Grain dealers mixed on PSC shake-up
FARGO, N.D. -- The North Dakota Public Service Commission is proposing sweeping changes in how farmers are protected when faced with a grain elevator insolvency.
FARGO, N.D. - The North Dakota Public Service Commission is proposing sweeping changes in how farmers are protected when faced with a grain elevator insolvency.
The issue was a hot topic at the North Dakota Grain Dealers Association annual meeting Jan. 16 in Fargo, N.D., where it was met with mixed reactions. The Legislature holds its first hearing on the topic at 9 a.m., Jan. 20, before the House Agriculture Committee in Bismarck.
Among other things, the PSC would replace a self-funded indemnity fund that covers a credit contract fund with a fund covering all grains. A new Grain Indemnity Fund would have a smaller percentage assessment but could grow indefinitely, but Christmann said the legislature could cap or change it. The bill would eliminate the receipt-holder's lien, which has been the bedrock of grain warehouse law.
HB 1126 was filed in early December and was referred and was described in public on Jan. 9 by Randy Christmann, who recently was elected PSC chairman, and who carries the agency's portfolio on grain warehouses.
"The main driver for this is that the PSC - like all agencies - is cutting back on budgets by 10 to 15 percent," said Randy Christmann, the PSC member who holds the grain portfolio. Christmann said it will add to producer protections, in cases where grains have been shipped out and aren't available to pay off farmers. It would also cut the time for farmer payments. "I don't want a program that gives producers a false sense of security," he said.
The new indemnity fund would be assessed at two hundredths of one percent of value, applying to all grains. That's one-tenth penny on a $5 bushel, or on corn, and $1 on a $5,000 transaction. It would replace a Credit Sales Indemnity Fund which is funded by a higher rate on the riskier credit sales contracts
The U.S. Department of Agriculture's National Agricultural Statistics Service said the value of all crops covered by the fund most recently was $7.5 billion per year, according to Stuart Letcher, executive vice president of the North Dakota Grain Dealers Association, whose members collect the assessments for the state. More than 50 percent are credit sales, Letcher said.
Credit sales contract holders effectively hand over titles to their grain to the elevator and agree to be paid at a later date - often in the following calendar year for tax purposes or because farmers choose a favorable price before some specified future date in the contract. Either way, credit sales contracts are riskier than simple grain.
The new plan appears to collect 20 percent of the existing plan but would double the amount of sales covered in an insolvency. It also could grow indefinitely, in the current bill form.
The existing plan protects farmers at up to $350,000 in credit sales, but only at an 80 percent rate, so any farmer receives no more than $280,000 per event. The new fund could protect each entity up to $400,000. Christmann said he also wants the fund to apply to both cash and credit sale contracts, but that the elevator's bond would apply only to non-credit sale contracts, because the farmers entered a riskier contract. Cases would be handled in court, but now by an administrative hearing held by the PSC.
Budget cuts have had their effect. Sue Richter, PSC licensing director, retired from the department as of Oct. 31, in a departmental reorganization. In early November, the PSC hired Konrad Crockford as director of compliance, spending one-third of his time on licensing, a third in weights and measures, and a third in rail safety. Christmann introduced Crockford at the meeting.
The PSC has eliminated two warehouse inspectors, with the intent they would hire one back, with fewer inspection days in the field and "significantly less manual work in handling the insolvencies," Christmann said, noting the measuring wasn't "the most efficient use of our inspection time" and didn't provide sufficient protections for farmers. There are about 390 elevators in the state, and about 280 operate under state licenses.
The existing Credit Sale Contract Indemnity Fund was passed by the North Dakota Legislature in the 2003 session after an insolvency in January 2002 at Wimbledon Grain Co. in Wimbledon, N.D. Legislators instituted the original credit sales contract fund that was designed be collected until it was full at $10 million. That fund cap was reduced to $6 million in the 2005 session. The fund has paid in several situations - most recently with the Anderson Seed Co. case in 2010. The fund currently stands at about $4.2 million. Assessments were "suspended" in 2008 and would restart when the fund dips to $3 million.
The department "reinvention" will save $200,000 per year in their budget while providing better service, Christmann said, echoing a call from new Gov. Doug Burgum, who is asking for increased budget cuts to balance the budget.
Farmer Mike Clemens of Wimbledon, one of the victims in the Wimbledon Grain case who led for the initial indemnity fund, said he thought the new insolvency fund showed promise and was a creative way to deal with budget cuts. Clemens attended the grain dealers' meeting and agreed with Christmann's conclusion the current system allows farmers to stay on the hook for several years while legal processes conclude with sometimes pennies on a dollar in compensation and poor compensation from bonds. Clemens thinks the $400,000 per farmer protection in the bill is too low for the scale of today's farmers.
Christmann acknowledged that a single insolvency of a large processor in the state could wipe out the current levels, but that farmers that qualify in subsequent insolvencies would be paid in turn as the fund replenishes.
Mike Gust, a Fargo attorney who represents farmers in insolvencies and was a speaker at the event, said the "whole point of the PSC" role has been to secure the collateral, and "make sure the status quo is preserved." "Who's going to step in and make sure the winding-down of that facility is done?" Gust asked.