On May 21, a bill creating a Texas Grain Producer Indemnity Fund passed both houses of the Texas Legislature and was sent to the Governor for a signature.

According to the Texas Department of Agriculture, 17 grain elevators—some full of corn, sorghum, wheat, and other grains—abruptly went bankrupt or failed in the past two years. Many farmers lost hundreds of thousands of dollars when the failed elevators closed their doors.

Currently farmers have no legitimate way to reclaim their losses without lengthy legal battles delivering marginal compensation. In the event that a warehouse becomes insolvent, bonds held by warehouses as required under current law pay only a fraction of the value of the crop.

House Bill 1840, which creates a statewide grain indemnity fund, is the result of months of research, negotiations and advocacy within the agricultural community focused on providing additional options for producers who face devastating losses due to elevator closure.

How does it work?

Producers would be assessed a predetermined percentage of the value of the grain, estimated to be no more than two-tenths of one percent, at the point of sale. Those funds would then be collected from the grain purchasers by the governing board and used to build the indemnity fund.

A grain producer may file a claim if the grain buyer experienced financial failure, failed to pay the producer an amount owed, or is unable to deliver the grain held for the producer. The grain producer must provide written documentation showing that the grain was delivered to the buyer and a copy of the contract for purchase. A financial failure is described as undergoing bankruptcy, being found to be insolvent, receiving court order to make payment to a grain producer, or losing a public warehouse license.

The governing board would then review each claim and if approved, remit up to 90 percent of the loss to the grain producer.

Which sales are included?

In the bill a grain buyer is defined as a person who buys grain from a grain producer or stores unsold grain for a grain producer. This broad definition includes grain sold to a purchaser, warehouseman, processor or a commercial handler.

Is it mandatory?

A key difference in the current and previous versions of HB 1840 is that the current bill is not a mandatory program. Any grain producer who has paid the assessment may request a refund by remitting a written request, along with proof of payment and an affidavit stating that the producer does not wish to be covered by the indemnity fund. If a refund is requested, the producer does not have the option of filing a claim on any lost value of the grain in question.

Who is in charge?

A governing board will be established to coordinate assessments and make all administrative decisions for the indemnity fund. The board will be comprised of representatives from Texas commodity organizations, producer groups, members of the grain-buying industry, and an expert in production agriculture financing.

How will the funds be used?

Collected assessments are not state funds and can only be used to pay producer claims or requested refunds and cover administration costs of the indemnification program. The funds can also be used to cover the cost of future referendums needed to adjust the assessment rate.

How is the grain value determined?

The value of the grain will be determined by the board based on the cash grain value on the claim initiation date. If the grain has been sold, the value will be the contracted price of the grain.

Will there be a vote?

Once signed, the bill will go into effect September 1, but it still faces a producer referendum before the fund can be established. The referendum will be a statewide vote of all eligible grain producers and will pass if two-thirds or more of those voting in the election voted in favor of the proposition, or those voting in favor of the proposition produced at least 50 percent of the volume of production during the relevant period.

The creation of a Texas Grain Indemnity Fund is a measure taken on by the Legislature and the agricultural community to protect farmers and the investment they have made in their crop. If you have any questions or concerns about the fund please do not hesitate to contact the Texas Wheat office.