Bill > HF508

Introduced Session

BACKGROUND —— GRAIN DEALERS AND WAREHOUSE OPERATORS. This bill amends provisions regulating marketers of grain, referred to as grain dealers purchasing grain (Code chapter 203), and grain warehouse operators storing grain under bailment (Code chapter 203C). The bill also provides for sellers of grain to licensed grain dealers, and depositors storing grain with a licensed grain warehouse, by indemnifying losses resulting from the sale or deposit (Code chapter 203D). BACKGROUND —— LICENSURE REQUIREMENTS. The department of agriculture and land stewardship (DALS) licenses a grain dealer purchasing at least 1,000 bushels from producers of that grain (sellers) during any calendar month (Code section 203.1). DALS licenses a warehouse operator in the business of operating a warehouse for the storage of bushels on behalf of title holders (depositors) (Code section 203C.1). Alternatively, a warehouse operator may be regulated by the United States department of agriculture under the United States Warehouse Act (7 U.S.C. ch. 10). A state license application must be accompanied by a financial statement (Code sections 203.3 and 203C.6). A grain dealer must meet certain net worth requirements to be issued a class 1 license and purchase grain by credit-sale contract. Normally, a grain dealer’s financial statement must be accompanied by an unqualified opinion based upon an audit performed by a certified public accountant licensed in this state. However, DALS may accept a qualification in an opinion because of the audit procedures used. DALS may also accept a review by a certified public accountant in lieu of an unqualified opinion. BACKGROUND —— CREDIT-SALE CONTRACTS. A credit-sale contract (also referred to as deferred-payment contract, deferred-pricing contract, or price-later contract) involves a transaction for the sale of grain in which the grain’s producer is the seller and the licensed grain dealer is the buyer. The purchase price is to be paid to the seller by the licensed grain dealer more than 30 days after the seller’s delivery of the grain to the licensed grain dealer or a person designated by the licensed grain dealer (Code sections 203.1 and 203.8). Generally, there are two types of credit-sale contracts, a deferred-pricing contract and a deferred-payment contract. In both cases, the seller’s payment amount is delayed until after the sale (transfer of title) and delivery. Under a deferred-pricing contract, the payment amount is unknown at the time of sale and delivery, with the expectation that the seller will receive a higher price in the future. Under a deferred-payment contract, the purchase price has been determined upon, or within a short time after, the grain’s sale and delivery. By deferring payment, the seller elects to claim income from the sale in the subsequent tax year assuming a more beneficial tax rate will apply in that year (e.g., expecting a reduction in farm income). In order to purchase grain under a credit sale contract, a licensed grain dealer must comply with a number of requirements, including a number of financial conditions based on net worth or a deficiency bond or irrevocable letter of credit. The licensed grain dealer’s last financial statement must be accompanied by an unqualified opinion by a certified public accountant or alternatively the licensed grain dealer must file a bond with DALS in the amount of $100,000. BACKGROUND —— GRAIN DEPOSITORS AND SELLERS INDEMNITY FUND. A seller selling grain to a licensed grain dealer or a depositor depositing grain with a licensed warehouse operator may be reimbursed for a loss incurred by the failure of the licensee to honor a contractual obligation regarding the transaction (Code section 203D.6). A payment is made from the grain depositors and sellers indemnity fund (indemnity fund) upon a determination that the claim is eligible for indemnification by the Iowa grain indemnity fund board (indemnity board) acting in cooperation with DALS. To be timely, a claim must be filed within a claim period. The claim period begins on either of two incurrence dates and ends 120 days later. An incurrence date is either when the license of the grain dealer or warehouse operator’s license ceases (is revoked or voluntarily canceled) or the date a petition is filed in bankruptcy. BACKGROUND —— FEES. In addition to license fees deposited into the general fund of the state (Code sections 203.6 and 203C.33), each licensee may be required to remit either one or two special fees (indemnity fees) deposited in the indemnity fund, referred to as a participation fee and per-bushel fee. The licensed grain dealer’s participation fee is calculated according to the following formula: the assessment rate of not more than $0.014 multiplied by all bushels of purchased grain during the grain dealer’s prior fiscal year with a minimum of $50 and no maximum limit. The licensed grain dealer’s per-bushel fee is calculated according to a similar formula: the assessment rate of not more than $0.25 multiplied by all bushels of purchased grain for the grain dealer’s assessment year with no minimum and a $500 maximum limit. The qualifying term “purchased grain” equals the total number of bushels purchased from sellers minus a number of exempt bushels purchased, including those purchased under credit-sale contract (Code section 203D.1). Purchased grain is reported to DALS as “paid company-owned” (Code section 203D.1). The licensed warehouse operator’s participation fee is based on the number of bushels of storage capacity of the warehouse (Code section 203D.5). An assessment year begins September 1 and ends August 31 (Code sections 203D.3 and 203D.5). The assessment year is further divided into four three-month assessment quarters. A grain dealer or warehouse operator may remit a participation fee annually (with an application for an initial license or the renewal of a license) or on a quarterly basis. A grain dealer must remit a per-bushel fee on a quarterly basis (Code section 203D.3A). BACKGROUND —— INDEMNITY BOARD REVIEW OF INDEMNITY FUND. The indemnity board must annually review the debits of and credits to the indemnity fund and by May 1 determine whether to impose the indemnity fees, make adjustments to the existing indemnity fees, or waive the existing indemnity fees as necessary to comply with two triggers. The balance in the indemnity fund triggers the indemnity fees waiver or reinstatement (Code section 203D.5). When the balance in the indemnity fund reaches $8 million, the indemnity fees are automatically waived. The indemnity fees are reinstated by the indemnity board if the balance in the fund is $3 million or less (Code section 203D.5). The triggered waiver or reinstatement is effective on the first day of the following assessment year (September 1). A licensee is required to remit the outstanding amount of the waived participation fee that is otherwise owing for the current assessment year. However, a licensed grain dealer is no longer obligated to remit the outstanding amount of the per-bushel fee otherwise owing for that period, unless the amount is delinquent (Code section 203D.5). BACKGROUND —— INDEMNITY FUND —— VALUE OF LOSS. Generally, a loss incurred by a depositor (holding a warehouse receipt or scale weight ticket) or seller who is a party to a sale may be determined using several methods of valuation. For a depositor, it may be a court order hearing a matter in receivership. Otherwise, the loss is based on the fair market price paid to producer sellers at a nearby terminal on an incurrence date. For a seller, it may be the sales price agreed to by the parties. If the grain has not yet been priced, the loss is again based on the fair market price paid at the terminal on one of those incurrence dates. In any case, from the determined loss is deducted any amount recovered by the depositor or seller through other legal or equitable remedies, including the liquidation of assets (Code section 203D.6). BACKGROUND —— INDEMNITY FUND —— PAYMENT OF CLAIMS. A claim must meet eligibility requirements, including that it is timely filed, there is evidence of a loss incurred by a claimant, and the claim derives from a covered transaction. For a claimant who is a depositor, a covered transaction requires that the grain must have been delivered to a licensed warehouse operator. For a claimant who is a seller, a covered transaction requires that title be transferred within six months of the incurrence date. A covered transaction excludes sale by credit-sale contract. A seller or depositor is entitled to be reimbursed 90 percent of a loss but not more than $300,000. BILL’S PROVISIONS —— CREDIT-SALE CONTRACTS —— LICENSED GRAIN DEALER’S FINANCIAL CONDITIONS. The bill amends financial conditions required for a licensed grain dealer holding a class 1 license to purchase grain by credit-sale contract. Specifically, a licensed grain dealer who did not submit a financial statement accompanied by an unqualified opinion must file a bond with DALS for $250,000. BILL’S PROVISIONS —— INDEMNITY FEES —— PAYMENT SCHEDULE. The bill provides that a grain dealer or warehouse operator may pay the participation fee in one installment as part of the license renewal or on four successive installment dates on December 15, March 15, June 15, and September 15. The bill provides that the grain dealer must pay the per-bushel fee on the same installment dates. BILL’S PROVISIONS —— INDEMNITY FEES —— TRIGGERS. The bill adjusts both triggers waiving or reinstating the two indemnity fees. The bill increases from $8 million to $16 million the balance in the indemnity fund required to trigger a waiver and increases from $3 million to $8 million the balance in the indemnity fund required to trigger a reinstatement. BILL’S PROVISIONS —— INDEMNITY FEES IMPOSED ON CREDIT-SALE CONTRACT TRANSACTIONS. The bill provides that grain sold by deferred-pricing contract is considered purchased grain and grain sold by deferred-payment contract is not. Therefore, a licensed grain dealer is only assessed an indemnity fee on the deferred-pricing contract grain. BILL’S PROVISIONS —— INDEMNITY FUND —— DOLLAR VALUE OF LOSS. The bill provides special valuation rules for losses involving corn or soybeans. The dollar value of a loss for corn cannot exceed the dollar value for a loss of U.S. No. 2 yellow corn according to grain standards adopted by the federal grain inspection service of the United States department of agriculture. The dollar value of a loss for soybeans cannot exceed the dollar value of a loss for U.S. No. 2 yellow soybeans according to grain standards adopted by that same agency. A dollar loss incurred under a deferred-pricing contract is presumed the same as any other loss in which the price for the grain has not been determined (e.g., determined by the fair market price at the nearest terminal on the incurrence date). BILL’S PROVISIONS —— INDEMNITY FUND —— PAYMENT OF CLAIMS. The bill provides that the sale of grain by deferred-pricing contract is no longer excluded from the meaning of a covered transaction and a seller may therefore claim a dollar loss resulting from the grain dealer’s default. The bill provides for the payment to claimants based on an order of priority. The first priority is provided to a depositor or seller, other than a seller who sold grain by credit-sale contract. The payout remains the same: percent of the loss but not more than $300,000. The second priority is provided to a seller who sold grain pursuant to a deferred-pricing contract. In that case, the payout is reduced to 70 percent of the loss but not more than $210,000. A deferred-payment contract remains ineligible for payment. BILL’S PROVISIONS —— INDEMNITY FUND —— ORDER OF PAYMENTS. The board may determine when payments are to be made depending upon moneys in the indemnity fund. Payments are to be made on an equal basis between depositors and sellers with one exception. A seller whose grain was sold under a deferred-pricing contract is indemnified after depositors and other sellers.

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Withdrawn. H.J. 1112. (on 05/09/2025)

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