There is pushing and shoving in the agricultural credit business as lenders and vendors jockey for who should be first in line if their farmer customers go bust.
Companies that sell seed, fertilizer, pesticides, and feed extend credit to farmers throughout the growing season say they deserve priority-lien status on crop income. But bankers, who lend money for land and equipment, say the first to file a lien should have first dibs.
"The bankers argue that if they don't get their way, credit becomes more expensive," said Jonathan F. Schlueter, executive vice president of the Pacific Northwest Grain and Feed Association. "Suppliers respond by saying if it doesn't get planted or fertilized, you have no crop."
In most states priority is determined by the order of filing for liens. But this year lawmakers in several farm states are expected to consider bills that would give priority to farming supply companies, known as input providers. Low crop prices and changes in the Uniform Commercial Code have put the issue on several agribusiness wish lists.
Suppliers argue that bankers already have a lien on farmland and equipment, so they can recover losses in defaults. Since agribusinesses extend credit after banks, they stand to lose in workouts of defaults.
Oregon now gives top priority on crop income to input providers; North Dakota law gives first priority to harvesters and second to input providers. In both states, traditional lenders get priority from the order in which they file.
"We want to maintain the Oregon law and we want to expand it to the neighboring states," Mr. Schlueter said.
Indiana, Kansas, Washington, and Idaho expect to wrestle with the issue this year.
"Agrilenders want liens on all land and equipment and crops without extending credit" to the fertilizer or seed vendors, said Cress Hizer, chief executive officer of the Indiana Grain and Feed Association. Without that credit "you've doomed the grower."
The Indiana trade group has put priority liens for agribusiness on its legislative agenda and is considering making the issue part of revisions to the Uniform Commercial Code.
The code is written by the National Conference of Commissioners on Uniform State Laws to provide a "common language of commercial law" throughout the United States, said John McCabe, the legislative director of the conference. The code is proposed to state legislatures for adoption.
In a recent revision of the article that covers secured transactions, priority liens for input providers were included as an optional appendix. This is the legislative peg to which the Indiana grain group may attach their proposal.
The Indiana Bankers Association will oppose any legislation that would violate the principle of priority based on filing order, said Kerry B. Spradlin, the group's government relations representative.
In Kansas, such a measure was defeated last year, but the Kansas Bankers Association expects it to come back and is ready to oppose it. "The ag lien issues coming up are a result of stress in the [farm] industry," said Chuck Stones, senior vice president of the Kansas bankers.
While bankers and agribusiness are squaring off on this issue, they find themselves in the same corner on a related issue - producer liens.
In Oregon, Washington, Idaho, and Montana, farmers want collateral interest in their crops after delivering them to processors. This issue sprouted after several processors went bankrupt and unpaid farmers found their produce included in bankruptcy proceedings where banks had first dibs.
Now, instead of passing crop ownership to the processor for a "no price established" contract, farmers want a lien in case the processor goes out of business. Legislation under consideration would give farmers a six-month lien on goods at delivery that can be extended to two years if the farmer requests the extension.
Agribusinesses oppose the legislation because it limits what they can do with grain they receive. It also allows the farmer to repossess his crop if he thinks he can get a better price elsewhere. Bankers oppose the liens because banks lend to processors based on the commodities in their warehouses.