Do State Bonds or Indemnity Funds Need Updating with Higher Commodity Prices?

B&B Farm Store in Jesup, Iowa had their grain license pulled by the state after falling $4.5-million in debt, leaving some of the farmers who sold grain to the store in a position where they had to file claims with Iowa’s grain warehouse indemnity fund to get compensation.

But with the value of grain today, that may not be enough to make farmers whole, which is raising some red flags. 

B&B Farm Store defaulted on an estimated $1.3 million of grain they bought from 60 Jesup area farmers. One of those farmers was Ben Riensche. He sold B&B 20,000 bushels of corn this spring that he wasn’t paid for. Now he has to rely on the Iowa grain warehouse indemnity fund for payment. 

Riensche says he is in the process of filing a claim, and expects to be paid 90% of the grains value--up to $300,000. That should cover most of his losses, but that isn’t the case in many states with bonding or indemnity funds.

Chad Hart, Iowa State University Grain Specialist says even Iowa’s was set up in the 1980s when grain prices were considerably lower.

"These funds do run out very quickly. For example, the Iowa fund is anywhere from $3 to $8 million," says Hart. "Att $3 corn, that covers a lot more bushels than it does at $7 to $8 corn.” 

Riensche agrees there may need to be some changes to reflect current trends.

"$300,000 is a very lower number to protect a producer from an indemnity," says Riensche. "If it would be possible to maybe double that perhaps up to a $1 million even I think that would be more in line with today’s standards."

As a result, some state legislatures have revisited and modernized their grain bond or indemnity programs to better reflect the marketplace and others may need to follow suit.  

Hart says, "I think there will be some debate over whether we need to increase the size of these funds?  Do we need to be more proactive in the look for these problems out here?"

He says the Iowa Department of Agriculture and Land Stewardship is looking to do more audits as elevators and grain facilities have gotten big enough to the point where they’re getting in trouble, and failures need to be prevented.

In the meantime, Hart says farmers need to protect themselves and remember there’s counter party risk. He says only sell to entities you trust and don’t deliver grain without setting a price or accepting payment at the time of delivery.