Minnesota farmers moved a step closer to the state setting up a rainy day fund to help cover their losses when grain elevators go financially belly-up.

A bill to recover farmers' lost claims cleared a first hurdle on Monday, with a state Senate committee approving an indemnity fund for growers.

The measure, backed by the Minnesota Department of Agriculture (MDA) and some farm interest groups, has been long sought by farmers who've lost income off a year's harvest after selling their corn or soybeans to a grain elevator on a futures contract. If an elevator goes bankrupt before making those payments, farmers suffer the losses.

Neighboring states, such as Iowa and Wisconsin, already maintain such rainy day accounts, which pay out farmers' losses when they sell grain to an elevator that later files for bankruptcy and is unable to return the sold grain or pay for the sale.

In recent years, a number of elevators in Minnesota have gone bankrupt, including last October's collapse of Global Processing, an elevator in Hope whose owner siphoned off the business' cash to fund extravagant safaris, and the elevator in Karlstad. In some instances, farmers lose tens, even hundreds, of thousands of dollars.

Brian Herbst, a fourth-generation farmer from Kasson in southeastern Minnesota, told the committee his family-owned operation was on the hook for $350,000 after the buyer, Pipeline Foods, went through bankruptcy protection two summers ago.

"That is a number that is just really hard to bounce back from," Herbst said in testimony. "We'll feel that for years."

The bill was birthed by a working group convened by the state Department of Agriculture at the behest of legislators last year.

Under terms of the bill, the Legislature would fill the fund with $15 million. Once the state fund dips below $9 million, MDA would charge a 0.02% premium on every sale of grain in the state to fill up that $15 million. Should a farmer not wish to contribute to the fund, he or she would have a year to request a refund on the premium.

The bill's sponsor, Sen. Robert Kupec, DFL-Moorhead, called this feature a voluntary opt-out, noting farmers who balk at premiums also won't benefit from coverage during a potential loss. But Sen. Torrey Westrom, R-Alexandria, objected to the description of the opt-out as "voluntary," noting farmers must still pay the premiums first.

"I still think we can do a better job of coming up with a voluntary, easier way for farmers to opt-out if they so choose," Westrom said.

In "back-of-napkin" math, he said, the Republican ranking member estimated a farmer might pay $2,000 in premiums while selling grain off 1,000 acres of corn at an average of 200 bushels an acre.

State officials have countered the premium amounts to a small investment to make for needed protection. In an informational session before the committee last week, Nick Milanowski, MDA program manager for the fruit, vegetable and grain unit, showed figures suggesting that of the $5.5 million claims made on grain sales lost in the collapse of Pipeline Foods, a bond only covered $500,000 in payments — roughly 9% of claims.

Under the current bill, the indemnity fund would cover 100% of farmers' losses on cash sales or warehoused grain. But the fund would also cover futures contracts, including up to $750,000 or 75%, whichever is less, on farmers' losses for grain sold within six months of the default. Grain sold on a longer-term contract would also have protection, albeit on a smaller percentage.

Martin Phillips, who runs Blue Skye Farms south of Mankato, said he received a letter on July 8, 2021, that Pipeline Foods had filed for bankruptcy. Just over a week earlier, his family had finished delivering 16 semitrailer trucks' worth of organic corn — some 15,000 bushels — to the buyer. The losses amounted to $112,000.

Fifteen months later, he'd received a similar bankruptcy note from Global Processing. This time, he'd not yet delivered all the contracted amount.

"But the current organic soybeans [price] has fallen to $22 a bushel," Phillips told the committee. He'd contracted with Global Processing at over $30 a bushel for beans.

The measure has drawn opposition from the Minnesota Grain and Feed Association (MGFA), a lobby group for grain elevators, which has objected to an across-the-board fee on grain sales.

"We disagree that the only way to protect products is creation of an indemnity fund," said Laura Lemke, MGFA's executive director. Instead, she proposed what she termed a "reasonable increase" in bonding levels.

Farmer cooperative CHS, with headquarters in Inver Grove Heights, also submitted written testimony, charging a fund without additional measures to stem speculative behavior by sellers amounts to a "revolving fund paid by Minnesota farmers."

"A grain indemnity fund does not address the root cause of insolvencies," wrote Rick Dusek, CHS' executive vice president, country operations.

The bill cleared the Agriculture, Broadband and Rural Development Committee on Monday in a mostly party-line vote of 6-3, with Sen. Gene Dornink, R-Brownsdale, joining the committee's five Democrats to support the measure. It advances to the Committee on State and Local Government and Veterans.

Sen. Aric Putnam, DFL-St. Cloud, the committee chair, said a grain indemnity fund was among the first topics he'd heard about when taking the seat in November.

"Farmers want this. They want this badly," Putnam said. "There are weeks of tweaks coming forward."