Posted 8/22/2014 04:05 pm
Updated 4 weeks ago
Officials in Arkansas' agriculture industry think at least $20 million and possibly upwards of $50 million could be involved in the still-unfolding financial drama between Turner Grain Merchandising Inc. of Brinkley and the Arkansas farmers who could go without payment for their crops.
Mike Churchwell, a grain warehouse section manager for the State Plant Board, told a legislative Joint Committee on Agriculture, Forestry & Economic Development on Friday that estimates he's heard could easily be $20 million or more.
Arkansas Secretary of Agriculture Butch Calhoun said he thinks the money at stake could be upwards of $50 million.
"Honestly, there is not much, if anything, that [the Arkansas Legislature is] going to be able to do to address that situation," House Speaker Davy Carter said to farmers during Friday’s hearing. "And you need to know that on the front end. I hate it, I'm sorry for you and my heart goes out to you. It's awful."
Carter requested the hearing last week after word began circulating that Turner Grain appears to be close to filing for bankruptcy protection, leaving the farmers with whom it does business worried about breached contracts and possible losses.
Two sources have told Arkansas Business that the company's losses could be in the millions.
Officials from Turner Grain have not answered repeated requests for interviews. The company had not filed bankruptcy protection as of Friday morning.
A group of eight farmers has already filed a lawsuit against Turner Grain saying they haven't paid for the grain they sold the company and alleging fraud. Meanwhile, two officers with Turner Grain have withdrawn their principal broker status with the National Futures Association.
While acknowledging there was little they could do, the legislative committee did approve an interim resolution asking the Farm Service Agency to extend the Commodity Credit Corp. loan repayment period for farmers suffering losses in the Turner fallout.
The committee met in an attempt to learn what went wrong with the Turner Grain situation and how to prevent the problem from happening again.
Currently, there are no laws regarding grain merchandising; regulations only cover grain stored in a warehouse. It's presumed that the Arkansas Legislature will address the issue in its next general session, expected to begin in January.
"If we're unable to get in there and keep an eye on what's going on, this is going to happen again," Churchwell told the committee. "Like [Carter] said, we cannot keep them from having bad business practices, but we can cut them short. We can catch them where it's not to the point where we are now."
The agriculture officials, which also included Darryl Little, director of the State Plant Board, provided the legislators with a list of grain merchandising laws in other states. Some of those laws require merchandisers to:
- Submit financial statements to acquire licenses each year
- Pay fees
- Have scale tickets for grain
- Have legal contracts for grain
- Post bond
- Keep their trading assets to trading liabilities ratio at 1:1
- Meet director’s net worth requirements
- Undergo regular audits
In his statements to the committee, Calhoun said he didn't yet know how many farmers might have been affected by problems at Turner Grain. He said the only advice he could give to people affected was to hire an attorney.
"We've got farmers who can't get paid for their grain, we've got farmers that have delivered their grain — some of it has been shipped down the Mississippi River, some of it they don't know where it's at, some of it is with end users with contracts that their checks have bounced," he said "We've also got farmers dealing with the Commodity Credit Corp. where they had written checks to pay that out of a loan."
When asked by the committee if possible criminal activity was being considered, Calhoun said all things are being looked at.
"I think it looks like the federal government is going to get involved," he said. "I think the U.S. Attorney for the Eastern District of Arkansas will be. At some point, someone has gotten some money for this grain, if everything we are hearing is true."
Harrison Pittman, director of the National Agricultural Law Center, said he wants his agency to be a resource during this process.
"This is like an intersection, but more of a dysfunctional collision between federal and state laws," he told the committee. "We've heard some questions raised about what federal laws apply, and that's going to continue to come up with some things that none of us have talked about. We're looking at the prospect of the bankruptcy proceedings and what impact that could have, the potential for federal investigation involvement and even the timing as other proceedings move forward."
Pittman was asked about statutes brought to the attention of the committee by Sen. Jason Rapert, which included the U.S. Grain Standards Act of 1902, Series 3 and 31 Licensing and the Farm Produce Insurance Authority in Michigan.
Pittman said, while he hasn't dealt with the act in a period of time, he believes the U.S. Grain Standards Act of 1902 deals more with grading and quality, rather than financial issues. On the Michigan Produce Insurance Authority, Pittman said there is a lot dealing with perishable commodities.
The Arkansas Rice Growers Association also submitted a list of proposals to help mitigate losses when grain companies fail, which includes requiring that all grain buyers should be licensed and bonded with oversight of the state Department of Agriculture.