The on-again, off-again Grain Indemnity Fund proposal looks like it will be heading to the legislature this session. First a little history, the proposal has been in development for the past three years and has gone through several different "skins." The funding formula has been changed and tweaked along the way, as well as having the addition of a citizen advisory board. The current version looks to be the Department of Agriculture, Trade and Consumer Protection’s (DATCP) "final answer." The goals that DATCP is attempting to achieve are two-fold. First, they are looking for the fund to be a solution to the current security law’s incomplete and uneven coverage of producers in case of a commercial default in the dairy, vegetable and grain industries. Secondly, they are hoping to free up capital for the industry by allowing those companies that are currently filing required security to have lowered or no required security. In the grain trade in Wisconsin, approximately 25% of all of licensed grain purchasers are currently required to file security. As the proposal is currently written in the first year of the program, about 75% of the currently held security would be returned. In later years, additional amounts would also be returned until the Department would hold almost no security deposits.
In order to fund this proposal, DATCP would levy assessments on virtually every entity in the state that purchases grain from producers. In addition, every commercial grain warehouse (except for those, which are federally licensed) would also be assessed. Initially, licensed facilities would be paying both their current licensing fees as well as their calculated assessments. For grain purchasers, those license fees are, beginning in the seventh year of the program, credited back to the facility and eventually eliminated. For warehouses, the crediting schedule is much more gradual and fees are never fully eliminated.
The fund has both positives and negative aspects. The positive points are that current security requirements can serve as an impediment for new commodity-buying industries to either come into, or even remain, in Wisconsin. Also, with fully 25% of all of the state’s licensed grain buyers filing security, that is a bundle of capital tied up by the state, which would largely be freed up under the plan. In addition, producers who use delayed payment contracts (final payment made seven days after title to the grain has passed) will be paying a separate assessment, too.
On the negative side, the program will cost money. And that money is going to be paid by someone, either by the commodity buyers themselves or it will be passed onto their customers. With today’s low prices, this may be a tough sell, no matter how small the cost might be. The other negatives are primarily of a philosophical nature. The main concerns are in regard to whether the producer has responsibility for knowing the buyer with whom they are dealing. Should a producer be insured when they make a personal decision to deal with a buyer with known financial difficulties? Should a financially sound buyer be essentially paying, by way of an assessment, to insure producers who decide to deal with a financially less sound competitor? These are tough questions that need to be asked. The answers will of course depend on your viewpoint of what the role of state regulatory officials should be.
That said, you still need to at least figure what the program is going to cost and whether the amount is significant to your operation. To help you find out these amounts, we have included some tables which should be helpful. A few words of explanation before you dive into the tables.
|
Table A Assessment per $1,000,000 in annual grain purchases from producers |
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|
Current Ratio |
1 |
1.1 |
1.2 |
1.3 |
1.4 |
1.5 |
1.6 |
1.7 |
1.8 |
1.9 |
2 |
2.25 |
2.5 |
2.75 |
3 |
3.5 |
4 |
|
Assessment |
$5437 |
$1084 |
$373 |
$129 |
$90 |
$75 |
$68 |
$64 |
$62 |
$61 |
$60 |
$58 |
$56 |
$54 |
$51 |
$43 |
$30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt to Equity |
0.1 |
0.2 |
0.3 |
0.4 |
0.5 |
0.6 |
0.7 |
0.8 |
0.9 |
1 |
1.25 |
1.5 |
1.75 |
2 |
2.5 |
3 |
4 |
|
Assessment |
$0 |
$0 |
$0 |
$2 |
$4 |
$6 |
$8 |
$10 |
$11 |
$12 |
$15 |
$18 |
$20 |
$21 |
$23 |
$26 |
$110 |
|
Table B Assessment per 100,000 bushels of space for licensed warehouses |
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|
Current Ratio |
1 |
1.1 |
1.2 |
1.3 |
1.4 |
1.5 |
1.6 |
1.7 |
1.8 |
1.9 |
2 |
2.25 |
2.5 |
2.75 |
3 |
3.5 |
4 |
5 |
|
Assessment |
$544 |
$108 |
$37 |
$13 |
$9 |
$7 |
$7 |
$6 |
$6 |
$6 |
$6 |
$6 |
$6 |
$5 |
$5 |
$4 |
$3 |
$0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt to Equity |
0.1 |
0.2 |
0.3 |
0.4 |
0.5 |
0.6 |
0.7 |
0.8 |
0.9 |
1 |
1.25 |
1.5 |
1.75 |
2 |
2.5 |
3 |
4 |
5 |
|
Assessment |
$0 |
$0 |
$0 |
$0 |
$0 |
$1 |
$1 |
$1 |
$1 |
$1 |
$2 |
$2 |
$2 |
$2 |
$2 |
$3 |
$11 |
$163 |
Every licensed buyer of grain from producers, including "producer agents," would be required to participate in the fund and pay the appropriate assessments. (Buyers who currently hold a B2 license would have a maximum $25 annual assessment.) Those facilities that are licensed warehouses (i.e., more than 50,000 bushels of grain stored for depositors) and who are not federally licensed warehouses would be required to pay an additional warehouse keeper assessment.
To find your costs, look to Table A and find the corresponding assessment for both your operation’s current ratio and debt-to-equity ratio. (Due to space limitations, we have included a range that covers most of the likely values. Please use the ratio that most closely matches your own figures.) In the case of the grain purchasing assessments, take each assessment (both the current ratio and debt-to-equity factors) and add them together. Multiply this sum, by how many millions of, or fraction thereof, dollars your operation annually purchases from producers. This resulting figure would then be your beginning year’s annual grain purchasing assessment. For warehouse keepers, repeat the steps using the figures in Table B. If you aren’t a licensed warehouse or are federally licensed, please ignore this step. Then add the resulting figures from both Table A and B together for your total assessment.
Here is an example that may help you. Let’s assume we operate a facility that purchases 2.5 million dollars worth of grain (corn, beans, wheat, or oats combined) from producers annually and have
300,000 bushels of storage space. We have a current ratio of 1.7 and a debt-to-equity ratio of 1.07.
| Grain purchasing assessment | ||
| Current ratio | 1.7 | Assessment $64 |
| Debt-to-equity ratio | 1.07 | Assessment $12 |
| Total | $76 times 2.5 = $190 | |
| Warehouse keepers assessment | ||
| Current ratio | 1.7 | Assessment $6 |
| Debt-to-equity ratio | 1.07 | Assessment $1 |
| Total | $7 times 3 = $21 | |
| Total annual assessment | $211 |
Remember this annual assessment is in addition to the facility’s current license fees for the first several years and will also be at its highest levels in the first years.
The WASA Board intends to take a position regarding the plan at their June 6 meeting. Please contact either the WASA office or any Board member and make them aware of your thoughts or concerns. This is an issue that affects everyone.
DATCP is proposing a change to the way commercial feed law violations are handled. Under current law, for DATCP to assess a fine to a dealer for feed law violations, the department must take the case to a district attorney and have formal criminal charges filed against either the company or principal party involved. The case goes to trail and is resolved with either the party’s innocence or guilt. Either way, it was a criminal proceeding, of which there is a permanent record for the named parties.
Under DATCP’s proposal, the department would still have to go to a district attorney to attempt to institute a fine, however, a civil forfeiture proceeding could be used instead of the current mandated criminal proceeding. A civil forfeiture conviction does not go on the party’s permanent record. It is similar to a traffic ticket. The bottom line is the change would allow a less harsh enforcement alternative in cases that don’t warrant a criminal prosecution.
We don’t have a firm timetable of when the changes may be passed but we wanted you to be aware of the changes that are being planned.
On the heels of March’s very successful grain grading classes around the state, WASA is offering the brand-new, USDA-produced grain grading CDs.
The first CD is entitled Overview of Grain Grading. This provides a generalist viewpoint of the grading of corn, soybeans, wheat and grain sorghum. A second CD has been released that goes into much greater detail of the various issues involved in the grading of the various classes of wheat. (A special combination CD covering the details of corn and soybean grading will be released later this year and will be available to the membership as well.) Each CD includes color pictures of the various types of grain damage as well as demonstrations of proper sampling technique. The presentations are in a video format and are done in easy to understand style. At the minimum, the Overview CD should be available to every employee who grades grain as a handy reference. The pictures of the various types of damaged grain make the CD valuable in themselves.
The CDs are offered to the membership for the cost of shipping only, one dollar per CD. We ask at this time that you limit your order to one CD of each topic until we can satisfy all the requests. Any requests for multiple copies will be filled after all other orders have been satisfied. They are available in Windows format only, so at this time we cannot help those who may be using a Mac. You will also need a color monitor, sound card, speakers and a CD-ROM drive to fully appreciate all the CDs have to offer.
WASA has also updated its Super Poster - a combined employment poster of all federal and state posting requirements. If you purchased the Super Poster from us in the past, you can order this new poster at a reduced cost - only $2.64 each tax included. Our Forms Order for both the CD and Poster is enclosed in this newsletter.