How should farmers protect themselves?

FARGO, N.D. -- With ethanol companies, other processors and elevators being stressed by volatile grain markets, farmers are becoming more concerned about how to protect themselves.

Sue Richter, director of the licensing division for the North Dakota Public Service Commission, says farmers need to do a better job of checking out the companies they do business with.

A speaker Feb. 11 at the North Dakota Corn Growers annual meeting in Fargo, N.D., Richter says these types of companies require bonds: public grain warehouses, $50,000 to $1.5 million; facility-based grain buyers, $50,000 to $1 million; and roving grain buyers, $50,000 to $1.5 million.

Bonding

The roving grain buyers create issues because there are only 65 of them registered in the state, but more of them are unlicensed. These are people who buy grain in North Dakota but don't have a facility in the state. It could be truckers or out-of-state companies.

Richter says new bonds for companies such as those are based on projected sales figures, but it's not always easy to match those projections with bond amounts.

Another protection is an indemnity fund for credit-sales contract. The fund currently stands at $6.7 million; it covers partial losses for individuals (80 percent of losses, capped at $280,000 per individual per insolvency in cases where grain buyers become insolvent). Established at $10 million, the Legislature in 2007 cut the maximum amount in the fund to $6 million, with collections at elevators resuming if the fund is depleted to $3 million.

Some Corn Growers leaders have been pushing to restore the self-insured indemnity fund to $10 million or even $12 million.

Richter says the PSC can act on bonds or the indemnity fund only if the elevator becomes insolvent. Insolvency happens after the buyer is unable, refuses or neglects to pay for grain. A court must declare the elevator insolvent and the commission typically becomes a trustee, based on a series of procedures. It's different than bankruptcy because insolvency involves only grain claims, while bankruptcy involves all creditors.

Among other things, Richter notes that grain assets typically cover only whole grain -- not what a processor makes it into. There is no lien addressing processed grains or byproducts, and bankers often have that tied up in perfected liens.

Richter urges growers to make sure that anyone they sell grain to has a state license. She urges farmers to check licenses through the PSC before making contracts to sell the grain -- not after -- in order to have some protection.

"Sign your credit-sales contracts," she says emphatically. "Contracts that are not signed become a major concern for us. Elevators are required to get signatures on contracts. If a company goes insolvent (and you don't have signed contract), you may have to look for relief on the cash side, rather than on the credit-sales protection."

She says a warning flag should be an unlicensed buyer that mysteriously offers big premiums over local markets.

'Storm of volatility'

Keith Finney of Clifford Merchandising Group, which purchases corn for the Tharaldson Ethanol plant in Casselton, N.D., says last year was a "perfect storm" of volatility. He says one thing farmers should do is be careful about making long-term contracts with one entity. Farmers, he says, need to make more basis contracts and do hedging themselves. Still, Finney says that with the current volatile fertilizer market, it would "surprise the heck out of me" if we don't lose some elevators.

Keith Brandt, Plains Grain & Agronomy L.L.C. of Enderlin, N.D., says he is pleased that the region's elevator systems "weathered the storm quite well." His own elevator went through periods with margin calls of a million dollars a day.

"It took a lot of communication to keep up with it," he says.

The corn growers passed a resolution that urged the Legislature to form an interim study to determine whether current bond levels and indemnity funds need to be adjusted.

Other topics at the daylong meeting included what farmers will do with the corn that still is standing in the fields in so many areas of North Dakota and western Minnesota, or high-moisture or frozen corn stuck in bins.

Working the fields

George Rehm, professor emeritus in soil scientist at the University of Minnesota, says some farmers wonder if nutrients in corn stubble will go up in smoke if farmers do a lot of burning of standing corn or corn stubble.

"Not really," he says. "You lose some nitrogen, but not much phosphorus or potassium."

Rehm says the fields he's seen where cornstalks are burned don't get hot enough to burn everything.

"I tell growers to take a take a soil test for nitrate nitrogen if they're going to plant a crop following (burned) corn that they'd normally fertilize," Rehm says.

That's especially true if they're thinking of planting corn after corn, or wheat. He doubts there will be much corn-on-corn where fall tillage wasn't done.

Rehm says he knows of no research on that, but we have to "go from the basics of what we know" about what happens when residue is burned.

There is a lot of corn land that didn't get tilled last year and "people are struggling about what they should do," he says. On top of that, there wasn't a lot of fertilizer applied last fall, so farmers face a time crunch this year. He says it's difficult to predict how quickly farmers will be able to burn or clear land on which a layer of crop residue lies beneath the snow.

How quickly standing corn or stubble dries -- or can be burned -- depends on how much rain falls. But Rehm says he isn't concerned about late planting.

"Not with the modern hybrids," he says. "Late planting isn't that much of a concern."

Rehm's main topic was fertilizer concerns heading into 2009.

"I've never seen a year where there was so much uncertainty," Rehm says.

He says many of the suppliers have not yet set prices for 2009. The wholesale price for fertilizer today is about half of what it was last summer. Some of the price changes haven't reached the dealers.

"We know that the pipeline is full," he says. "We know it's going to be a challenge to get fertilizer distributed this far north next spring."