Miller Urges Farmers to Be Cautious About Grain Credit Sale Contracts
Des Moines. Attorney General Tom Miller is urging farmers to exercise caution and avoid confusion when it comes to selling grain using credit sale contracts.
"Credit sale contracts can be good marketing tools for some farmers in order to defer income from sale of grain until the following year," he said. "However, these contracts have been a source of some confusion and are potentially more risky than other grain contracts."
"The risk comes from the fact that farmers no longer own the grain," Miller said. "The elevator legally owns the grain and can sell it. In essence, farmers are extending interest-free, unsecured credit to the elevator. Therefore, the farmer's ability to be paid depends on the future solvency of the elevator," he said.
Miller said the confusion sometimes comes with claims that credit sale contracts result in "free storage" or "no storage costs." In reality, there never should be a storage fee with a credit sale contract, because the farmer no longer owns the grain. (Sometimes a "service fee" or another charge is assessed which is equivalent to the amount normally charged per bushel for storage.)
Miller's Office has issued a "Farm Advisory" bulletin on credit sale grain contracts every October since 1996, but the caution has extra poignance in 2001 in the wake of a bankruptcy filing September 26 by the Crestland Cooperative in Creston. The co-op has asked for bankruptcy protection from creditors while the business restructures. On Thursday, the Bankruptcy Court approved Crestland's selection of the Scoular Co. of Omaha to operate Crestland's grain business through next April and serve as the entity that purchases grain delivered to the Crestland facilities.
Farmers who delivered grain to the co-op planning to price it later are not protected by Iowa's Grain Indemnity Fund. In addition, even if funds are available in Crestland's bankruptcy proceeding to pay unsecured creditors like the credit sale contract holders, it may take substantial time to determine the final outcome of the Crestland situation and for eligible farmers to receive payments.
Historically, Miller noted, elevators that fail sometimes pay just a few cents on the dollar to farmers who sold them grain using credit sale contracts (sometimes also called deferred-payment contracts or price-later contracts.) Such farmers cannot look to Iowa's Grain Indemnity Fund as a source of payment, because the fund does not cover grain sold under a credit sale contract. By contrast, the Grain Indemnity Fund does cover 90 percent of the value, up to $150,000 per farmer, of grain sold using cash sale contracts or grain stored at a state-licensed warehouse.
"Because credit sale contracts are not covered by Iowa's Grain Indemnity Fund, farmers need to be cautious before they decide to sell their grain using any form of credit sale contract," Miller said. Farmers should not hesitate to ask the dealer purchasing their grain about the elevator's financial health before entering a credit sale contract.
Miller urged persons with questions or complaints to contact the Attorney General's Farm Division, 408 SW 8th St., Des Moines, Iowa 50309. Phone 515-281-5351.
- 30 -Attorney General Home | News Release Home