I think he does a great job as an advocate for ag producers, but in these cases, there are other claimants as well, in some of the cases," Christmann said. "The law is very explicit about what proceeds are available to the ag producers and which proceeds are available to other creditors."
He said those same constraints would be on the ag department.
Meanwhile, North Dakota Gov. Doug Burgum, also a Republican, proposed 90 percent budgets — a 10 percent cut — for state general funding for agencies.
Christmann said most of the PSC's work is from fees, so the only place to cut is weights and measures and grain regulation. That would cut the state funding from 1.75 full-time equivalents down to one.
"We have been very clear that it is an important program and well-run," and should be increased if anything, Christmann said.
Christmann said many states have more resources, staff and authority to do confidential, thorough, financial reviews of companies. The appropriations bill will be in the Senate until late February until "crossover," when it will go to the House for final approval in April. Wanzek is vice chairman of the Senate Appropriations Committee.