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Farm Advisory

Use Caution with Credit Sales Contracts

When it comes to deciding whether to sell their grain using credit sale contracts, Attorney General Tom Miller advises farmers to avoid confusion and exercise caution.

Credit sale contracts can be good marketing tools for some farmers because farmers can defer income from the sale of grain until the following year. However, these contracts have been a source of some confusion and are potentially more risky than other grain contracts.

Avoid Confusion About Storage and Other Costs:

In the past, some elevators have marketed credit sale contracts as tools that result in "free storage" or "no storage costs." In reality, there never should be a storage fee with a credit sale contract, because the farmer no longer owns the grain. (Sometimes a "service fee" or another charge is assessed which is equivalent to the amount normally charged per bushel for storage.)

Be wary of these "free storage" claims and other costs. Remember, the elevator legally owns the grain and can sell it. You are paid later and, in essence, you are extending interest-free, unsecured credit to the elevator.

Exercise Caution:

Farmers give up title and become unsecured creditors of an elevator as soon as they deliver grain sold using a credit sale contract. Therefore, a farmer's ability to be paid depends on the future solvency of the elevator.

Historically, elevators that fail pay just a few cents on the dollar to farmers who sold them grain using credit sale contracts. In addition, those farmers could not look to Iowa's grain indemnity fund as a source of payment, because Iowa's grain indemnity fund does not cover grain sold under a credit sale contract. By contrast, the grain indemnity fund does cover 90 percent of the value, up to $150,000 per farmer, of grain sold using cash sale contracts or grain stored at a state-licensed warehouse.

Since credit sale contracts are not covered by Iowa's grain indemnity fund, farmers need to be cautious before they decide to sell their grain using any form of credit sale contract. Farmers should not hesitate to ask the dealer purchasing their grain about the elevator's financial health before entering a credit sale contract.

If you have questions or complaints, please:

Contact:

Iowa Attorney General Farm Division
321 East 12th St., Room 018
Des Moines, Iowa 50319
Phone: 515/281-5351
Fax: 515/242-6072
Email: farm@ag.state.ia.us