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Grain Elevator Failures—How To Avoid Disaster
by Jeff Mollet

Ty-Walk in Illinois. Creston in Iowa. Grain elevator failures are nothing new, and have occurred throughout the past decades. Still, recent grain elevator failures in the Midwest have renewed the debate and stoked the fires of concern quietly held by facility operators and grain producers over the responsibilities of each in the grand scheme of grain production, sales and marketing.

This delicate relationship between regulating (and not overburdening) the grain elevators versus protection of the producers (and protecting their income and perhaps existence) is being strained by market conditions, financial factors and what is perhaps a permanent shift in production. This relationship, in the wake of such failures, is a political issue generally concerned with the ability of the local producers to recover, relegating the needs of the grain industry as a whole to a regulatory afterthought. For example, here in Illinois, the Grain Insurance Fund has been one of the most often discussed and debated topics in the grain industry for nearly 2 decades, and only with the Ty-Walk failure have material changes been implemented--for better or worse depending on your perspective.

Many grain producing states have enacted a comprehensive regulatory scheme to regulate and deal with elevator and dealer failures. Most of these states have created an “insurance” or “guaranty” fund to provide the producers with some form of repayment protection in the event of a loss resulting from the failure of a licensed grain elevator or dealer. These funds are generally established and replenished, at least in part, from assessments made against the grain elevators and/or producers who are thus in effect self-insuring themselves (and the industry generally) against a failure.

Because of these mandatory self-insured programs, each grain elevator, dealer, farmer and (by statute or default) banker, involuntarily becomes part of a group where the fortunes of one can affect the many. Short of changing to a new line of business, the reality is that there may be little a farmer or a grain elevator can do to avoid the problems created by the failure of a grain elevator or dealer. There are, however, some things that each (whether farmer or business owner) should consider:

1. Become active in trade associations and industry groups. The sharing of knowledge and the solidarity of the industry can be a positive influence on state policy and legislation. As you might expect, organized groups with clear objectives are more likely to have a voice that will be heard.

2. Know your state’s grain code and business requirements. Despite some beliefs to the opposite, general regulatory oversight usually benefits the financial stability of the industry as a whole in most cases, if only to the extent of requiring the keeping and maintenance of accurate records and information.

3. Keep those records and documents. When problems and disputes arise, it is generally only the documents that can be relied upon to paint a picture. All producers and elevator operators should establish a normal record keeping and management policy and stick to it. Consider keeping additional records as a matter of standard practice as well, such as telephone messages, notes from conversations or appointment calendars.

4. Know who you are doing business with. While it may not be economically feasible to investigate each business or individual, use common sense. If your customers or suppliers fall into any of the following categories, they probably warrant an extra look:

1. New contacts

2. Businesses which have consolidated or changed ownership

3. Businesses that have noticeably changed the scope or direction of their operations.

4. Avoid pushing the envelope or engaging in higher risk activities which may be beyond the normal course of your normal business and on ground where you or others you are dealing with are not familiar. “If it sounds too good to be true….”

Clearly, some see an insurance fund as an essential protection to the farm community, while others have viewed it as an albatross around the neck of sound business practices. The actual value of such regulation likely rests on some middle ground where the producers gain a degree of protection without subjecting the grain industry to the burden of financing that protection. The discussion and debate continues, spurred on by the recent failures. Become educated, get involved and let your position and needs be known.

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