March 14, 1996 Room 105
Thursday Eau Claire State Office Bldg.
Commencing at 12:00 p.m. 718 North Clairemont
Handicapped Accessible Eau Claire, WI
March 15, 1996 Room 172
Friday State Agriculture Building
Commencing at 1:00 p.m. 2811 Agriculture Drive
Handicapped Accessible Madison, WI
Analysis Prepared by the Dept. of Agriculture, Trade & Consumer Protection
Statutory authority: ss. 127.02 (3) (d) and 127.15
Statutes interpreted: ch. 127
In order to protect grain producers, the Department of Agriculture, Trade and Consumer Protection currently regulates grain warehouse keepers and grain dealers under ch. 127, Stats. Grain warehouse keepers and grain dealers must be licensed, must file financial statements with the Department, and must file security with the Department if they fail to meet minimum financial standards.
The Legislature recently made substantial changes to the grain security law under ch. 127, Stats. The changes, contained in 1995 Wis. Act 42, took effect on September 1, 1995.
The Department has adopted rules under ch. ATCP 99, Wis. Adm. Code, to interpret ch. 127, Stats. This rule amends the Department's current rules to incorporate the recent legislative changes. This rule also increases license and inspection fees, clarifies financial statement and security filing requirements, simplifies the disclosures which grain dealers must make to producers, and makes other changes designed to clarify the current rules.
Licensing Grain Warehouse Keepers and Grain Dealers
1995 Wis. Act 42 requires warehouse keepers and grain dealers to hold a “license” from the Department, rather than a “registration certificate” as before. This rule incorporates this new terminology.
1995 Wis. Act 42 created a new license category of “class B2” grain dealers. “Class B2” grain dealers are feed mill operators who buy less than $50,000 worth of grain from producers per year, and who use no “deferred payment” or “deferred price” contracts. “Class B2” grain dealers are no longer licensed as class B grain dealers. They will pay lower license fees than class B grain dealers, and will not have to file annual financial statements or meet minimum financial standards. This rule incorporates the new license category.
Financial Statements
Under current law, grain warehouse keepers and certain grain dealers must file annual financial statements with the department. Under 1995 Wis. Act 42, class B grain dealers must now file annual financial statements if they use “deferred payment” or “deferred price” contracts. The Department may require supplementary or interim financial statements, as necessary.
This rule modifies current rules related to financial statements, consistent with ch. 127, Stats.:
○ It updates and clarifies current filing requirements, consistent with ch. 127, Stats.
○ It clarifies current requirements related to the form and content of financial statements. It also clarifies which financial statements must be reviewed or audited by a CPA.
○ It allows sole proprietors to prepare portions of their financial statements on a historical cost basis, thereby saving accounting costs.
○ It allows the Department, for good cause, to extend a filing deadline for up to 30 days.
Minimum Financial Standards
Under current law, grain warehouse keepers and certain grain dealers must meet minimum financial standards. 1995 Wis. Act 42 made the following changes which are incorporated in this rule:
○ It required class B grain dealers to meet minimum financial standards if they use “deferred payment” or deferred price“ contracts.
○ It changed the minimum financial standards for grain dealers to reflect financial risk. Under the new standards:
* Grain dealers must have a current ratio of at least 1.25 to 1.0 at fiscal year end, and at least 1.0 to 1.0 at other times.
* Grain dealers must have total assets which exceed total liabilities by at least $15,000, or by the amount of equity needed to achieve a debt-to-equity ratio of not more than 5.0 to 1.0, whichever is greater. The equity requirement is no longer capped at a maximum of $500,000.
○ It made allowances for normal seasonal fluctuations of certain assets and liabilities. Under 1995 Wis. Act 42 and this rule, a warehouse keeper or grain dealer may offset certain liabilities against certain current assets, so that normal seasonal and operational fluctuations do not have an undue impact on equity requirements.
Security Requirements
Under current law, grain warehouse keepers and certain grain dealers must file security with the Department if they fail to meet minimum financial standards. 1995 Wis. Act 42 made the following changes which are incorporated in this rule:
○ It required class B grain dealers using “deferred payment” or “deferred price” contracts to file security with the Department if they fail to meet minimum financial standards.
○ It changed the method used to calculate the amount of security required of grain dealers. Under 1995 Wis. Act 42 and this rule, a grain dealer must file security equal to the sum of the following:
* The total amount which the grain dealer owed to producers on “deferred payment” contracts as of the last day of the previous month.
* The total amount which the grain dealer owed to producers on “deferred price” contracts as of the last day of the previous month (based on contract pricing formulas and market prices on that day).
* Beginning September 1, 1996, an amount equal to 35% of the dollar amount of the grain dealer's average monthly purchases from producers for the 3 months in which the grain dealer made the largest monthly purchases from producers during the preceding 12 months. (1995 Wis. Act 42 increased this percentage in stages, from 20% in the year ending August 31, 1996, to 35% in the year beginning September 1, 1996.)
○ It eliminated the former security cap of $500,000 for warehouse keepers and grain dealers.
○ It eliminated, as a form of security that may be filed with the Department, a security interest in grain inventory or accounts receivable.
Monthly Reports of Grain Purchases
Under current law, certain grain dealers who fail to meet minimum financial standards must file monthly reports with the Department showing amounts of grain purchased. 1995 Wis. Act 42 extended this monthly reporting requirement to class B grain dealers who use “deferred payment” or “deferred price” contracts (if they fail to meet minimum financial standards). The Department uses the monthly reports to monitor the adequacy of the security filed by grain dealers. This rule incorporates the statutory reporting requirements.
“Deferred Payment” and “Deferred Price” Contracts
“Deferred payment” and “deferred price” contracts, if not properly managed, can create serious financial risks. 1995 Wis. Act 42 made the following changes which are incorporated in this rule:
○ The amount of security required of grain dealers depends, in part, on their use of “deferred payment” or “deferred price” contracts.
○ A grain purchase contract must be in writing unless the grain dealer pays within 7 days. The new 7-day grace period recognizes operational realities in the grain business.
○ A grain dealer must make full and final payment under a “deferred payment” or “deferred price” contract by a specified payment date which is not more than 180 days after the contract price is determined.
Grain Dealer Disclosures to Producers
Under current rules, a grain dealer must disclose to grain producers the basis on which the grain dealer is licensed. As a result of the statutory changes made by 1995 Wis. Act 42, the current disclosures are no longer fully accurate. This rule simplifies and shortens the disclosures which grain dealers must make, and modifies the disclosures to make them consistent with current law.
Ownership of Grain
This rule clarifies that when a grain owner delivers grain to a person who is both a warehouse keeper and a grain dealer, the grain owner retains ownership rights until one of the following occurs:
○ The recipient acquires title to the grain pursuant to a sales contract that is documented by a purchase receipt or other writing.
○ The grain owner transfers title to a third person.
Fee Changes; General
Under the grain security program, the Department:
○ Licenses grain warehouse keepers and grain dealers.
○ Reviews annual financial statements for compliance with minimum financial standards.
○ Demands security from warehouse keepers and grain dealers who fail to meet minimum financial standards. The Department holds the security for the benefit of producers in the event that a grain warehouse keeper or grain dealer defaults in its obligations to producers.
○ Monitors security amounts for compliance with legal standards, based on the amount of a warehouse keeper's or grain dealer's financial obligations to producers.
○ Audits grain accounts and inspects grain inventories for compliance with legal requirements.
○ Investigates default claims, and determines the amount of actual defaults to producers. The Department may convert available security to pay allowed producer claims, or take other legal action to recover unpaid claims for producers.
○ Regulates the business practices of grain warehouse keepers and grain dealers to reduce financial risks to producers, and to prevent fraudulent or deceptive practices.
○ Enforces ch. 127, Stats., and ch. ATCP 99, Wis. Adm. Code.
The Department's grain security program is funded by a combination of license fees (PRO, or program revenue), general tax dollars (GPR, or general purpose revenue) and federal contracts (FED revenue). Under the 1995-97 biennial budget act, a total of 1.68 FTE (full-time equivalent) positions in the Department's grain security program were converted from GPR to PRO funding, effective July 1, 1997.
This rule increases license and inspection fees for grain warehouse keepers and grain dealers in order to fund the conversion of staff from GPR to PRO revenue, and in order to offset projected license revenue shortfalls resulting from consolidated ownership of grain warehouse and grain dealer operations. The rule also changes the fee structure to create a more equitable distribution of fees.
Current license fees generate an average of approximately $179,000 per year. The proposed fees will generate approximately $223,000 in 1996 and $270,000 in each subsequent year. License fees will fund approximately 59% of overall program costs, compared to 31% currently.
Warehouse Keepers; Fee Changes
This rule increases grain warehouse fees as follows:
○ The current basic license fee of $50 is increased to $75 effective September 1, 1996, and to $100 effective September 1, 1997.
○ The current license fee of $25 for each additional business location is increased to $50 effective September 1, 1996, and to $75 effective September 1, 1997.
○ The current inspection fee of $300 for warehouses with storage capacity of less than 150,000 bushels is increased to $375 effective September 1, 1996, and to $425 effective September 1, 1997.
○ The current inspection fee of $325 for warehouses with storage capacity of at least 150,000 bushels but less than 250,000 bushels is increased to $425 effective September 1, 1996, and to $475 effective September 1, 1997.
○ The current inspection fee of $375 for warehouses with storage capacity of at least 250,000 bushels but less than 500,000 bushels is increased to $475 effective September 1, 1996, and to $525 effective September 1, 1997.
○ The current inspection fee of $425 for warehouses with storage capacity of at least 500,000 bushels but less than 750,000 bushels is increased to $525 effective September 1, 1996, and to $575 effective September 1, 1997.
○ The current inspection fee of $475 for warehouses with storage capacity of at least 750,000 bushels but less than 1,000,000 bushels is increased to $575 effective September 1, 1996, and to $625 effective September 1, 1997.
○ The current inspection fee of $525 for warehouses with storage capacity of at least 1,000,000 bushels but less than 2,000,000 bushels is increased to $700 effective September 1, 1996, and to $725 effective September 1, 1997.
○ The current inspection fee of $525 for warehouses with storage capacity of at least 2,000,000 bushels but less than 3,000,000 bushels is increased to $800 effective September 1, 1996, and to $825 effective September 1, 1997.
○ The current inspection fee of $525 for warehouses with storage capacity of at least 3,000,000 bushels but less than 4,000,000 bushels is increased to $900 effective September 1, 1996, and to $925 effective September 1, 1997.
○ The current inspection fee of $525 for warehouses with storage capacity of 4,000,000 bushels or more is increased to $1,000 effective September 1, 1996, and to $1,025 effective September 1, 1997.
Grain Dealers; Fee Changes
This rule increases grain dealer fees as follows:
○ A class A grain dealer currently pays a basic license fee of $400, a fee of $10 for each additional truck (if more than one), and a surcharge of $250 if the grain dealer's annual financial statement is not audited. Effective September 1, 1996, this rule increases the basic license fee to $500, imposes a fee of $175 for each additional business location, increases the truck fee to $25 per additional truck, and increases the surcharge for an unaudited financial statement to $350. Effective September 1, 1997, this rule increases the basic license fee to $525, increases the fee for each additional business location to $225, increases the truck fee to $45 per additional truck, and increases the surcharge for an unaudited financial statement to $425.
○ A class B grain dealer currently pays a basic license fee of $175 and a fee of $10 for each additional truck (if more than one). Effective September 1, 1996, this rule increases the basic license fee to $200, increases the truck fee to $25 per additional truck, and imposes a surcharge of $350 if the grain dealer's annual financial statement is not audited. Effective September 1, 1997, this rule increases the basic license fee to $225, increases the truck fee to $45 per additional truck, and increases the surcharge for an unaudited financial statement to $425.
○ A class B2 grain dealer currently pays a basic license fee of $50 and a fee of $10 for each additional truck (if more than one). Effective September 1, 1996, this rule increases the truck fee to $25 per additional truck. Effective September 1, 1997, this rule increases the basic license fee to $75, and increases the truck fee to $45 per additional truck.
○ A class C grain dealer is not required to be licensed, but may voluntarily apply for a license. A class C grain dealer who voluntarily applies for a license must currently pay a basic license fee of $50. Effective September 1, 1996, this rule increases the basic license fee to $75.
○ Under current law, a grain dealer must pay a license fee surcharge of $500 if the grain dealer is caught operating without a required license, except that 1995 Wis. Act 42 provides for a lesser surcharge of $250 for class B2 grain dealers. This rule incorporates the lesser surcharge for class B2 grain dealers.
Rule Organization and Drafting
