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South Dakota moves bills tightening grain trading regulations

Four bills moving through the South Dakota Legislature would tighten regulations for infractions by licensed grain buyers and grain brokers.

South Dakota state Sen. Mary Duvall, R-Pierre, poses in her formal legislative portrait for the 2022 session.
South Dakota State Sen. Mary Duvall, R-Pierre, is a member of the Senate Agriculture and Natural Resources Committee in the 2022 session. Photo taken January 2022.
Courtesy / South Dakota Legislature
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PIERRE, S.D. — The South Dakota Legislature is considering four bills that would toughen grain regulation and enforcement in the state.

The state Senate unanimously has passed three bills, Senate Bills 35, 38 and 39, increasing penalties for grain brokers, who don’t need licenses, and increasing penalties for licensed grain buyers, all sponsored by the South Dakota Public Utilities Council. The House Agriculture and Natural Resources Committee has yet to consider those, as well as their own House Bill 1037,sponsored by the South Dakota Attorney General’s office.

Sen. Mary Duvall, R-Pierre, a member of the Senate Agriculture and Natural Resources Committee, and South Dakota Public Utilities Commission Chairman Chris Nelson said the state has been looking at changes because of recent grain trader insolvencies in the region, and considering changes North Dakota made in regulation in 2019.

In 2019, in the wake of the Hunter Hanson case in the Devils Lake, North Dakota, area, the Legislature moved regulation from the Public Service Commission to the North Dakota Agriculture Department. Hanson traded $23 million over 18 months and left $11 million in unpaid farmers and elevators. Hanson, then 21, went to federal prison in Duluth, Minnesota.

Nelson said the provisions in each Senate bill were broken apart to comply with “single purpose” requirements from the courts on bills.

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Here is what each does:

SB 35: Increases the maximum civil penalties for buying grain without a warehouse license, assessing $5,000 per day, up to a maximum of $50,000 — an increase from the former $20,000 maximum.

It increases to $20,000 (from $2,000) the fine for an “operator, owner, or chief executive officer” of a grain warehouse “or any other person in a management position” if they delay or impede the SDPUC from having access to the warehouse books or delays their examination.

It requires a grain buyer to turn in all records —physical or electronic — within 5 working days of an inspector’s request. It increases the civil fine to up to $5,000 per day for a buyer who is “aware” they are out of compliance with the state’s financial solvency standards.

If passed, the SDPUC can impose a civil fine of $1,000 a day up to a maximum of $20,000 per licensing period for operating outside of “financial standards” for licensees, and requires notification of the SDPUC for an examination. “The thing we stressed to the committee is that these are the maximums,” Nelson said.

SB 38: Makes it a Class 5 felony to buy grain without a license “if the person holds himself or herself out to be a grain broker.” It remains a Class 1 misdemeanor for those not claiming to be a grain broker.

Duvall said SDPUC looked at North Dakota law provisions but ended up writing its own. North Dakota licenses grain brokers, but the proposed South Dakota provisions simply clarify and increase penalties. She said creating a license for brokers would needlessly add bureaucracy. Nelson said requiring bonds from brokers is pointless because the broker doesn’t take possession of grain. “It creates a false sense of security and government ought not be doing that,” Nelson said.

In cases where brokers arrange sales to unlicensed buyers, the bill allows the commission to impose a civil penalty of $5,000 for “each purchase of grain” up to a maximum of $50,000 per “licensing period,” which runs July 1 to June 30 of each year, for all licensees. Neither Nelson nor Duvall could immediately provide examples where a broker arranging sales with an unlicensed buyer has been a problem, but the provision was recommended by SDPUC staff.

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Under the bill, the SDPUC “enjoin” or stop grain buyer transacting business without a license. Again, each transaction is “evidenced by the issuance of a uniform scale ticket or receipt.” This means a violator cannot claim that multiple scale tickets are considered together as some bigger transaction.

The bill defines “grain brokers” as people “involved in the negotiation of a grain transaction”— the same language in a new definition — are somehow “compensated for that involvement” by “at least one party” in the transaction. Unlike a grain buyer, a grain “broker” does not “take title” to the grain in a transaction. In the Hanson case in North Dakota, almost all transactions that led to claims carried commissions to East Central Grain Marketing, a grain brokerage headed by Dan Stommes of Harrisburg, South Dakota.

The bill defines a broker as one who “holds himself or herself out,” to mean the company uses some “sign, symbol, document or term” to indicate the person is “competent, qualified, authorized, or entitled to engage in certain activities.”

The bill makes it a Class 5 felony, with a maximum penalty of five years and a $10,000 fine, to “negotiate or attempt to negotiate a grain transaction with a grain buyer, who is not licensed” or to “take title or attempt to take title” to grain that is “subject to a transaction being negotiated by the grain broker.”

SB 39: Requires that any creditor claims against a grain buyer “must be made to the SDPUC within 90 days,” after the grain buyer loses their license — far shorter than the previous six months. The SDPUC must publish a notice of the revocation for two consecutive weeks in a newspaper where the company maintains “a business location” and a general circulation paper in the state.

The SDPUC, without court action, becomes the trustee in such insolvencies, Nelson explained, distributing proceeds from bonds and from grain and other assets. Nelson said the agency has concluded that “there is no reason it can’t get done” in three months, rather than six, which helps the farmer.

HB 1037: Increases to criminal theft (up from a Class 6 felony) the penalty if grain buyers fail to notify the SDPUC if they’re in substandard financial condition “if it results in a financial loss to a supplier,” including farmers. Cases that don’t result in supplier losses are Class 1 misdemeanors. The attorney general's office didn't immediately return inquiries about what prompted the sponsorship.

Mikkel Pates is an agricultural journalist, creating print, online and television stories for Agweek magazine and Agweek TV.
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