Introduction

With the recent bankruptcy filing of nationwide grain dealer Hansen-Mueller, producers may be left without compensation for grain sold to the company. In these situations, producers should consider what options may be available to recover compensation for losses due to insolvency of a grain dealer or warehouse. In several states, those producers may be able to turn to their state’s grain indemnity fund. State grain indemnity funds are typically created to aid producers who have sold grain to a grain dealer or warehouse which later becomes unable to fulfill its obligations. The distribution of these funds is often regulated by statute and varies from state to state. This article will highlight requirements commonly seen across state grain indemnity funds. While understanding these common requirements is crucial to understanding how grain indemnity funds function, it is important to keep in mind that requirements will vary between states.  A breakdown of state-specific requirements is available here in NALC’s state compilation “Regulation & Requirements for Grain Dealers.”

Background & Funding

Currently, 15 states have a statutory grain indemnity fund. Grain indemnity funds operate as a sort of insurance for state agricultural producers. In the event a qualified grain dealer or warehouse becomes unable to pay producers for delivered grain, a state grain indemnity fund can step in to compensate producers. To build up the “insurance” fund, grain indemnity programs generally rely on fees or assessments collected from grain sales. For example, Idaho producers are required to pay a 0.2% assessment on the total gross dollar amount of all commodity sales. ID Code § 69-256. In Kentucky, producers are assessed at a rate of .0025 times the gross-value of grain covered by the fund. KY Rev. Stat. § 251.640 (2024).

Often, the size of the funds are capped by specific statutory standards. For example, Indiana requires that the fund be maintained at or exceed $20,000,000. As a result, the assessment on producers in Indiana will only be effective when the fund is below $20,000,000.  Once it reaches that level, the assessment will not be collected until it again sinks below the threshold. Ind. Code § 26-4-4-9. Similarly, South Carolina only applies assessments when its fund is below $3,000,000. SC Code § 46-40-90.

Understanding how these programs are funded is important, but in an emergency situation producers are likely far more concerned with how to actually recover their losses. When seeking compensation under a grain indemnity program, producers should consider whether they qualify, how to apply, and how much coverage is available.

Qualifying Producers

Occasionally, grain indemnity funds will have certain prerequisites for a producer to qualify for assistance. The qualifications necessary to benefit from a grain indemnity program vary from state to state. Louisiana limits recovery under its fund to “any producer who sold agricultural commodities to the licensee” while defining “producer” as “the owner, tenant, lessee, or operator of land within this state who has an interest in or receives all or any part of the proceeds from the sale of agricultural commodities produced thereon.” LA Rev. Stat. § 3:3402. Idaho’s grain indemnity fund requires every producer to pay an assessment for deposit into the commodity indemnity fund to qualify for coverage. ID Code § 69-257. While producer-specific prerequisites are less common than dealer requirements, they are important because they can impact an individual’s coverage under grain indemnity funds.

 Qualifying Dealers

Qualifying producers should then consider the other party to the contract- the dealer or warehouse where they delivered their grain. Frequently, losses by qualifying producers are only eligible for coverage if the grain dealer or warehouse is licensed by the state.   For example, Louisiana permits grain indemnity payments only when a “licensed grain dealer becomes insolvent” or a “licensed cotton merchant becomes insolvent.” LA Rev. Stat. § 3:3412.1.  Similarly, many grain indemnity funds will only cover licensed grain dealers and storage warehouses. As an example, statutory language in Idaho’s fund explicitly states that “the director shall not approve or pay any claim made on the commodity indemnity fund if the claim is based on losses resulting from the deposit, sale or storage of commodities in an unlicensed warehouse or dealer.” ID Code § 69-262.

Even in situations where a grain dealer or warehouse is licensed, some states impose additional requirements before a producer may recover for losses.  For example, some funds require a formal bankruptcy filing by the grain dealer before the grain indemnity fund will take effect. South Carolina, in its grain indemnity statute, defines debtor as “the Southern Soya Corporation now in bankruptcy” and “any grain dealer who has filed a petition for bankruptcy or who has committed embezzlement or fraud.” SC Code § 46-40-90.

There are other actions that producers can do to limit their risk of nonpayment when engaging in the sale of grain.  For example, it is important to know whether your grain dealer or warehouse is licensed.  Often, the license process is done through the state department of agriculture- a list should be available online or by calling the agency.  Along the same lines, confirm that assessments have been made on your behalf, if required, to ensure producer eligibility for the fund.

Timing

The next question is how (and when) to apply for funding.  The process varies between the states, but timing is a factor that is important across the country. Often, grain indemnity funds will create a “window” in which applicants can successfully petition for funds. That window of time can vary drastically between states.  For example, after a producer in Idaho receives notice that a grain dealer cannot pay its outstanding contracts, they only have 90 days to file a verified claim for indemnification, after which “no such claim shall be paid from the commodity indemnity fund.” ID Code § 69-263. Iowa, like Idaho, has a specific  time limit for recovering under its grain indemnity fund. In Iowa, “a claim must be filed with a claim period beginning on either incurrence date and ending one hundred twenty days after that incurrence date.” IA Code § 203D.6 (2024). The “incurrence date” can arise from one of two situations.  Either the “cessation of the license of the grain dealer . . . or warehouse operator” or “the filing of a petition in bankruptcy by a licensed grain dealer or licensed warehouse operator.” Id. Minnesota, while still imposing a time limit on recovery, is much more accommodating on the deadline.  It allows claims to be made up to 36 months after the failure of the grain dealer. Minn. Stat. §§ 223.24 to .26.

The claims process is typically more than just filling out a form, which makes the deadline for a completed claim even more important to consider. Many states require that  producers applying for relief under a grain indemnity fund present evidence justifying their claim. For example, claims in Idaho require “written evidence disclosing a storage obligation or a sale or delivery of commodities.” ID Code § 69-262. Iowa requires “adequate documentation to establish the existence of a claim and to determine the amount of the loss.” IA Code § 203D.6 (2024). Similarly, to verify a claim in South Carolina, the applicant must “present any evidence of loss including, but not limited to, scale tickets.” SC Code §46-40-40. Some form of written evidence is a common requirement across the various grain indemnity fund statutes, so it is important to account for the time to locate appropriate documentation in the timeline calculation.

As discussed above, it is important to keep program requirements in mind when applying for these types of funds- reaching out to the state agency in charge of the program can be a helpful tool to identify state specific elements. If a producer is given a check that is unable to be cashed, or payment is not made in a timely manner or any other indication is given of a potential failure to pay, they should act quickly to preserve a potential recovery under a grain indemnity fund. Further, if a producer receives paperwork indicating that a dealer or warehouse has filed for bankruptcy (even if the payment is not yet due), they should begin identifying their options for the path forward.  Finally, it is important to keep records and receipts of all grain transactions. In a worst case scenario, this will help to satisfy the common evidence requirement and assist producers in proving the validity of their claim.

Recovery

Finally, it is important to recognize the limits of your state grain indemnity fund’s coverage. For example, Tennessee limits recovery under the fund to 85% of a valid claim, or a maximum of $100,000. TN Code § 43-32-210. Ohio, conversely, will pay up to 100% of the depositor’s loss- but only in certain situations. Under Ohio’s grain indemnity fund, depositors can recover the full amount of their loss when the grain was stored under a bailment agreement, payment was tendered and subsequently dishonored, and in other time-specific situations where the dealer’s license was suspended. Ohio Rev. Code Ann. § 926.18. For all other situations, Ohio reduces the coverage to 75%. Minnesota is another example of a state where coverage varies depending on the transaction. Under Minnesota law, producers can be protected for the full value of the grain sold on a cash sale less than 180 days from the deposit. However, the recoverable amount is reduced in situations where the transaction was a deferred or delayed payment contract or a voluntary extension of credit contract. Minn. Stat. § 223.24.

In order to minimize risk, it is important to be aware of any actions that may limit your recovery.  For example, consider the type of contract and the length of the pay period when entering into transactions with grain dealers. Recognize that extending the pay period may ultimately have consequences on potential recovery.  Again, the state agency responsible for the program should be able to provide producers with state-specific factors and further information.

Conclusion

It is important to remember that grain and commodity indemnity funds are not a producer’s only remedy in the event of nonpayment. Bankruptcy or other civil court actions, for example, are other methods of satisfying a debt when grain dealers or warehouses become insolvent. While grain indemnity funds are an additional remedy that may provide assistance when needed, each grain indemnity fund typically comes with unique requirements that producers should be aware of.

The above examples are not exhaustive but instead are intended to outline requirements commonly seen in grain indemnity funds. Understanding these requirements can help producers prepare in the event they need to recover under a grain indemnity fund. However, to fully understand the requirements for any given state, producers should still turn to the statutory language codifying the state’s grain indemnity fund. For a full list of state grain indemnity fund statutes, click here.