What's Covered, What's Not by Iowa Grain Indemnity Fund

You should understand the type of losses covered by the fund, and those left uncovered.

As Iowa's corn and soybean harvest is entering full-swing, it's a good time to remind farmers about Iowa's Grain Indemnity Fund - so farmers know which types of financial losses are covered by the fund and those that are not covered.

"This is an exciting time in agriculture, but it is also very unsettled," says Iowa Secretary of Agriculture Bill Northey. "Higher costs for inputs and increased prices for corn and soybeans have created new opportunities, but also raised the stakes. It's vital that farmers are doing their part to manage risk and understand the protections that are out there, and those that aren't."

The Grain Warehouse Bureau within the Iowa Department of Agriculture and Land Stewardship is responsible for a licensing and inspection program designed to protect farmers and others selling grain to grain dealers. The bureau provides oversight of those businesses that have a grain dealers license. The bureau reviews their financial position, either annually or more frequently in cases where closer scrutiny is justified.

Inspectors examine records of grain dealers

In addition, the bureau's inspectors examine the licensee's grain records and, in the case of a state licensed warehouse operator, their grain inventory. Records are examined to make sure there are accurate records a licensee's grain obligations, that they are handling grain contracts properly and making payment for grain as required. Grain inventories are checked for quantity and quality to ensure that it is sufficient to cover the grain obligations on the licensee's records, as required by law.

The bureau also is responsible for the Iowa Grain Indemnity Fund, which was created in 1986 to provide financial protection to farmers.

The indemnity fund covers farmers with grain on deposit in an Iowa licensed warehouse and grain sold to a state licensed grain dealer. In the case of a failure in a state license warehouse, the indemnity fund will pay farmers 90% of a loss on grain up to a maximum of $150,000 per claimant.

Beware: Credit-sale contracts aren't covered

However, grain sold using a credit-sale contract is not covered. Credit-sale contracts allow farmers to sell and deliver grain to a grain dealer, but payment to the farmer is deferred. If a credit-sale contract is not issued, the grain must be paid for upon demand, or in absence of a demand, within 30 days of delivery.

In these cases farmers give up title and become unsecured creditors of an elevator as soon as they deliver grain sold using a credit sale contract. Thus, a farmer's ability to be paid depends on the future solvency of the elevator.

The Grain Indemnity Fund was created by assessing one quarter of a cent per bushel of grain handled by warehouse operators and grain dealers. In addition, annual indemnity participation fees were collected from grain dealers license holders. These fees were ended on July 1, 1988, when the fund reached the $6,000,000 maximum balance allowed by law. The annual indemnity participation fees are still assessed once to each new license holder when they apply for a license, Northey explains.

The indemnity fund balance as of June 30, 2008 is $8,186,087. The fund balance has grown from its initial $6,000,000 maximum due to interest accruals and new licensee assessments. Since its inception in 1986, the indemnity fund has paid out $13,308,158 in claims; made $8,626,176 in recoveries, including repayments from bureau receiverships; and incurred a net loss on claims of $4,681,982.

Since 1986 the Grain Warehouse Bureau has handled approximately 27 grain receiverships for failed state licensed warehouse operators. More information about the Grain Indemnity Fund can be found on the Iowa Department of Agriculture Web site at www.IowaAgriculture.gov/grainwarehouse.asp.

TAGS: USDA
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