There's no guarantee that when you deliver grain to an elevator that you will actually get paid, says Ray Martinmaas, an Orient, S.D., farmer who lost $48,000 in the Anderson Seed Company insolvency last year.
Licensed elevators and grain buyers are bonded. But bonds only cover cash sales, not voluntary credit sales, and sometimes the bonds alone aren't adequate to pay farmers who delivered grain everything they are owed. In the Anderson Seed case, growers with cash sales collected only about 4.5 cents of every dollar they were owed. Growers with voluntary credit sales have not received anything yet, because bonds don't cover such sales. North Dakota has producer-funded indemnity funds to cover voluntary credit sales, but South Dakota doesn't.
Bonds requirements aren't high enough and they are too cheap, Martinmaas contends.
Typically, bonds cost about 1% of the amount of the bond.
"Someone can pay $1,000 get a $100,000 bond, buy millions of dollars of grain and leave farmers holding the bag for $2.6 million," Martinmaas says, relating his experience with Anderson Seed Co. "Bonds are a joke.
There's another side to the story, though. Bonds aren't designed to cover 100% of cash sale losses.
"It has been the South Dakota Public Utilities Commission's stated position that bonds aren't set with the primary intent of making everyone whole in the event of a failure," says Jim Mehlhaff, PUC grain warehouse division director. "The state requires [bonds] for the primary purpose of bringing the additional scrutiny of the applicants' financial statements from the surety business issuing the bond. If state law required bonds for the purpose of making every entity whole in the event of a failure, the bonds would need to be set at 20% of annual purchases. This would very likely drive many grain buyers out of business or underground, thus limiting competition and markets for farmers to sell their grain. It would also make South Dakota a very unattractive state for those looking for opportunities to invest in businesses that add value to the crops we grow here."
Read more in the September issue of Dakota Farmer.