Risk management highlights the Texas Commodity Symposium
By Jennifer M. Latzke
Risk management concerns headlined the 12th annual Texas Commodity Symposium Nov. 28, at the Amarillo Civic Center. The symposium is held in conjunction with the Amarillo Farm and Ranch Show.
Among updates to Farm Service Agency and Natural Resources Conservation Service programs and offerings, farmers heard about a new program, The Texas Grain Indemnity Fund.
Dee Vaughan, chairman of the Texas Grain Producers Indemnity Board, explained the reasons behind the state legislature's passing of House Bill 1840. The bill authorized a referendum to be held and a nine-member board to oversee it over the creation of a state indemnity fund to protect farmers in cases where their buyers might declare bankruptcy before payment.
"You've hauled your grain to your grain buyer," Vaughan said. "You're feeling good, the harvest is passed, and you haven't received payment yet, but you've dealt with this individual for years and the thought that there might be a problem never enters your mind." That is, until one morning when a neighbor calls you and tells you that the grain inspectors just shut your elevator down, or the feed yard or seed company you delivered to have filed for bankruptcy, he added.
"The indemnity fund protects producers from the time when they deliver grain until the time they try to get paid," Vaughan said. The indemnity fund would protect up to 90 percent of the value of the grain and would also offer a refund mechanism.
"As the law was written, it requires that refunds be provided to the producer," he said. The refund mechanism is only triggered once the indemnity fund reaches a set minimum balance approved by the board. Once that minimum is reached, refunds would be paid out to farmers on a first-in, first-out basis, he added.
"The nine-member board would manage the fund, under the oversight of the Texas Department of Agriculture and the Texas Commissioner of Agriculture, who appoint the members of the board," Vaughan said. "And this money cannot be swept into the state's general fund; it is separate from other state funds and can only be used to manage the fund, pay refunds to producers, or indemnify producers who suffer loss." Also, the indemnity fund only covers grain buyers who are required by law to remit assessments to the board--it wouldn't cover small "turn row buyers" who buy grain under the radar and in smaller amounts. In those instances, it's seller beware, Vaughan said.
Producers had from Nov. 19 until Dec. 7 to fill out ballots on the referendum, and the Texas Department of Agriculture will verify the results starting Dec. 17.
"Take the example of 100,000 bushels of grain, at a $5 value, for simplicity's sake," Vaughan said. "That's a half a million dollar value. At 90 percent coverage, the indemnity fund would cover $450,000 of grain. An assessment of 3/10 of one percent is $1,500, and at 6/10 of one percent would be $3,000.
"If you have a home, you probably have homeowners insurance, simply to manage the risk," he continued. "It's a small risk the odds of any one person losing their home to peril is very, very small, but I bet no one goes home and cancels their policy after thinking about it." Instead, you pay for homeowners insurance. But, at the end of the year, if your home didn't burn down or blow away in a tornado, your agent won't give your premium check back, and yet you still write one every year, Vaughan said. "This fund will give the assessment back once the minimum amount is reached, on a first-in, first-out basis," he said.
"A lot of people say that they know their buyers are sound--well, I haven't talked with anyone involved in a grain failure who went into it knowing that they would lose money," Vaughan continued. "Everyone assumes they will get paid like they always have. But your elevator or grain buyer is only as sound as the people they do business with. Things happen beyond our control." And, the risk doesn't just stop at the farm gate, but a failure can trickle down to main street, to the implement dealers, the bankers and even on to the schools and churches, he added. This fund protects communities as well, he said.
Texas State Sen. Kel Seliger spoke about other issues that will most likely come before the 83rd state legislature. Of those, water is the most critical issue, he said.
There's been a lot done on water in some areas of the state, Seliger began, but over the Ogallala Aquifer, in many parts, the water is not rechargeable. That's why groundwater conservation districts are indispensable in Texas, he added, but the average person really doesn't know what's going on in their district and doesn't know how the resource is being managed and how much we have available today and in the future. And water is an issue that affects everyone.
"In this part of the state, 85 percent of the water used is for agricultural use," he said. "Without agriculture in this part of Texas we have no economy and that will be true in 50 years. So, how are we doing in conserving resources we have today for the needs of tomorrow?"
Seliger spoke about the needs of future Texans and explained that right now there is about $53 billion worth of watersheds and reservoir projects that need to be done to help citizens 30 years from now conserve water resources. But waiting 30 years to start on those projects would be fiscally irresponsible, he said. Instead, he proposes putting money into a revolving fund to be loaned and paid back and reloaned again for basic water improvements. "If $1.6 billion were put into a fund and loaned and reloaned again, if those loans were sequenced carefully and judiciously, when it's time to do that reservoir the money will be there," Seliger said. "So when Dumas needs a water treatment plant, the water and the money will be there."
Conserving water is the least expensive option, but others include desalination plans to clean brackish water and reusing grey water for municipal needs and golf courses instead of freshwater. It's going to take a lot of people working together to meet the challenges of the future today to meet groundwater conservation.
The state legislature will be faced with other challenges this session, including balancing budgetary issues with the needs of current and future Texans, he continued.
"The current biennial budget is $165 billion, and that number is reduced in real spending terms from previous 2 years spending period by $14 billion," Seliger said. He added that school districts were an example of doing more with less, and that while that's admirable, it can't go on for long. He warned against running up debt today for the future taxpayers to pay tomorrow.
We spend about $8 billion per year on transportation, and that is one issue that affects rural Texas. "Think about this, in rural counties in Texas you have a couple ways to get from Point A to Point B," Seliger said. "We are in an agricultural area of the state. We deal with commodities, whether that's oil and gas or beef and grain. All of those commodities mean absolutely nothing and are worth absolutely nothing until they are transported and processed, and that's what transportation means to us."
Also on the slate speaking at the symposium were Texas FSA Committee Chairman Jerry Don Glover; Assistant State Conservationist Mickey Black with NRCS; Dana Porter with Texas A&M AgriLife Extension; and Plains Cotton Growers Executive Vice President Steve Verett. David Wasserman, with the Cook Political Report spoke over the noon luncheon over the 2012 election and its implications for the future of agricultural and rural politics.
The symposium is hosted by the Amarillo Chamber of Commerce; the Texas Corn Producers; Plains Cotton Growers, Inc.; Southwest Council of Agribusiness; Texas Grain Sorghum Association; Texas Peanut Producers Board; and Texas Wheat Producers.
Jennifer M. Latzke can be reached at 620-227-1807, or email@example.com.