In wake of Hunter Hanson case, Goehring gets input on ND grain regulation
FARGO, N.D.—The North Dakota Agriculture Department took its grain regulation town hall meeting to Fargo on Sept. 17, as the industry shifts after the "Hunter Hanson effect."
Hanson, a Devils Lake, N.D., area grain marketer estimated he'd traded $23 million in a year and a half, ending with $11.2 million in claims for unpaid or unfulfilled contracts. Hanson was shut down by the state in November and in July 2019 pleaded guilty on federal fraud charges.
In the wake of the debacle, the North Dakota Legislature gave the task of regulating grain to the state Ag Department, removing the duty from the North Dakota Public Service Commission and is considering beefing up or changing regulations and laws. Agriculture Commissioner Doug Goehring said the first three of the five-meeting series included primarily grain warehouse company officials, and few or no farmers, as warmer drier weather reappeared in the region.
Two more town hall meetings are scheduled Thursday, Sept. 19, in Dickinson, and Stanley, and more meetings are likely, Goehring said.
State Sen. Larry Luick, R-Fairmont, chairman of the Senate Agriculture Committee, is a member of the study committee, and attended the Fargo meeting, said the committee's hearings will start Oct. 3 in Bismarck. He said other states have their own issues and are watching what North Dakota is doing, and considering their own changes.
The Fargo meeting went on for more than two hours, as Goehring described some of the policy choices he's looking for public input on as his agency regulates 260 state warehouses, 108 federal warehouses and 97 roving grain buyers. He said he'd be cooperating and feeding information back and forth with the Legislature, which is holding an interim study on the topic.
Pat King, an edible grain trader with PW Montgomery LLC, Fargo, said priced-later contracts are allowing that product to satisfy demand without getting paid. He said farmers can trust a roving broker that may be down the road six months before anyone realizes there's a problem. In some cases, farmers are moving beans across the border into Canada, where they are exported to the European Union and escaping 25 percent tariffs that U.S. marketers must bear.
"I think we're a pretty trusting culture, but we have some cultural issues here," Goehring said, noting farmers dealing with roving buyers can receive only scant information while elevators are required to provide detailed information on weights and quality. He said some farmers hold a "conspiracy theory" and are suspicious of larger companies.
Among the topics discussed were how to handle the "roving grain buyer," That's the initial category Hunter Hanson used in his Midwest Grain Trading business. Goehring indicated the category can "add value" for farmers but some indicated that bonding rates may need to be higher with these traders, who are less permanent.
"Why do you let roving grain buyers get into the game so cheap," asked Randy Brag, a manager at Valley Grain Milling of Casselton, N.D. Dennis Haugen of Hannaford, N.D., said he has been a roving grain buyer for years, and wondered whether the state should require some kind of education or credentials for a roving grain buyer, to avoid a Hanson situation.
Another topic is how to handle the "broker" category. Hanson's traction in the market in large part was driven by East Central Grain Marketing of Minnetonka, Minn., which linked farmers with Hanson's company in exchange for a 5- to 10-cent per bushel commission, but without acquiring any grain.
Goehring is gathering input on numerous other regulatory changes, including:
• Whether there is more risk in specialty crops or organic crops. Goehring noted that specialty crops including dry edible beans and sunflowers have been the biggest users of a farmer-funded Credit Sale Indemnity Fund. The fund currently has $4.5 million in it. Stuart Letcher, the executive vice president of the North Dakota Grain Dealers Association, said one problem is defining a specialty crop. He said a non-hedgeable commodity that can't be protected in futures trading, such as edible beans, may require different rules than major commodities.
• Whether to change the licensing fees, and schedules, which are a mishmash of periods and amounts. Some two-year licenses were implemented because the agency had a hard time keeping up. Goehring indicated his department may need to do a better job of asking for resources.
• Whether to change bonding and licensing rates to dollars transacted, rather than bushel levels under existing rules. Some elevator operators asked to consider how values can change suddenly, and wondered whether the dollars could be considered over a historical three- or five-year period. Goehring said how many times a company will "flip over" their inventories in a year might be part of the equation.
• How much data should be retrieved from grain dealers. Goehring emphasized it will still be confidential, but perhaps shareable with other state agencies, or even counterpart officials from other states. Patterns on accounts receivable and accounts payable may be a clue for an inquiry by officials, Goehring said. The Ag Department is working with ExamHand software that will cut examination time and interlink with grain industry software.
• Whether insurance — either for the grain trader or for the farmer — might be a solution. Luick said an insurance mechanism is used in Illinois and Goehring noted that producer insurances are used in some parts of Europe. Brag talked about buying accounts receivable insurance, which costs $20,000 a year but includes a credit check of new accounts. "They do collections for us and will warn us if one of our customer's credit ratings drops," he said.
• Whether issues affecting grain will also become an issue. Luick said officials will look at those selling fertilizers, soil amendments and other farm inputs.
• What the future is for a state indemnity fund that protects farmers in cases of grain insolvency losses. Goehring doesn't like that the fund only covers credit sales and may encourage risky marketing. "It's for one issue," he says, referring to credit sales and not cash sales. If it continues, he wonders whether adding cash sale protection at "hardly noticeable" checkoff levels might be helpful.
• Grain purchasers currently have 45 days to pay a grain bill, or convert a credit sale contract to a purchase. Goehring wondered if contracts should be tightened to 20 days. Alex Richard, grain manager at Maple River Grain at Casselton, said his company holds checks until farmers come in and sign a contract "confirmation." "If you talk about nullifying the contract, you have all sorts of problems," he said. "If the market goes up 50 cents and the farmer uses that as a loophole to get out of the contract he made two weeks ago but didn't sign. That works 95 percent of the time."