VIEWS: 29 PAGES: 3 CATEGORY: Agriculture POSTED ON: 8/26/2010
Many times forward grain contracts will contain security clauses which provide that the grain is pledged as security for the grower's performance of the agreement. The grain buyer may then attempt to secure its interest in the grower's grain by filing a financing statement with the relevant state's secretary of state.
LEGAL Q&A The Impact of Contract Laws How grain licensing and financial regulation affect your contracts and the markets By Adam Hertzke & Todd Langel he world of forward grain contracting boiled financial strength of the licensee, states may also require T down to its most basic elements is relatively simple. A grower and processor agree, for example, that the grower will deliver a certain quantity of grain at some definite time in the future for a price determined today. A major benefit to the grower is that it knows the price it will periodic financial reporting in order to maintain a license, and may require the posting of a surety bond, letter of credit, or other assurance that the licensee can make good on its contracts. Often, as part of the licensing scheme, purchasers are required to pay into a state-administered grain receive for its grain and can plan its operations accord- indemnity fund that will protect unpaid cash sellers of ingly. Conversely, the processor knows both the quan- grain in the event the purchaser defaults, files bank- tity of grain it will receive and the price that it will pay ruptcy, or is placed in receivership. In some instances, and can, likewise, plan accordingly. Since forward grain states regulate substantive terms of forward grain contracts lack complex- contracts, even under the ity, few appreciate the simple example discussed degree to which the law above. Usually, if a state governs — or can other- ❚ Since forward grain contracts regulates standard forward wise affect — their trans- agreements, it does so by action. This article brief- lack complexity, few appreciate dictating the information ly addresses the various the degree to which the law that must be found in the ways in which state reg- ulation of grain contracts, governs their transaction. ❚ agreement. For example, a statute may require that the requirements of the forward contracts contain Food Security Act, and such standard terms as the the Dodd-Frank Wall Street Reform and Consumer date of execution, quantity contracted for, price, and the Protection Act can weave their way into the parties’ grade of the grain. Often, state statutes mandate the date agreement. by which a producer must be paid following delivery. Fundamental changes in the grain industry have State regulation of forward contracts drawn additional attention to licensing requirements in Many agricultural state legislatures have established recent years. Price volatility, trends of increasing farm statutory schemes designed principally to protect farm- size and contract exposure, together with the influx ers and agricultural producers. Aside from this general of industrial (biofuels) grain purchasers have caused theme, however, consistency of the requirements from state legislatures to begin to reevaluate the
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