Farmers, grain buyers learning rules

Farm Forum

REDFIELD – Farmers often don’t think about the rules governing grain-buying transactions, but since Anderson Seed Company went out of business in 2012, there has been a greater need to learn about them, say South Dakota Farmers Union officials.

Speakers from the South Dakota Public Utilities Commission and North Dakota Public Service Commission talked about grain transaction rules at a meeting in Redfield on Monday. The South Dakota commission will take public comment in July, before considering changing a rule on verbal grain-buying agreements on voluntary credit sales contracts.

The impetus for the meeting was a recent decision by Judge Tony Portra that stated that a voluntary credit sale contract must be signed by both the producer and the buyer for it to be considered valid.

Portra ruled in favor of Ray Martinmaas, an Orient-area farmer who lost about $47,000 when Anderson Seed closed its doors. He was seeking a portion of the surety bond.

The judge’s decision stated that because Martinmaas had failed to sign the contract, it was not a valid voluntary credit sale and, therefore, he had a right to a share in the bond just like farmers who had made cash sales without payment.

Verbal agreements have been a long-held binding practice in grain transactions.

In the past, the grain buyer would send a voluntary credit sale contract to a farmer who had delivered his grain and made a verbal agreement to sell it later. The producer had 48 hours to object to the contract, but if he did not return the contract signed within 30 days, it was still considered valid.

The legitimacy of the practice is supported by state statute, said Chris Nelson, vice chairman of the PUC, who spoke at the meeting.

The South Dakota Grain and Feed Association wants the PUC to use its rule-making authority to go back to the old system, and at this point, no farmers’ group has come forth to disagree.

Mike Traxinger, legislative director for the South Dakota Farmers Union, testified at a June 4 PUC meeting in favor of maintaining the old practice. Traxinger, who moderated the meeting in Redfield on Monday, said he wants more input from farmers so the union can best represent their views.

There were about eight farmers at the meeting. The few who spoke were more concerned about the security of their grain than with specific rules related to verbal agreements and voluntary credit sales.

Tim Jensen, who farms near Canistota, said the most important issue is whether the farmer keeps ownership of the grain until he receives payment.

“If you buy a car, you have to pay for it before you get the title,” he said.

If the farmer has delivered grain, he should be protected until he gets the money for that grain, Jensen said.

Bill Nelson, who farms near Redfield, said, “The biggest thing is that you trust the place where you deliver your grain.”

He said he personally does not use voluntary credit sales contracts for delayed pricing, but he does use delayed payment. He sells his grain when he delivers it, but defers payment until usually after Jan. 1 for tax purposes. He said he doesn’t believe in verbal contracts because they are too risky. He signs a contract after he delivers grain to a buyer.

Martinmaas said at the meeting that what has to change is that farmers have to become the first secured creditor when a facility goes bankrupt and not the last unsecured creditor.

Nelson said that creditor status was a legislative issue and could change only if the Legislature changed the laws.

Several legislators attended the meeting, including state representatives Dennis Feickert, D-Aberdeen; Jim White, R-Huron; and state Sen. Chuck Welke, D-Warner.

Feickert said that unloading grain, grabbing a scale ticket and driving back to the fields without signing a contract is a long-held practice.

“I’ve done it myself,” he said. “It has been based on convenience. It is inconvenient to stop and sign that contract.”

He said whether a voluntary credit sale contract is signed or unsigned doesn’t matter in one way if a company becomes insolvent. The farmer is still going to be out money either way, he said.

“My gut says that contracts should be signed in this day and age,” he said. “What I want to know is what other farmers feel about this issue.”

Sue Richter, licensing division director for the North Dakota Public Service Commission, spoke about grain-buying practices in North Dakota. A major difference between the two states is that North Dakota has a large indemnity fund that can be tapped to pay farmers if a grain company goes out of business. The fund is capitalized by a small fee on grain transactions.

North Dakota also differs on the rights associated with a voluntary credit sale contract.

Jim Mehlhaff, South Dakota PUC director of warehouse division, talked at the meeting about efforts within his department to inspect grain buyers and warehouses to make sure they are in good financial standing.

Since the 2013 legislative session concluded, the PUC has more power to get current financial data from companies.

Nelson said the most important thing farmers can do if they are not receiving payments from a grain buyer, is to contact the PUC right away.

That is something that didn’t happen when Anderson Seed started having problems, he said.

Follow @Business_AAN on Twitter.