Farmers first

PRESHO, S.D. -- Dennis Stanley of Presho, S.D., thinks South Dakota farmers should by law have a first lien on delivered grain -- even on credit-sale contracts -- until it's paid for.

"The bank and anybody else should be second," says Stanley, who attended a South Dakota Farmers Union meeting on the topic July 17 in Chamberlain, S.D. Stanley was a previous customer of Anderson Seed, the Mentor, Minn.-based company that went insolvent in February 2012. He cut ties with Anderson Seed before it went bust, but says it exposed the need for greater security for farmers.

At the end of the last South Dakota Legislative session, Stanley held a farm shop meeting with a few neighbors and state Sen. Larry Lucas, D-Mission, and Rep. Jim Schaefer, R-Kennebec, to discuss improving farmer protections in insolvencies. He says farmers have a false sense of security with a "bond that is irrelevant" to the amount of money lost.

Stanley would like to see a self-funded indemnity fund like North Dakota has for credit-sale contracts.

"Bonding is false security," he says. "We don't really have anything right now. All we have is financial statements and we have trust. I hate to make it a bankers-versus-farming issue, but that's what it is. When that grain goes to the elevator (in credit-sale contracts), the title transfers to the buyer and the first lien goes to the bank. If there is an insolvency, which means they can't pay all the debts, we're the ones that legally won't get paid. We're guaranteed to be."

Close the loophole

Stanley, 44, and his father, Richard, are no-till farmers who raise sorghum, sunflowers, winter and spring wheat and a little corn on an operation that's been in the family since the 1930s. Stanley obtained an accounting degree from the University of Nebraska in 1992, and worked as a certified public accountant in Minnesota and in Pierre, S.D., specializing in farm tax work. He went to full-time farming in 2006.

He says he's a Republican, but is not a public figure, other than serving on the local Farm Service Agency board.

He says he's interested in the case because it's "like seeing my neighbor get robbed, then watching the police and state's attorney bungle the case, and seeing the thief set free through a loophole in the law without paying the neighbor for what he stole. I would fight tooth and nail to close the loophole and to see the neighbor somehow repaid."

Stanley thinks there are better ideas out there. He knows of one elevator operator who suggested a kind of consolidated bond.

"So, say there's 10 grain elevators now that each carry a $100,000 bond. Instead of that, he wanted $1 million bond that covered all 10," Stanley says, adding they'd contribute proportionately to one large pooled bond. Companies with higher risk would pay more, based on volume and risk.

Stanley says it appears the parties in the Anderson Seed case -- Ron Anderson, its U.S. Bank lender and Legumex Walker -- all have benefitted from farmers' unsecured creditor status. He says the Anderson Seed case was a "bankruptcy without a bankruptcy," done in some lawyer's office, "without a judge, without a process."

Kathy Zander, executive director of the South Dakota Grain and Feed Association, which represents elevator companies in the state, declined to talk to Agweek. Stanley says Zander approached him after the July 17 meeting in Chamberlain and urged him not to push for a law change. He says Zander told him one of the big reasons Anderson Seed went under is because some farmers failed to deliver contracted grain when the market rose and they were "out of the money."

Stanley says that may be true, but thinks there might be more to the story.

More to the story

Stanley says his family had unsatisfactory dealings with Anderson Seed as early as 2008. The company was sending trucks to pick up sunflowers at the Stanley farm, hauling them to Durbin, N.D., or Mentor, Minn. Stanley says he wasn't paid for 30 days in more than one instance, even after several calls and promises to send checks.

When he asked Anderson Seed's then-general manager about payment, the manager said, "We're bonded." When Stanley asked what the bond was, the manager said $200,000, which Stanley took as the limit available to cover his own losses -- not to the whole company. The Anderson Seed manager also invited Stanley to call his lender, who vouched for the company.

Stanley says that for two years in a row, he sold sunflowers to Anderson Seed that he'd contracted at 17 cents per pound when the price was 30 cents at harvest. He says it never occurred to him that any loophole would prevent him from delivering.

"But one year, we finally win: we sold them at 30 cents and the market price was 15 or 17 cents," he says. "I had to drive to North Dakota to a grain inspection office to meet Ron Anderson personally, and we had to sit there and watch" as they were graded and tested.

"They didn't give up on that until we and a neighbor threatened to lawyer-up," Stanley remembers.

A year later, Stanley did a deal over the phone, and waited a month and a half to pick up 2 million pounds of flowers. Anderson "couldn't find anything on his notes" and they didn't have a contract, so the Stanleys marketed them otherwise.

Stanley thinks big elevators would prefer that farmers deal only with them as a middleman and not sell directly to processors, including ethanol producers or sunflower processors. He says that's what he'll do -- deal with Dakota Mill and Grain in Presho, Ft. Pierre and Rapid City, and Midwest Cooperatives, a Cenex Harvest States affiliate.

"It is just easier, and I don't worry about getting paid," Stanley says. But he worries about a "rogue trader" getting into trouble and bringing an elevator down.

"The right thing to do is make some changes" in the law to protect farmers, he says.