Grain Warehouse Operator Bonds are often required for both Federal and State grain warehouses. These bonds are generally required to obtain licensing and serve to protect agricultural producers for stored and sold products. Learn more about these bonds and how to easily obtain them.
A Grain Warehouse Operator or Warehouse Operator who is licensed under the United State Warehouse Act, will need to provide a surety bond or alternative as a financial guarantee to the federal government.
The Grain Warehouse Operator Bond guarantees that the warehouse operator will provide delivery of the product being stored upon the request of the party using the warehouse for storage. These parties are usually an agricultural producer, farmer, cooperative or importer. Generally, the party requesting access to the stored material must provide a Warehouse Receipt. A warehouse receipt is a legal document provided by the Warehouse Operator upon receipt of the goods. The receipt gives title to the goods in storage. Not all warehouses provide a receipt, however.
A secondary guarantee of the grain warehouse bond is that the warehouse operator will uphold the responsibilities of their federal license.
The Warehouse Operator is the Principal on the surety bond. The U.S. Department of Agriculture is the Obligee on behalf of the parties providing goods for storage. The Surety is the third party bond company that is guaranteeing that the warehouse operator will deliver the goods, when presented with a proper warehouse receipt or requested by the owner, when a receipt was not made.
Should the Warehouse Operator not be able to present the goods, the damaged party can make a claim against the surety bond. The Surety will investigate the claim and pay the damaged party, if necessary. This creates a valuable protection for parties with goods in the Warehouse’s storage. They can collect damages without having to pursue costly litigation.
Should the Warehouse Operator not be able to present the goods, the damaged party can make a claim against the surety bond. The Surety will investigate the claim and pay the damaged party, if necessary. This creates a valuable protection for parties with goods in the Warehouse’s storage. They can collect damages without having to pursue costly litigation.
The United States Warehouse Act (USWA) allows the Secretary of Agriculture to license warehouse operators who store agricultural products on a federal level. The licenses guarantee that the warehouse will operate in safe and acceptable conditions and meet other USDA guidelines.
Should the Warehouse Operator not be able to present the goods, the damaged party can make a claim against the surety bond. The Surety will investigate the claim and pay the damaged party, if necessary. This creates a valuable protection for parties with goods in the Warehouse’s storage. They can collect damages without having to pursue costly litigation.
In most cases, a surety bond may also be used to offset any deficiency in allowable net worth exceeding the minimum. The bond may be replaced or continued in the required amount from year-to-year.
That means the required bond amount will vary by number based on the amount of crops held at each warehouse and each state. The bond amount may also vary if the applicant does not meet the financial qualifications of the license and the bond is used to offset the deficit net worth minimum.
The cost of a grain warehouse bond will depend on the financial strength of the applicant. Because these bonds are considered a type of financial guarantee, they can fall on the higher end of the price range. Warehouse operators that are financially strong should expect to pay 1% of the bond amount per year. Those with less financial strength may pay as much as 3% per year.
Instead of putting up a grain warehouse bond, a warehouse operator may choose to post an Irrevocable Letter of Credit (ILOC) or Cash deposit.
Should a warehouse operator choose to use a cash deposit as a financial assurance, it will need to meet the following three conditions:
In most cases, a surety bond is superior to an ILOC.
Should a warehouse operator choose to use a cash deposit as a financial assurance, it will need to meet the following four conditions:
For most warehouse operators, a surety bond will be superior to cash.
While this page focuses on grain warehouse bonds on the federal level, most states have similar license laws. The state bonds guarantee the same thing, but the bond amounts vary by state. The principal on these bonds is still the grain warehouse operator, but the obligee is the particular state’s agricultural department instead of the Federal USDA.
While many grain warehouses are also grain dealers, there is a distinction between the two. A grain warehouse does not typically take ownership of the grain. They simply store it for the producer or other party. On the other hand, a grain dealer generally takes ownership of the grain. The dealer is then responsible for the sale of the grain.
States have widely different regulations for grain dealers and grain warehouses. Some states regulate them both, while others do not. You can check state requirements for grain dealers. Depending on the state, a grain warehouse may also need a grain dealer bond and vice versa.
Grain warehouse operators are required to post financial assurances to the federal government in order to be licensed. Surety bonds are usually the best way to cover these financial assurances. Warehouse operators may need other surety bonds as well, such as Grain Elevator Bonds. Contact the surety bond experts at Axcess Surety for all your agricultural surety needs.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
