Bill > HF999

Introduced Session

BACKGROUND —— REGULATION OF GRAIN MARKETERS (GRAIN DEALERS AND WAREHOUSE OPERATORS). This bill amends provisions regulating commercial transactions involving grain (e.g., corn and soybeans) made by a grain marketer who has made a promise regarding the transaction with a person for the sale or storage of the grain. The grain is usually in bulk form, meaning unpackaged. For purposes of the bill, a grain marketer is referred to as a grain dealer purchasing grain from a seller, especially a seller who is a grain producer. A grain marketer may also be a bailor, referred to as a warehouse operator, storing grain under bailment on behalf of the bailee, referred to as a depositor. The seller and the grain dealer, or the depositor and the warehouse operator, are the respective parties to a legal transaction, evidenced by a sales contract entered into by the seller and grain dealer, or a document of title in the form of a receipt such as a warehouse receipt or scale weight ticket issued by a warehouse operator to a depositor. The department of agriculture and land stewardship (DALS) regulates grain dealers (Code chapter 203) and warehouse operators (Code chapter 203C). DALS and the Iowa grain indemnity fund board (board) indemnifies sellers and depositors for losses incurred by the management of grain by grain marketers when performing legal obligations arising under the sale or deposit of the grain (Code chapter 203D). The indemnification is made as a payment from the grain depositors and sellers indemnity fund (fund). The fund is comprised of fees established by the board and contributed to DALS by grain marketers. The payment is a percentage of the dollar value loss incurred by the seller or a depositor based on the contract price or the market price offered for the same quantity and quality of grain. BACKGROUND —— LICENSURE REQUIREMENTS —— GENERAL. DALS regulates grain marketers by licensure either as a grain dealer or warehouse operator (licensee). DALS licenses a grain dealer purchasing at least 1,000 bushels from sellers who are producers during any calendar month (Code section 203.1). DALS licenses a warehouse operator in the business of storing bushels of grain on behalf of depositors for more than 30 days (Code section 203C.1). Alternatively, a warehouse operator storing grain may be licensed by the United States department of agriculture (USDA) under the federal United States Warehouse Act (Code section 203C.16). DALS must issue a class 1 or class 2 license to an applicant based on the applicant’s business size. A person applying to be licensed as a grain dealer must be issued a class 1 license if the value of grain purchased by the grain dealer exceeds $500,000 (Code section 203.3). In addition, the grain dealer must maintain a net worth of at least $75,000, or alternatively maintain a deficiency bond or an irrevocable letter of credit in the amount of $2,000 for each $1,000 of net worth deficiency. However, the class 1 grain dealer’s net worth cannot be less than $37,500. The grain dealer must also maintain current assets equal to at least 100 percent of current liabilities or provide a bond based on the deficiency to meet that minimum requirement. The grain dealer must annually submit to DALS a financial statement accompanied by an unqualified opinion based upon an audit performed by a certified public accountant (CPA) licensed in this state. However, rather than submitting an unqualified opinion, the grain dealer may elect to submit a financial statement that is accompanied by the report of a CPA licensed in this state that is based upon a review in lieu of an audit. The requirements for a class 2 license are similar to those of a class 1 license except the grain dealer must maintain a net worth of at least $37,500 or maintain a deficiency bond or an irrevocable letter of credit for $2,000 for each $1,000 of net worth deficiency. A class 2 licensee must maintain a minimum net worth of $17,500. BACKGROUND —— SPECIAL REQUIREMENTS FOR GRAIN DEALERS AND SELLERS ENTERING INTO CREDIT-SALE CONTRACTS. The parties under a sales contract must each perform their respective obligations. The buyer must pay, or tender payment of, the sales price for a purchased good to the seller and the seller must deliver (transfer possession and title), or tender delivery of, the purchased good to the buyer, all according to the sales contract’s terms. Under Code chapter 203, the sales price is more commonly referred to as the purchase price. Generally, as a buyer under a sales contract, the grain dealer must pay the seller the sales/purchase price for grain upon the grain’s delivery or upon demand for payment by the seller, but not later than 30 days after delivery of the grain by the seller (Code section 203.8). Delivery occurs when title to and possession of the grain is transferred to the grain dealer or another person in accordance with the contract terms. Otherwise, a transaction in which a grain dealer pays the seller for the purchased grain more than 30 days after the grain’s delivery is considered a credit-sale contract and subject to special requirements. The grain dealer must be issued a class 1 license (Code section 203.3). In addition, the grain dealer must account for credit-sale contract transactions by using forms and keeping records involving those transactions (Code section 203.15). The grain dealer must maintain 50 cents of net worth for each outstanding bushel of grain purchased under credit-sale contract or may maintain a deficiency bond or an irrevocable letter of credit or $2,000 for each $1,000 of deficiency. The grain dealer must also meet at least one of two conditions. The grain dealer’s last financial statement must be accompanied by an unqualified opinion based upon an audit performed by a CPA licensed in this state or the grain dealer must file a bond with DALS in the amount of $100,000 payable to DALS for use in indemnifying a seller for a loss resulting from a breach of a credit-sale contract. Finally, the seller must sign a form presented by a grain dealer acknowledging that the seller knows that a loss arising from a credit-sale contract is not indemnified by the fund. BILL —— SPECIAL REQUIREMENTS FOR GRAIN DEALERS AND SELLERS ENTERING INTO CREDIT-SALE CONTRACTS. The bill distinguishes between two types of credit-sale contracts: a deferred-payment contract and a deferred-pricing contract (Code section 203.1). Under a deferred-payment contract, the licensed grain dealer and seller have agreed to the purchase price for grain but payment is delayed more than 30 days from the date of delivery regardless of whether delivery has or has not yet occurred. For example, a seller may elect to deliver (transfer possession and title) grain on December 1 and receive payment after January 1 to claim income in the subsequent tax year. Under a deferred-pricing contract, delivery occurs but the sales/purchase price has not been agreed to by the licensed grain dealer and the seller. The grain’s sales/purchase price paid to the seller may depend upon a speculative decision by the seller to sell the grain at a future market price with the expectation of increasing a profit or decreasing a loss. The bill provides that a seller still cannot claim a dollar value of a loss for indemnification from the fund arising from a credit-sale contract classified as a deferred-payment contract but that a seller may claim a limited dollar value loss for indemnification arising from a deferred-pricing contract. BACKGROUND —— FUND —— INDEMNITY FEES. In addition to license fees collected by DALS for deposit 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) collected by DALS for deposit in the 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 or maximum limit. The qualifying term “purchased grain” equals the total number of bushels purchased from a seller by a grain dealer minus a number of exempt bushels, 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 bulk grain storage capacity of the warehouse (Code section 203D.5). The licensed warehouse operator’s participation fee is calculated according to the following formula: the assessment rate of not more than $0.014 multiplied by the bulk grain storage capacity for the licensed warehouse with a minimum $50 and a maximum $500 limit (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 for the renewal of a license on a quarterly basis. A grain dealer must remit a per-bushel fee on a quarterly basis (Code section 203D.3A). BACKGROUND —— BOARD REVIEW OF FUND. The board must annually review the debits of and credits to the 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 fund triggers the indemnity fees waiver or reinstatement (Code section 203D.5). When the balance in the fund reaches $8 million, the indemnity fees are automatically waived. The indemnity fees are reinstated by the 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 —— 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 is the amount stated in an eligible claim held by a depositor that states the amount owed by a warehouse operator or held by a seller that states the amount owed by a grain dealer, if either such amount has not been recovered by other legal and equitable remedies (Code section 203D.1). The dollar value of the loss may be determined using several methods of valuation (Code section 203D.6). For a depositor, it may be part of a court order after hearing the matter in a DALS’ 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. An incurrence date is either the cessation of the license of a warehouse operator or grain dealer (by revocations, cancellation, or expiration) or the licensee’s filing of a petition in bankruptcy. BACKGROUND —— 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 during the claim period. 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. The board must indemnify a claimant (a grain dealer and warehouse operator) 90 percent of the combined losses, if the losses are part of the same covered transaction during the indemnity claim period. However, the board cannot indemnify a claimant more than $300,000 for all such losses (Code section 203D.6). BILL —— FUND —— INDEMNITY FEES. After paying the initial participation fee for the issuance of a new license, the licensee must remit a participation fee in one installment as part of a license renewal application in the same manner provided for a new license (Code section 203D.3A). However, the bill allows the licensee to continue to elect to remit the participation fee on four successive installment dates. The bill provides that each installment date occurs in the month succeeding the last assessment quarter on a date determined by rules adopted by DALS. The bill requires a licensed grain dealer to remit the per-bushel fee on the following four successive installment dates: December 15, March 15, June 15, and September 15. The bill provides a special per-bushel waiver is applicable to purchased grain that is unpriced on the last date of the fund’s assessment year (Code section 203D.5). 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 (Code sections 203D.3 and 203D.3A). BILL —— 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 fund required to trigger a waiver and increases from $3 million to $8 million the balance in the fund required to trigger a reinstatement (Code section 203D.5). BILL —— FUND —— DOLLAR VALUE OF LOSSES. The bill requires that a loss incurred by a seller who was a party to a credit-sale contract must be segregated, including a deferred-pricing contract and deferred-payment contract. The bill provides special valuation rules for losses incurred by a depositor or seller. The dollar value of a loss of priced or unpriced grain cannot exceed the price of that grain if the grain were valued as U.S. No. 2 grain according to standards adopted by the federal grain inspection service of the USDA. DALS may adjust the price of the grain if necessary to better account for its condition when stored or sold. BILL —— INDEMNIFICATION OF REPAYMENT LOSSES (REPAYMENT CLAIMS). The bill allows a seller to file a special repayment claim against the fund as a result of the grain dealer’s bankruptcy (Code section 203D.6A). The special repayment process allows such a seller to recover the amount of the grain dealer payment that the seller was forced to repay to the grain dealer’s bankruptcy estate. To be timely, a seller must file a repayment claim with DALS not later than 30 days after the repayment loss is finalized by a bankruptcy court. DALS may provide notice of the repayment claim process to a seller who may file a repayment claim. If DALS chooses to provide a notice to the seller, DALS has discretion to determine a reasonable method and manner of providing such notice. The board must determine that a repayment claim is eligible for payment from the indemnity fund, including whether the repayment claim derives from a covered transaction. DALS is required to deliver notice to a seller filing a repayment claim regarding the indemnity board’s determination in the same manner as for an ordinary loss. BILL —— INDEMNIFICATION OF DOLLAR VALUE LOSSES. The bill provides that upon a determination by the board that a claim is eligible, the board must indemnify the claimant as a depositor or a seller incurring ordinary dollar value losses and as a seller incurring repayment (dollar value) losses, if all such dollar value losses derive from the same covered transaction during the claim period (Code section 203D.6). With one exception, the board must indemnify a claimant 90 percent of the combined dollar value losses. The exception applies to a segregated dollar value loss incurred from the sale of grain under a credit-sale contract. The board must indemnify the seller 70 percent of the dollar value loss incurred from the sale of grain under a deferred-pricing contract and 0 percent of the dollar value loss for the sale of grain under a deferred-payment contract. The full indemnity amount paid to a claimant still cannot exceed the existing limit of $300,000. BILL —— ORDER OF INDEMNIFICATION AND INDEMNIFICATION PERIODS. The board must indemnify claims by giving priority to claims that are not segregated (arising from a deferred-pricing contract). If there are not sufficient moneys in the indemnity fund to indemnify all claims, the board may establish one or more eligible claim indemnification periods required to fully indemnify claims that have not been satisfied. BILL —— EMERGENCY RULES. DALS is authorized to adopt rules on an emergency basis necessary to administer the bill’s provisions. When a statute authorizes emergency rulemaking, an agency may adopt a rule immediately without going through the periods of the rulemaking process known as regulatory analysis (Code section 17A.4A) and notice of intended action (Code section 17A.4(3)). The bill requires that such emergency rulemaking be “double barreled”. Under that process, when an agency files an emergency rule, it also files the same rule as a notice of intended action that will follow the regular rulemaking process. Normally, a rule cannot be effective prior to 35 days after its filing with the administrative rules coordinator and publication in the Iowa administrative bulletin. Under emergency rulemaking, a rule can be made effective on the date of filing and acceptance by the administrative rules coordinator or any subsequent date, as specified by the agency in the filing (Code section 17A.5(2)(b)(1)). This provision of the bill takes effect upon enactment. BILL —— ASSESSMENT OF INDEMNITY FEES (CREDIT-SALE CONTRACT). A grain dealer who is a party to a credit-sale contract owing an indemnity fee assessed on grain purchased by credit-sale contract as provided in the bill is imposed on September 1 of the first assessment quarter.

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Withdrawn. H.J. 1110. (on 05/08/2025)

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