<24—Lancaster Farming, Saturday, July 25,1981 USDA helps keep harvests safe from failing elevators WASHINGTON, D.C. - After droughts, insects, had, and other natural disasters, some fanners face another threat: elevator and warehouse bankruptcies. Statistics indicate that the risk is small. Only about 175 gram elevators out of an estimated 10,000 nationwide have closed or reorganized since 1975. However, the fadure rate may be increasing. “The number of bankruptcies per year rose over the last few years,” says USDA economist Bruce Wright. “Because this has been a tune of high interest rates and inflation, it looks like the in crease is tied to the general state of the economy. Still, the number is small ” Although bankruptcies are few and far between, that’s little con solation for farmers unlucky enough to put their crops in a finan cially shaky elevator at the wrong tune. Their crops—and the money they need for next year’s plantings—are often tied up as courts sort out the legal tangle. Both gram and cotton facilities can go bankrupt, but most of the focus is on gram elevators. There are more of them, and cotton warehouses are less likely to fail because they are only involved in storage and not in speculation. Occasionally, failing elevators sell the gram to avoid bankruptcy. This usually doesn’t save the elevator, and farmers lose their crops and money. Even if all the gram is in the elevator when it goes bankrupt, legal expenses often eat away farmers’ returns. In addition to providing storage, elevators and warehouses fre quently market crops under delayed-pnce and deferred- payment contracts. In both cases, the warehouse receives title to the crop but delays payment untd the crop can be sold at a price or tune advantageous to the farmer. If the elevator fads before pay ment is made, bankruptcy laws give other creditors priority claim to the facility's assets. The farmer holding a price-later contract is one of the last to be reimbursed. The producers who are only stor ing gram in the elevator are in much better shape because they retain title to the gram. According to one study, just over 3,000 farmers were claimants in elevator bankruptcy suits m 23 states between 1974 and 1979. Although this number is relatively small, a single, well-publicized bankruptcy can affect how farmers view normal transactions with warehouses. So, how can farmers reduce their risk’ That’s not an easy question. “A farmer may lose valuable time trying to check out the solven cy of local gram elevators,” Wright says. “Many tunes that in formation is not even available. Perhaps the best protection is given when elevators are licensed under USDA’s Federal Warehouse Act or meet the Commodity Credit Corporation’s Standards for Ap proval of Warehouses. But, USDA can only regulate warehouses and gram elevators that choose to be licensed under the Act or approved by the CCC. The financial prac tices of most other storage places still fall under some state review, even though requirements vary from state to state. To be federally licensed, storage facilities, net assets must equal to 20 cents per bushel of approved capacity. Elevators also must put up a bond of 20 cents per bushel on the first million bushels, 15 cents per bushel on the second million, and 10 cents on the next million and a half. The bond doesn’t exceed $500,000. In addition, USDA recently pro posed regulations that would give some protection to fanners who deposit their gram in federally licensed warehouses for marketing under delayed-pnce and deferred payment contracts. Just as the present regulations guarantee net assets to partially cover the worth of the bushels stored in a facility, the proposals would cover the amount of money involved in marketing transactions—2o cents per bushel sold An additional $250,000 bona wuum (ildO lA* 1 li' qinred. The standards are different for storage operations under contract with the CCC. Warehouses with capacities between 250,000 and 2.5 million bushels are required to have a net worth equal to 10 cents per bushel of storage capacity. Ten and 20 cents per bushel aren’t enough to cover the total value of the gram, but, in most elevator bankruptcies, at least some of the gram is returned to farmers. “ Elevators volunteer to be licensed because frequently they operate as gram merchants as well as storage warehouses,” says James Springfield, director of the USDA warehouse division. “The gram merchant is then able to use warehouse receipts as collateral for a loan. Because the elevator is licensed, the bank would be more willing to grant a loan.” Over 70 percent of the U.S. cotton • MIXED FERTILIZER • AGRICULTURAL CHEMICALS FfidomH F “ n! " CM • R/K (Royster/Kirby) 500 Running Pump Rd., Lancaster, Pa. 17601 WRITE OR CALL LANCASTER 717-299-2541 IN PA. 1-800-732-0398 OUTSIDE PA. 1-800-233-3833 crop will be stored in federally licensed warehouses sometime before use, and 30 percent of all gram producers will deal with licensed elevators. During the last 2% years, only eight federally licensed warehouses declared bankruptcy. In these cases, the re quired bond assured farmers of 20 cents on every bushel lost. The threat that bankruptcy can strike anywhere, at anytime— sometimes with few safeguards— has been a growing concern to farmers, especially in the wake of recent elevator failures. Even the statistically remote chances of a bankruptcy provide little comfort when an entire year’s earnings may be at stake. Responding to these concerns, USDA Secretary John Block ap pointed a task force shortly after taking office. The purpose: to review current gram elevator laws and regulations to find out what more could be done to protect the agricultural community from elevator bankruptcies. The task force solicited suggestions from representatives of farm organiza tions, the warehouse industry, state governments, and the public. In May, it presented several pro posals to Congress. “The options concentrate on ways elevator bankruptcies can be prevented,” says Merrill Marx man, a member of the task force an area director with USDA’s Agricultural Stabilization and Con servation Service. “They’re not aimed at solving the problem after it happens.” The task force ruled out creating a bankruptcy insurance program or starting a new federal agency to deal with the problem. Among the Tank-mix combinations for late blight and early blight control programs in potatoes For use under Section 18 Emergency Label. To Serve You Better From Lancaster, PA... AGRI SERVICE • ROYSTER BONANZA AND CROP SPECIALS task force’s recommendations: greater cooperation and consisten cy between the federal govern ment and ... tates. “We recognize there are some good state programs for regulating warehouses, but some states do not have strong laws. That’s why we need to work together for greater uniformity,” Marxmansays. USDA is also considering ways it can get more involved under cur rent laws and regulations, as well as what possible changes could be made. For example, the task force proposed that the net worth of CCC-approved elevators be raised to 20 cents per bushel of the elevator’s capacity, and a $20,000 to $500,000 performance bond. Since 1963, CCC has not asked warehouses to carry performance bonds, but it does require other types of approved security if the warehouse owner can’t meat the net worth requirement. According to the proposals, warehouses and elevators that con tract with the CCC could be re quired to be licensed under the U.S. Warehouse Act or under state laws and regulations that are com parable with the Act. Another possible change is that both licensed and CCC-approved storage operations would be re quired to submit a financial state ment prepared by an independent certified public accountant. As well as including an operating statement, it would verify inven tory, confirm storage obligations and payments for grain, and list bank loans and the facility's market position. “This sort of audit is a good working tool for management and (Turn to Page A 25) m rertitners.
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