Nebraska Officials Propose Grain-Insurance Fund; Growers Skeptical

Nebraska officials are moving forward with a plan to establish a multimillion-dollar insurance fund to protect farmers when grain warehouses go broke, following the financial collapse of an elevator last year.

But major agricultural groups in the state have expressed opposition to the plan, and were surprised that the Public Service Commission was moving ahead with the concept.

Last year, the plan to establish a $25 million fund that would be paid for by farmers got a cool reception from farm groups, bankers and grain dealers when presented by the PSC and PSC officials said they would not move forward without their support.

Members of both the Nebraska Farm Bureau and Nebraska Corn Growers Association haven’t jumped on board with the plan since then, and the groups say they told the PSC so.

On June 9, the PSC issued an order that includes a general framework for a proposed insurance fund. The order also sets a July 15 workshop where the proposal will be discussed. Written comments are due to the commission July 7.

Any plan would have to be approved by lawmakers, who will conduct their own study of the issue before the legislative session begins early next year.

Scott Merritt, executive director of the Nebraska Corn Growers Association, said he was a little surprised that PSC issued the order. He said he thought their message to the PSC was clear that the group was not supportive.

But John Fecht of the Public Service Commission’s Grain Warehouse Division, which regulates elevators, said Wednesday that he has received limited feedback and “mixed signals” from groups with a stake in the issue since discussing the plan with them last year.

So the PSC, he said, is trying to bring the issue to a head by offering a proposal.

“We need to take the lead on this,” Fecht said.

“Grain prices are getting higher and it doesn’t take much to run up a lot of exposure, and the bonding falls woefully short,” he said.

Among the groups against it is the Nebraska Farm Bureau. Like the corn growers association, cost was among the reasons, said Jay Rempe of the bureau. Members also questioned whether a fund is needed.

An association representing the state’s agricultural cooperatives that operate many of the elevators in the state questioned whether the fund is necessary. Robert Andersen, president of the Nebraska Cooperative Council, said state regulations and Fecht’s division should be beefed up before farmers are required to pay to protect themselves.

“If we really need to do something … we should require financial audits, no exceptions. And the PSC would have a CPA on staff,” to better analyze the financial positions of warehouses, he said.

Andersen said most cooperatives are audited, but of the 12 grain warehouses that have failed since 1992, only two were audited.

Fecht said that if there is significant opposition to the plan “I don’t see us trying to cram it down someone’s throat.”

Encouraging state regulators to push for an insurance fund was the financial collapse of Alvo Grain and Feed, which filed for bankruptcy last year.

Farmers who sold their grain through the elevator but weren’t paid were slated to receive just 12.4 cents for every dollar of losses they claimed, because only $300,000 was available to cover the $2.4 million in approved claims.

Some grain dealers, bankers and others have said farmers falsely believe they are fully protected now by the system that requires elevators to have bonds to help cover losses.