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Grain transaction regulations meeting

Posted: Friday, Jun 28th, 2013

On Monday, June 17 an informative grain law meeting took place at the Redfield American Legion.

Members of the Public Utilities Commission (PUC) and the South Dakota Farmers Union (SDFU) were present, along with special guest Sue Richter, Director of the North Dakota Public Service Commission Licensing Division. Richter was present to explain how grain buying and selling works in North Dakota.

Roughly ten farmers were in attendance to hear what the PUC is doing to protect them. Also in attendance were three District Legislators: Chuck Welke, Senate District 2; Dennis Feickert, Senate District 3; and Jim White, Senate District 22.

The meeting came about after recent rules changes on how grain buyers and sellers make and validate a contractual agreement, which was spawned after the Anderson Seed Company fiasco. “In Anderson (Seed), we learned some things,” Chris Nelson, Vice Chair of the South Dakota PUC, said.

The bill that sparked the discussion was House Bill 1017, which was passed earlier this year. It will establish and revise certain provisions, bond amounts, fees, and penalties related to the regulation of grain warehouses and grain buyers and how an emergency is to be properly declared.

Jim Mehlhaff, Warehouse Division Director of the South Dakota PUC, noted that the PUC’s main job is to “license and protect those involved in the grain industry.”

The current rule states that when a grain seller and buyer enter into a voluntary sale contract, both parties have to sign the contract in order for the contract to be valid. This came after Ray Martinmaas lost $47,000 due to the Anderson Seed fiasco. Martinmaas did not sign the contract and therefore was awarded a part of the $100,000 Anderson Seed surety bond. A court ruling from Judge Tony Portra made it a rule that both parties must sign the contract. If the contract is sent out to the seller and it is not signed within 30 days, the buyer is required to send the seller a check for the amount determined that day. This means that if the seller does not sign, the contract becomes void and the two parties enter into a cash sale instead of a contractual agreement.

Because of HB 1017 it is also now illegal for grain buyers to not call the PUC in the event of financial instability. This ruling would have possibly saved Anderson Seed from going under and leaving many producers holding the bag. With HB 1017 bond levels were raised and Anderson Seed would’ve had to have a higher bond based on stock on hand. The amount Anderson Seed would’ve had was $150,000. “It’s a small drop in the bucket,” Nelson said. “But it would’ve helped.” Martinmaas stated that “the bond level doesn’t mean anything.” Nelson informed Martinmaas that if he thinks that the bond level should be increased so that producers are more protected, he should bring it to the legislators for a change.

Nelson made three points that he wanted producers to leave the meeting with:

• Under existing laws if a producer is cash selling their grain, the law says that they have the legal right to be paid that day.

• If a producer was selling cash grain they are to be paid within 30 days.

• If a producer has difficulty getting paid that they are to simply do one thing; call Jim Mehlhaff.

After Judge Portra ruled that contracts must be signed by both parties, thus eliminating verbal agreements, call in agreements, or any other agreements that were normal to producers for so many years, the PUC has decided to take it upon themselves to attempt a rule change that would allow producers to make a verbal contract with grain buyers. The buyers would then send the sellers a written contract that producers could review and possibly object to. “Get us back to the business we were doing,” Nelson said. This rule would completely mirror the previous rule.

The rule that the PUC wants to change is completely legal. The PUC has the rule making ability that was given to them by the courts. They can make a rule and as long as legislators approve it, it becomes binding. A public hearing will be set on July 30 for the review of the rule for the public to hear. A date of review from legislators will be set for sometime in August.

Sue Richter was the last to speak at the meeting. She explained how the North Dakota Public Service Commission (PSC) does things differently. PUC Director, Jim Mehlhaff, and Vice Chair, Chris Nelson, both paid special attention and took numerous notes.

The North Dakota PSC, via state law, requires that grain elevators, grain buyers, and hay buyers be licensed and bonded. The Commission's Licensing Division oversees the licensing and bonding of all grain elevators, facility-based grain buyers, roving grain buyers, and hay buyers. These entities serve as the initial market for much of the grain produced by North Dakota farmers. Regulation of these entities is intended to protect the people who sell grain to, or store grain in, the warehouses and is enforced within a framework that minimizes negative economic impacts on related industries and individual entities.

North Dakota already has rules in place that South Dakota is just getting: "Credit sale contract" means a written contract for the sale of grain pursuant to which the sale price is to be paid or may be paid more than thirty days after the delivery or release of the grain for sale.

Anderson Seed had nine month old financial statements by the time the PUC got wind of their collapse. This made it hard for the PUC to determine the financial status of Anderson Seed. Now a rule makes it clear that grain buyers must provide statements more regularly. Also, if a buyer, or warehouse, thinks it’s going downward it is required to call the PUC and inform them. The PUC will then review and determine if the company is truly failing or merely going through some hard times. The company will then be required to report financial statements once a week until it is determined that they can support their company alone, then periodic statements will be required.

North Dakota has a similar law that states: Prepare for each month a report giving facts and information called for on the form of report prepared by the commission. The report must contain or be verified by a written declaration that it is made under the penalties of perjury. The report may be called for more frequently if the commission deems it necessary. Information pertaining to the volume of grain handled is a confidential trade secret and is not a public record. The commission may make this information available for use by other governmental entities, but the information may not be released by those entities in a manner that jeopardizes the confidentiality of individual licensees.

For the complete article see the 06-19-2013 issue.

Click here to purchase an electronic version of the 06-19-2013 paper.

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