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Could You Be Stiffed Payment?

Thursday, February 1, 2001
filed under: Marketing/Risk Management

Could You Be Stiffed Payment On Your Grain?

Uncommon, but it can happen. Know your rights and responsibilities as a grain seller

Selling grain is tough enough the way it is, without worrying whether the buyer is going to pay you or not.

But on rare occasions, it can happen.

An obvious first step in preventing it is knowing who you’re doing business with, says Jon Mielke, director of the North Dakota Public Service Commission’s grain licensing division. “Make sure you know what kind of licensing and bonding levels they have,” he says. If grain is sold to an unlicensed buyer and the buyer does not pay for the grain, there is no bond coverage available to help pay the seller. In that event, court action may be a farmer's only recourse if an unlicensed buyer fails to pay for grain.

Warehouses (country elevators) and grain buyers must be licensed and bonded. If buyers are unlicensed, they’re operating illegally. In ND, bond requirements are based on the physical size of an elevator or on the amount of grain that a grain buyer handles. Generally, ND elevators have a minimum $50,000 bond, and 50 cents/bu. licensed capacity. Larger elevators usually carry more bond protection than smaller elevators.

Even if a buyer is licensed and bonded, there is still no guarantee that farmers will be fully reimbursed if a buyer becomes insolvent, Mielke cautions. If the buyer does not have enough grain and bond assets available to satisfy all valid grain claims, available funds are distributed on a prorated basis.

What about Internet marketing? In ND, it’s treated the same as business arrangements made over the phone. “If we have companies come into North Dakota and solicit purchases, they need to be licensed. But if a company is in Minnesota or Kansas City or wherever and the farmer picks up the phone and calls (or e-mails) them to initiate a sale, then we probably would treat that as if the farmer was taking his business out of state, rather than if the buyer was coming into the state to buy grain,” says Mielke. “If that company would become insolvent, chances are that wouldn’t be a case we would handle. It would fall under the jurisdiction of the state where the farmer took his business.”

Other “seller beware” tips from Mielke:

Be skeptical of large price or contract offerings. If there’s a huge spread between what one buyer is bidding and everyone else, it might be too good to be true.

If you’re unfamiliar with a buyer, consider asking for a cash payment at the time of delivery. If the buyer is unwilling or unable to pay, then consider looking for a different buyer.

If you sell your grain and haven’t been paid in 30 days, make some calls and start checking around.

If you haven’t done business with a buyer before, consider easing into the business relationship. Before receiving payment, sell/deliver only a small amount, instead of selling a large amount or making many deliveries.

Delayed price and deferred payment contracts are examples of credit-sale contracts, which in most cases, do not have bond protection. State law defines credit-sale contracts as written grain sale contracts that provide that the sale price may be paid more than 30 days after the delivery or release of the grain.

The title to grain passes from the farmer to the buyer when the contract is signed. At this point, the farmer becomes an unsecured creditor. Farmers must be aware of the fact that credit-sale contracts are not typically protected by the buyer's bond. Language concerning the lack of bond coverage or coverage limitations must be printed in bold type immediately above the signature block on the contract. If no bond coverage is available, the contract will read something like this: “This contract is not protected by bond coverage in the event of the buyer's insolvency.” the warning means exactly what it says.

The ND PSC offers more tips—including advise on handling storage and grading disputes—in its brochure “Selling Grain? Know Your Rights and Your Responsibilities.” It may be found online at The ND PSC also includes a list of licensed warehouse or grain buyers online. Or call (701) 328-4097.—Tracy Sayler

Links in other states


Colorado Department of Agriculture Inspection & Consumer Services Gary Graalman, Chief

Ph. 303-477-0054, Email: Web:


Kansas Department of Agriculture Grain Warehouse Program, Ron White, Program Manager

(785) 296-3455, Web site:


Agricultural Marketing Services Division, Perry Aasness, Interim Director, Ph.

651-297-2980. Web:


Nebraska Public Service Commission Ph. 402-471-3101, 1-800-526-0017 (Nebraska Only) Web:

South Dakota

Public Utilities Commission, Ph.(605)773-3201 - Routine Business; (605)773-5280 - Transportation/Warehouse Division. Consumer Affairs—1-800-332-1782. Web site:

Web site includes list of currently licensed grain dealers and public storage licenses. Further, there are three online publications:

 What Happens To Your Grain After You Deliver It For Sale or Storage

 Storing Grain at Elevators

 Grain Sales Options: Deferred Payment, Delayed Pricing, and Other Voluntary Credit Sales Contracts


Texas Department of Agriculture Email: Web:

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