Anderson Seed failure led to new legal tools

PIERRE, S.D. -- Chris Nelson, chairman of the South Dakota Public Utilities Commission, says two new state laws provide better tools to properly oversee the grain buying and grain warehouse industry.

Midwest Cooperatives
Midwest Cooperatives of Pierre, S.D., is one of the sunflower suppliers that was caught in the Anderson Seed Inc. insolvency.

PIERRE, S.D. -- Chris Nelson, chairman of the South Dakota Public Utilities Commission, says two new state laws provide better tools to properly oversee the grain buying and grain warehouse industry.

The bills passed unanimously in both houses of the Legislature and were signed by Gov. Dennis Daugaard on Feb. 25.

HB 1039 does three things. First, it requires termination dates for credit sale contracts. In those contracts, a farmer effectively turns over title to grain and extends voluntary credit to the grain buyer.

"Those contracts will roll from year to year, to year," Nelson says. "And if there are any fees attached to that, sometimes we see that the fees eat up almost the entire amount that the grain was worth."

Under the new law, the contract must have a settlement date, at which time both the farmer and buyer have to decide whether to roll the contract over or settle it.


Second, it links Grain Buyer Laws to Statute of Frauds laws in the case of voluntary credit sales or any grain purchase contract done verbally.

"Those are contracts when a farmer calls in and says 'I want to sell so many bushels at a certain price,'" Nelson says. "The state's statutes of frauds say that is a valid contract as long as the grain buyer sends a written contract out to the farmer."

If the farmer doesn't object to the contract within 48 hours, the contract is in effect.

Third, if a grain buyer is a wholly owned subsidiary of a parent company, the junior entity can use the parent's financial strength to achieve a grain buyer license.

"We're removing the words 'wholly owned' so that if they happen to be owned by several different organizations, they can continue to use the strength of whatever organization is the deepest pockets ... to provide for their grain license."

Also signed Feb. 25 was HB 1040, an SDPUC-backed bill that adds pulse crops to the state's statutes.

"With a pulse processing facility going into Harrold, S.D., that will become a bigger part of the agricultural fabric, especially in central South Dakota," Nelson says.

South Dakota Pulse Processors LLC is owned by 86 farmers and expects to process yellow peas from the 2015 crop.


Meanwhile, the North Dakota State Public Service Commission is backing two bills that would work to shore up grain oversight in that state. SB 2119 grants confidentiality to financial records if the PSC collects them. SB 2301 would allow grain dealer licenses to cover two years instead of one, allowing inspectors more time to focus on grain buyers when regulators sense problems.

Anderson insolvency

Nelson notes the handling of credit sales contracts in South Dakota was clarified administratively in the wake of the Anderson Seed Inc. insolvency, which left farmers unpaid for delivered grain in South Dakota and North Dakota.

"It doesn't change how any of this works," Nelson says.

The SDPUC made the changes administratively but agency lawyers recommended putting it into law.

"Fortunately, since the Anderson Seed issue, we have not had another instance where farmers have lost any money in grain sales, and so we think the tools that were put in place at that point, along with the vigilance of our inspectors, has done the job, and we're happy about that," Nelson says.

He says the Anderson case threatened to undermine the credit sale contract concept in the state.

CHS vs. Anderson suit


Anderson Seed in February 2010 sold company assets to Legumex Walker, whose Winnipeg, Manitoba, parent now operates the Minnesota and North Dakota facilities.

Farmers claimed $5 million in unpaid sunflowers delivered to Anderson Seed.

A CHS Inc. elevator, Midwest Cooperatives of Pierre, has a case pending against the company in Polk County District Court in Crookston, Minn. The case is set to go to trial June 1 to 4.

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