Texas grain producers have a short window of opportunity to cast their votes to establish the Texas Grain Indemnity Fund, a vehicle for producers to self-insure against the financial risks associated with storing or selling grain in the state.
Voting got underway Monday (Dec. 5) and will continue at Extension offices across Texas through Friday (Dec 9). Extension office hours generally are 8 a.m. to 5 p.m. Monday – Friday. All grain producers in Texas who have produced grain within that last 36 months are eligible to vote.
The Texas Grain Indemnity Fund referendum was authorized by the Texas Legislature. The Texas Department of Agriculture is responsible for collecting and counting all votes cast and also charged with making certain that only producers who actually produced grain over the last three years are allowed to cast a ballot.
According to the Texas Grain Indemnity Board, an indemnity fund is needed in Texas to help producers manage the risks involved in producing grain. Risk management is an important part of maintaining any successful business, they say, and for grain farmers production costs can exceed $4 or $5 per bushel, and producers can be leveraged up to 80 percent of the value of their crop.
Under such conditions, an operation that took generations to build can be wiped out overnight by a catastrophic event like the closing of a grain elevator or the failure of a buyer to pay for a grain delivery. Crop insurance can provide some protection before a crop is harvested, but after harvest, a producer can be totally exposed until full payment for his crop is credited to his bank account.
Under terms of a state grain indemnity fund, producers would self-insure against such loses by participating in the fund. Under current laws, warehouses are the only grain facilities required to carry a bond, which only applies to stored grain. Other grain buyers are not licensed by the TDA or any other agency and are not required to be bonded.
Many producers in Texas have suﬀered economic losses from defaulted contracts. These losses impacted not only the producer, but also lenders, suppliers and other businesses. The economic impact of a grain buyer’s financial failure ripples across communities, and even across the state.
If producers vote to approve the development of a Texas Grain Indemnity Fund, Texas producers of corn, grain sorghum, wheat, and soybeans would pay 0.2 percent of the gross sales price of grain to the Texas Grain Producers Indemnity Board. In the event of a loss, the Indemnity Board would mitigate 85 percent of all verified financial losses suffered by producers of corn, sorghum, soybeans and wheat crops when a financial failure prevents grain buyers from paying for purchased or contracted grain or delivering unsold grain.
Daniel Berglund, a grain producer from Wharton, chairman of the Texas Soybean Board and chairman of the Texas Grain Indemnity Board, says he believes the establishment of the fund is the only way to prevent large economic losses caused by the failure of a buyer to provide payment.
“If passed by a majority of producers who have produced a grain crop over the last three years, the (indemnity) fund will be set up to collect two tenths of one percent of the cash value at the first point of sale and those funds will be used to purchase and administer a re-insurance policy that will cover you in the event of future failures up to 85 percent of your loss," Berglund said.
Mitchell Harris, former CEO of AgTex Farm Credit Service and also a member of the Texas Grain Indemnity Board, said grain buyers could be grain elevators or any buyer of grain in the State of Texas whether they have a warehouse license or not.
"It could be a feed lot or a poultry operation for example, any one that buys grain and fails to deliver payment," Harris said.
The current bond requirement for state-licensed warehouses is only 10 cents per bushel of storage capacity with a maximum bond requirement of $500,000, whereas federally-licensed warehouses must have a third-party surety bond based on the licensed capacity.
Supporters of the establishment of the Indemnity Fund argue that a $500,000 bond, at today’s prices especially, does not provide adequate protection in the event of a financial failure of the warehouse.
The Texas Grain Producers Indemnity Board (TGPIB) will set the minimum fund balance necessary to cover all anticipated administrative and operating costs, as well as a reasonable estimate for indemnity claim payments. Once the fund reaches an amount determined by the TGPIB as sufficient to cover the risk, a refund process will be initiated to refund assessments.
The fund will be managed by the TGPIB. The money paid by producers will not be a part of the State Treasury, and can only be used for the indemnity fund program.
According to the Board, “the realization that it is financially and physically impossible to mitigate the financial risks of the producer through bonding and oversight led to the proposal and passage of Senate Bill (SB) 1099, which allows Texas grain producers to vote on whether they want to create, and pay for a grain producer indemnity fund.”
If producers are unable to access an AgriLife Extension Office for the purpose of voting on the referendum, a ballot may be requested from TDA by calling (800) 835-5832. In order to be valid, all ballots cast must be mailed to TDA and must be postmarked no later than December 9, 2016. Ballots will be counted at TDA Headquarters by Department staff and the Commissioner of Agriculture will certify results.
This referendum marks the second time grain producers will have the opportunity to voice their support for the development of a State Indemnity Fund. The first referendum was staged in 2012 and failed to pass because of producer concerns. The TGPIB says it heard the message conveyed by the producers who voted in the 2012 referendum and say they have gone to work to resolve the problematic issues identified including the cost of the fund, the level of the indemnity fund coverage (deductible), and the refund process. The board collectively says they know grain buyer financial failures will continue and the need for producer protection still exists, and say they are hopeful the revised referendum has addressed all previous concerns.
More information on the Grain Indemnity Fund Referendum is available from the Texas Department of Agriculture Contact Stuart Strand, director for Agriculture Commodity Programs-Texas Department of Agriculture at (512) 463-3285.