Texas grain farmers will have an opportunity this fall to protect themselves against elevators, feedlots, and other grain buyers that declare bankruptcy, go out of business or fail to pay for delivered grain for other reasons.

A grain indemnity fund referendum, scheduled Nov. 19 through Dec. 7, if approved, would protect grain producers from losses when delivered grain is not paid for, says Dee Vaughan, a Dumas, Texas, grain producer and chairman of the nine-member indemnity fund board.

“We think the referendum has a good chance of passing,” Vaughan says. “Most producers see the need and understand the risk associated with selling grain. We take our crops to market after we’ve put all the production expenses in, including harvest costs, and hope we get paid. Most of the time, the process works. But we’ve seen instances when problems occurred and the result was devastating.”

Vaughan says the indemnity fund has created some confusion among grain farmers as to how the program will work. “We’re doing education through our website and going to the main farm shows and field days. We will continue to do that.”

He says educational materials also are available through the grain associations and the Texas Farm Bureau.

“The biggest challenge, other than confusion,” Vaughan says, “may be complacency. Folks have dealt with the same elevator for years and have had no problems. But producers had those same feelings for facilities that eventually did have trouble.”

He says the fund is an insurance policy for grain farmers that he hopes no one will ever need.

“A unique part of this program is a refund mechanism,” he says. “It’s built in. Where else can you buy insurance and get a full refund?”

Each year, producers pay an assessment into the fund. After the fund reaches a minimum balance, refunds may be made to farmers who have claimed them. “It’s based on first claim in,” Vaughan says. “We can’t promise when refunds will occur — it depends on the size of a particular crop and the price of grain.” A minimum balance is required to cover losses.

The fund will cover 90 percent of a grain producer’s losses. A 10 percent deductible adds some risk to the producer “to encourage that they do business with respectable companies.”

TDA Oversight

The fund is administered by the nine-member board with Texas Department of Agriculture oversight. “The board assures that the fund operates strictly in accordance with the legislation,” Vaughan said. Financial safeguards also will be in place, including investment only in approved funds with full backing of the state or federal government. “A CPA audit will be conducted every year.”

The process of establishing the indemnity fund began in September 2010, with commodity groups meeting to discuss the vulnerability of grain farmersafter a series of grain buyer financial failures resulted in millions of dollars in losses to Texas grain producers.

“Rep. Larry Phillips of Sherman and Sen. Craig Estes of Wichita Falls introduced the legislation,” Vaughan says. “It passed the House with only two dissenting votes, and passed the Senate unanimously.”

All grain commodity groups are on board, he says. “They realize it’s a good program.

“The indemnity fund does require some responsibility from producers, who must make certain that the assessment is collected and paid into the fund by the grain buyer. If the assessment is not collected and put into the fund, the farmer has no protection for sold grain. Farmers have to take care of business.”

Vaughan says the state has also strengthened laws for warehouses and elevators.

The assessment will range from 2/10 to 6/10 the value of grain when sold. “That assessment is set every year by the board to meet fund needs. We will set it as low as possible.”