Plaintiff knows ‘more than one’ victim who will lose farms over loss from grain dealer
PALERMO, N.D. — Roger Harstad says a $111,000 non-sufficient funds check from Midwest Grain Trading has set the family's farm back two years.
"I've got friends where it set them back more than that," Harstad says, gravely. And yes, he thinks some may lose their farm over it.
"More than one," he says, ruefully.
Harstad, 56, and his wife, Michelle, and their family operate a grain and livestock farm. In 1986, Roger graduated from North Dakota State University with a mechanized agriculture degree. He came home to farm with his father, Orville, and purchased farmland.
Today, Roger takes the lead on the cropping operation, which has grown to 6,700 acres. The Harstads produce canola, spring wheat, corn and soybeans. The Harstads' son, Tyler, 29, and their daughter, Chelsea, 27, take the lead on "Flying H Ranch," a 1,000-head cow-calf and background-feeding operation. His youngest son, Trevor, 19, is studying diesel mechanics at North Dakota State College of Science in Wahpeton and expects to come back to the farm.
Harstad often hauls canola to ADM processing in Velva, N.D. Much of his corn goes to 150 miles to an ethanol plant at Underwood, N.D. Sometimes he sells other crops with the assistance of grain "brokers" who find bids for grain.
This past summer, Harstad got a call from "Danny" at East Central Grain Marketing. Dan Stommes is owner/trader for the company, with offices in Sioux Falls, S.D., and Wayzata, Minn. Stommes connected Harstad to a buyer — Midwest Grain Trading of Devils Lake, N.D., actually a company operated by Hunter Hanson, 21, of Leeds, N.D.
Harstad had dealt with East Central for about two years, including corn shipments to Canadian feedlots. Stommes told him Midwest Grain Trading was offering 20 cents a bushel higher than any local bids. East Central would simply collect a a 3- to 5-cent per bushel commission.
"And, (Midwest Grain Trading) would pick it up and deliver it," Harstad said. "I said, 'Yeah, I'll sell some.'"
East Central got its cut, but the deal was with Midwest Grain. They picked up 17,000 bushels of hard red spring — 17 semi-trailer loads of 14 percent protein wheat. Midwest Grain promised a check in 30 days after pick-up, as expected.
Harstad deposited the check, but became alarmed when he heard some farmers had checks that bounced. "I looked on my online banking and the deposit looked like it went through, and I thought, maybe we lucked out there," Harstad says.
But he didn't luck out.
The five calls
Two weeks after depositing the check, Wells Fargo Bank contacted Harstad and said they'd have to return Midwest Grain's check for non-sufficient funds. Immediately, Harstad called East Central Grain, who acknowledged only they'd heard there may be "troubles." They didn't offer any responsibility.
His second phone call was to his attorney, David Keagle of Bismarck. Keagle who on Nov. 27 filed a civil suit in Eddy County Court.
According to Harstad's suit, Hanson marketed grain Harstad had provided to the ADM-Benson Quinn elevator at Hensler, N.D., between Aug. 7 and Sept. 15. The Hanson company sent a check dated Sept. 24, in the amount of $111,888.25 to be drawn on First International Bank and Trust. It was returned for lack of payment on Nov. 9. Harstad is asking for the amount in the contract, plus bank fees and interest.
Hanson, through his attorney Lucas Wynne of Fargo, on Dec. 19 denied he personally approved the transaction and says the damages are "overstated, exaggerated or are impermissible as purported damage for which compensation can be sought."
A separate criminal case was filed by the Mountrail County state's attorney.
Harstad called Konrad Crockford, director of compliance at the Public Service Commission. "They hadn't frozen Midwest Grain Trading down yet, but it was happening shortly after that," he says. And he called his banker, telling him he didn't expect $111,000 available for farm operating expenses this year.
Finally, he called North Dakota Agriculture Commissioner Doug Goehring, who he says told him he'd like to see grain regulation move from the Public Service Commission to the ag department.
Randy Christmann, the North Dakota Public Service Commissioner with special jurisdiction over grain regulation, noted there have been no complaints about East Central Grain — licensed the same as a roving buyer, even though it doesn't take possession of grain. It has a minimal bond because it doesn't handle much grain.
Harstad is upset because he thinks farmers have a false sense of security from bonds.
"Midwest Grain Trading has a bond for $400,000 and he's probably doing that much business in one afternoon," Harstad says. If the company is doing millions in business, there is "really no protection there, in case of insolvency," he says.
Harstad thinks levels "definitely" need to be increased. He thinks the state needs to require annual financial auditing and should more closely scrutinize the volume of business. He thinks grain dealers shouldn't have more checks outstanding than their bond's worth.
He realizes that grain dealers and farmers traditionally resist proposals for higher bond levels in the past. "But you get in my situation and you wouldn't mind paying a little bit for somebody to have a bond," he says. He says if protection would cost farmers some additional amount — perhaps 3 cents a bushel, hypothetically — that would probably be acceptable to farmers.
Harstad was the first one to civilly sue Midwest Grain Trading. At least five farmers have phoned to say they're in the same boat.
"There must be close to 100 farmers affected by this, ... I would bet they'd rather give up 3 cents a bushel than be in the situation we're in now," Harstad says. He says farmers he's talked to are owed from $10,000 to $200,000, and some may be owed a lot more.
Harstad has talked to some farmers who had deals with Midwest Grain but hadn't had their grain picked up. Some of the contracts were for $1 a bushel more than the product is worth in today's markets, he said.
Harstad said he thinks the Legislature also should look at the feasibility of establishing an indemnity fund for more than just credit sales. An indemnity fund that covers credit sales only (not cash sales) was established after the Wimbledon (N.D.) Grain Co. failure in January 2002. The Legislature established a $10 million fund (later cut to $6 million) to protect 80 percent of farmers' losses for credit sale (price later, deferred price) contracts in cases of insolvencies.
"We need to regulate who's buying and selling grain more than we need to have a fund set up," Harstad says. He is adamant that says the grain dealer — not the farmer — should finance the fund.