The proposed rule would have a significant and immediate impact on grain dealers and grain warehouse keepers, allowing those grain licensees who meet fund assessment exemption requirements under Wis. Admin. Code §§ ATCP 99.126 (5) (a) and (b) and ATCP 99.235 (4) (a) and (b), respectively, not to pay fund assessments if the producer security overall fund balance is at least $5 million on May 31 of the preceding license year. The grain industry would otherwise be required to pay an additional $200,000-$250,000 annually, until the overall fund balance reaches a minimum of $11 million. The proposed rule would have a direct impact on the rate of growth of the APSF overall balance. Milk, grain, and vegetable producers could potentially be impacted by the lower agricultural producer security overall fund balance, in the event of future large defaults.
Federal and Surrounding State Programs
Federal Programs
The United States Warehouse Act (USWA) is a voluntary regulatory program administered by Farm Service Agency (FSA), a unit within the United States Department of Agriculture (USDA). Under the USWA, warehouse keepers who obtain a warehouse license must comply with several FSA regulations. Generally, the warehouse keeper must maintain enough grain in inventory to cover 100% of depositor obligations at all times. Further, FSA licensed warehouse keepers must submit financial statements, submit to inspections by USDA auditors, and post surety bonds. In the event the warehouse defaults, FSA can convert the bonds to cash and disperse the proceeds to depositors. While the federal grain warehouse license is officially a voluntary program, in practice, it is not completely voluntary. Every state that has significant grain production (including Wisconsin) has some type of state grain warehousing law. These laws require grain warehouse keepers to obtain a license, but allow them to choose either a state license or a federal license. Those that choose a federal license are exempt for the state licensing program.
Surrounding State Programs
Like all states with a significant grain industry, Minnesota, Michigan, Illinois, Indiana, and Iowa all require persons who buy grain from producers to obtain a grain dealer license (though they may use different names), and all persons who store grain for others are required to obtain either a state or federal grain warehouse license. Licensees must file financial statements with the state, and the warehouses must maintain 100% of depositor owned grain in inventory at all times.
Minnesota requires grain dealers and grain warehouse keepers to post bonds with the state. Indiana, Illinois, and Iowa all have a state indemnity fund that is made up of grain dealer and warehouse assessments. Michigan (like Wisconsin) has a combination of bonds and indemnity fund contributions.
Data and Analytical Methodologies
The Department analyzed the APSF fiscal year 2015 reports to estimate the projected overall fund balance on May 31, 2016. The Department reviewed 2015 financial statements filed by contractors to determine a range of grain dealer and grain warehouse keeper fund assessments due for the license year beginning September 1, 2016.
DATCP Contact
Questions and comments (including hearing comments) related to this rule may be directed to:
David A. Woldseth
Department of Agriculture, Trade and Consumer Protection
P.O. Box 8911
Madison, WI 53708-8911
Telephone (608) 224-5164
______________________________________________________________________________
Finding of emergency
(1) In Wisconsin, grain dealers (persons who buy producer grain or markets producer grain as a producer agent) and grain warehouse keepers (persons who operate one or more grain warehouses) must obtain a license to purchase or hold grain, respectively, and are collectively referred to as “contractors”. Most contractors are “contributing contractors”, which means they must pay annual assessments into the Wisconsin Agricultural Producer Security Fund. This fund is designed to help partially reimburse producers in the event that a contractor defaults on payment to producers or fails to return stored grain to producers. The annual assessments are calculated based on the total dollar value of commodities purchased or stored, the length of time that the contractor has participated in the fund, and certain financial ratios from the contractor’s balance sheet.
(2) The grain contractor license years begin on September 1 of each year. At that point, DATCP calculates the assessment for the new license year that will be due for each contractor, and determines if a given contractor meets exemption requirements established under Wis. Admin. Code § ATCP 99.126 (5) or 99.235 (4) for that license year. Current exemption requirements are: the grain contractor was classified as a contributing grain contractor in each of the 5 license years immediately preceding that license year; the fund balance attributable to grain contractors was at least $3 million on May 31 of the preceding license year; and, the overall fund balance was at least $11 million on May 31 of the preceding license year. (3) The overall fund balance was less than $7.2 million on the assessment exemption date of May 31, 2016, due to a large claims brought against the fund in 2014 and 2015 by vegetable and milk producers. This decrease in the overall fund balance would eliminate eligibility for fund assessment exemption for every grain contractor over the next five to six years, costing the industry $200,000 - $250,000 annually.
(4) This temporary emergency rule is necessary to protect the welfare of the hundreds of grain contractors who do business in Wisconsin, and to help prevent undue financial burdens upon the grain industry.
Emergency rule
Section 1. ATCP 99.126 (5) (c) is amended to read:
ATCP 99.126 (5) (c) The overall fund balance was at least $11 $5 million on May 31 of the last preceding license year.
Section 2. ATCP 99.235 (4) (c) is amended to read:
ATCP 99.235 (4) (c) The overall fund balance was at least $11 $5 million on May 31 of the last preceding license year.
Section 3. Effective Date: This emergency rule takes effect on September 1 and remains in effect for 150 days. The department may seek to extend this emergency rule as provided in Wis. Stat. § 227.24.
