Minnesota advisory group debates returning bonding for grain buyers as indemnity fund remains in place

The Minnesota Department of Agriculture-led advisory group reopened a yearslong debate on whether to require bonds for licensed grain buyers and public warehouses, balancing the cost of audits and bonds, the screening role of sureties and the protections provided by the state's Grain Indemnity Fund.

The meeting's moderator summarized current requirements: entities purchasing less than $7.5 million must file a reviewed financial statement and those purchasing more must file audited financials; the department currently verifies that filings include the seven items required by statute but does not otherwise evaluate them. "We are making sure that they include the 7 requisite items that are listed in statute, but there's no evaluation of those financials," the moderator said, noting nearly 300 financial statements are filed annually.

Why revisit bonds? The legislature asked the group to develop recommendations aimed at better protecting farmers who sell and store grain. Participants described two functions that bonding previously served: (1) a financial guarantee for claimants and (2) third-party screening by sureties. Several speakers said large, recent failures changed the public's perception of bonds as a reliable protection, which spurred creation of Minnesota's Grain Indemnity Fund.

"There's a significant difference between insurance and bonding, and that is when it comes to paying claims, a bond will pay a claim, but then will seek reimbursement from the contract holder for reimbursement," said Adam Brockmeyer of the Assurity and Fidelity Association, describing why sureties underwrite and sometimes engage in ongoing monitoring.

Speakers and trade representatives offered a range of options rather than a single consensus. Some producers and elevator managers said they would prefer to see bonding restored at higher levels so sureties perform deeper underwriting; others warned that higher bond costs are often passed to farmers and that immediate, large increases would be difficult for small operators to absorb. A few participants recommended a sliding scale or phased increases over several years.

Rob Tate, who identified himself as a corn and soybean producer and Minnesota Corn Growers Board member, said a bonded merchandiser provides producers "some sense of security that somebody has looked at their financials." Other participants urged careful design so small operators are not unfairly burdened, noting sureties accept a range of documents (compilations, tax filings or reviews) for smaller businesses while larger operations typically provide audits.

Panelists discussed whether to rely on sureties to continue screening or to require the Department of Agriculture to evaluate filings. "If we continue to require these, we really do need some sort of metric or evaluation spelled out," the moderator said, noting that meaningful review by the state would require allocating staff resources and a clear monitoring program. Several speakers suggested monitoring or stepped-up reporting for entities that trigger concerns rather than immediate license revocation.

Participants also discussed how bonding and the indemnity fund might interact if bonding were reintroduced. Some recommended bonds serve as a primary source of payout with the indemnity fund available for residual liabilities; others opposed putting bonds ahead of the indemnity fund because of the long claims process under prior law.

The group requested additional written comments to inform a recommendation. The moderator said the report to the legislature is due on February 14, 2024, and that the department will solicit and attach written commentary to the report. The advisory group did not adopt a formal recommendation at this meeting.

The department said it will schedule another meeting and circulate written questions to narrow options for thresholds, monitoring triggers and whether a sliding scale or phased bond increases should be adopted.