New grain-dealer rules shape up to track sales

The state Plant Board has released a new set of draft rules intended to regulate grain dealers in Arkansas to create a clear paper trail for agency auditors to track crops moving from a farmer's storage bins to a buyer.

The rules are required by a new state law intended to protect producers by licensing grain dealers. The law was passed in response to last year's failure of Turner Grain Merchandising Inc. of Brinkley.

Turner Grain's bankruptcy has cost farmers and others tens of millions of dollars in losses. It also generated civil lawsuits against Turner Grain and affiliated companies from growers who delivered grain for which they never received payment.

"Everyone that's been involved in the process knows that this probably is not perfect, but it's our start," said Jeff Pitchford, director of public policy for state affairs for the Arkansas Farm Bureau, one of the industry groups that participated in talks with Plant Board staff members to help devise the new rules.

In addition to requiring that dealers be licensed, the new law, Act 601 of 2015, requires businesses or people who buy or sell grain to show they have the financial capacity to carry out the transactions unless they are already licensed through the federal Warehouse Act or the Arkansas Public Grain Warehouse Law. It also established a bonding requirement and a public database so producers can check to see who is licensed to do business in the state.

Before passage of the Arkansas Grain Dealers Act, farmers had no one to turn to if they weren't paid for grain in a timely fashion, Pitchford said. Now, if a problem occurs, they can call a hotline to report the situation to the Plant Board, which can audit dealers to determine their financial health, as well as potentially suspend dealers' licenses if problems are found.

Kevin Keech, the North Little Rock attorney who was appointed as receiver for Turner Grain, said last month that unraveling that company's finances to determine what went wrong has been difficult. When the company filed for bankruptcy in October, Turner listed assets of $13.8 million and liabilities of $24.8 million.

On May 14, a federal bankruptcy judge agreed to change Turner Grain's bankruptcy filing from a Chapter 11 reorganization to a Chapter 7 liquidation. After that hearing, Keech said no one knows for certain what other assets might exist because of poor record keeping as grain was moved among farmers, trucking companies, dealers and others.

Terry Walker, the board's assistant director, said Friday that both the size of the losses caused by Turner Grain's failure and difficulties in sorting out the company's records helped shape the draft rules.

"We were well aware of that," Walker said. He said some of those involved in the discussions worried about having to do additional paperwork. "If you're going to ask an auditor to come in there, to be able to follow the flow, they're going to have to have the numbers and the records" for purchase contracts, delivery sheets and settlements, he added.

Walker said that as of Friday, the board had 11 active license applications pending. He said the board is awaiting details such as certification of bonding and payment of license fees before issuing the licenses.

The Plant Board got its first look at the revised draft Thursday at its regular quarterly meeting.

On May 13, the board adopted an emergency rule that set up a licensing procedure and bonding requirements but held off adopting a section dealing with records to allow board staff members, farmers, dealers and others to work out how to define what records need to be kept.

Thursday's draft was the result of those talks.

At the meeting, board member Richard Collins of Conway noted that time is getting short with the start of the state's winter-wheat harvest getting closer.

"The question is whether farmers are adequately protected" at this time, Collins said.

Darryl Little, the board's director, responded that the state has never had a law licensing grain dealers and that grain worth millions of dollars moves in such transactions. With grain transactions amounting to tens of millions of dollars each year, Little said, even the new law can't entirely protect farmers in the event a deal goes bad.

On Friday, Walker said the law and rules are designed to act as a tripwire to alert regulators to a potential problem before it grows as large as the one created by Turner Grain.

"There is no way a company could secure that kind of bonding and remain economically viable," he said. But, creating a hotline for growers to call if they aren't being paid for grain will trigger checks and audits.

"The thinking is that with the slow-pay hotline, we can be in on a problem situation earlier," he said. "Hopefully, with that mechanism in place, a situation would not get so far out of hand that losses would even approach the level of the Turner Grain situation."

A board subcommittee on the grain dealer law is likely to discuss the draft in early July to make a recommendation for the full board to consider at its next meeting Sept. 4. The rules also will be reviewed by the governor's office and the Legislature before taking effect. That means the Plant Board possibly will have to amend the emergency rule to temporarily adopt the record-keeping requirements in time for the fall harvest, Walker said.

Under the draft rules, sellers and buyers will be required to complete purchase contracts that clearly outline all the conditions and requirements for the transfer of title for the grain involved in the transaction. Details will include the date, a statement saying the seller is relinquishing title, the slow-pay hotline number and, where applicable, the date when payment should be made. If no date is listed, then payment will be due 30 days from when the contract is executed. And, if grain must be moved before the contract is signed, a statement to that effect must be included in the contract.

Other tracking documents will include scale tickets from a facility with scales certified by the Arkansas Bureau of Standards. Destination contracts will provide information about which grain lots are being are used to fulfill the contract, as well as who transported the grain and how much was moved in each load.

Dealers will be required to keep information about the grain being transferred, such as scale tickets, purchase contract numbers, delivery details, settlement sheet summaries and any other documents used in the purchase.

Dealers will be required to give sellers numbered delivery tickets, which will include information about scale tickets or a load summary showing the receipt for the grain covered by the delivery ticket. The tickets will include the name and address of the dealer, the date the grain was delivered, information about the grain and the number of the contract to which the grain delivery should be applied.

Once the grain purchase is made, it must be confirmed by a settlement document that lists the original purchase contract number and copy of a delivery sheet or load summary.

A Section on 06/13/2015