Imagine you built a house, paid for all of the materials, and when you sold it, you didn’t get any of the money.
That’s the kind of situation more than 60 farmers find themselves in in six counties in eastern South Dakota.
Many of them hauled their grain to the local elevator and waited for prices to go up to get paid.
Only the elevator went under and was shut down by the South Dakota Public Utilities Commission.
KELOLAND News Investigates has uncovered what happened to at least some of the farmers’ money, which raises questions about how the whole debacle could have happened in the first place.
One of the first things you need to know about this story is that the South Dakota Public Utilities Commission regulates grain buyers’ licenses. And the state requires grain buyers to provide their financial statements in order to keep that license. These grain buying companies also have to post a bond. In the case of H&I Grain, which operated elevators in DeSmet, Arlington and Hetland, it had to put a $400,000 bond to protect farmers in case of losses.
H&I was started by Duane and JoAnne Steffensen back in the 80’s. In 2000, Jared Steffensen, their son began working at the business and eventually took over.
What happened with H & I Grain has farmers scratching their heads–and that bond required by the PUC? It doesn’t protect most of them, at all.
“It’s a bite; It hurts,” farmer Gary Akkerman said.
Since the 1980’s Akkerman has been hauling his crops to the H&I Grain Elevator in DeSmet. In fact he’s known the owners for decades.
Angela Kennecke: Do you know the Steffensens?
Akkerman: Yes I do, I consider the older generation my friends. We kind of grew up together in different towns. So to have this happen with somebody you know so well? It’s unfortunate.
What happened was that Akkerman hauled last year’s crop to the elevator, but waited to get paid on the hope that corn and bean prices would rise. Instead, the Public Utilities Commission shut H&I Grain down and now Akkerman is out $50,000.
Kennecke: What kind of hardship does that create for you?
Akkerman: It’s obviously a major cash flow problem. I haven’t quite figured out what’s going to happen. Everybody’s going to be cutting back because we have a lot less expendable income to spend.
When Akkerman says everybody, he means the more than 60 farmers who are out an estimated $8 million. Some of those losses will be covered by the $400,000 bond the H&I had to pay to the PUC, but most of them will not.
“The problem is, a $400,000 bond for the amount of grain, the value of the grain they handled, simply in non-sufficient. But the bigger problem is that the producer who just hauled their grain there and hadn’t priced it, they don’t have any bond protection, at all, under our current law,” lawyer Todd Wilkinson said.
Wilkinson is the attorney representing the farmers who are filing a lawsuit to try to recover their lost money.
H&I was required by law to file a financial report with the Public Utilities Commission in June of 2016, which it did.
“If the financial report didn’t show a problem, then how is it a month later, there’s $2 million missing money, how is there a margin call of $2 million 30 days after they submitted their financial report? Those questions have got to be answered,” Wilkinson said.
“Obviously at some point after the license was issued in June 2016, things went terribly wrong with the company and they fell out of compliance,” PUC Commissioner Chris Nelson said.
KELOLAND News has uncovered what went terribly wrong. The answers lie in a lawsuit filed against Duane and JoAnne Steffensen last fall by CHS Hedging for $2 million for breach of contract.
Think of CHS Hedging as a kind of stock market for trading commodities like corn and beans. A hedge fund is basically a mutual fund on steroids because of the high risk involved. A group of investors guess what they think the future price of a commodity, like grain, will be. If they’re right, there’s big money to be made. And if they’re wrong, they’re susceptible to big losses.
Duane and JoAnne Steffensen originally opened the account at CHS Hedging in 2011, while it was in their name; it was managed by their son Jared, who also opened a sub account, according to court papers, without their knowledge.
Also according to court papers, Jared Steffensen admitted to brokers he was “becoming addicted to trading.”
In March of 2013 Jared tweeted: “I think it’s time to buy some soybeans!!! Here we go.”
In June of 2013 he tweeted: “buy,buy,buy #corn”
and in July of 2015, Jared tweeted: “Keep things in perspective and manage your risk.”
But apparently Jared wasn’t managing his risk, because according to court papers he lost somewhere between $6 million to $10 million of H&I Grain’s money, and “as a result of a large loss in April of 2016, Jared Steffensen stopped eating and sleeping regularly and focused all of his time and energy in trading as much as he could to try to recoup losses.”
But he wasn’t able to get the money back. In fact he continued to lose and the hedge fund froze H & I Grain’s account on July 11, 2016 because the account was $2 million in the hole and elevator owners Duane and JoAnne Steffensen say that’s when they first learned of the trading losses
“When an elevator can’t make a margin calls, that means they don’t have the liquidity to pay that account; that to me is a red flag to everybody that this operation is in trouble and if my producers in this area would have known, no one would have delivered crop in there in 2016 and we wouldn’t be in this pickle,“ Wilkinson said.
But the big question now for farmers is, if the bottom fell out financially for H&I Grain back in July of last year, why did the elevator still take their crops in September.
“If they knew in July that they were having these serious financial issues, shouldn’t they have said something to you? It would have been nice to have known. I can understand why they didn’t,” Akkerman said.
The Public Utilities Commission says it should have known as well.
“State law requires the owners of the company to notify the PUC when they fall out of compliance that was not done. That’s a criminal matter that will be handled by the criminal authorities. But, suffice it to say we weren’t notified as required by law,” Nelson said.
The Kingsbury County State’s attorney tells KELOLAND News it is investigating if it has a criminal case against the Steffensens.
Meanwhile, we paid a visit to Duane and JoAnne Steffensen’s home in Hetland to try to get some answers. While someone was inside, they refused to answer the door.
KELOLAND News also traveled to Arlington to try to ask Jared Steffensen what went wrong. As we pulled up to his home, valued at $310,000, with a huge camper out front, Jared ducked inside and refused to answer the door.
Meanwhile, the dozens of farmers who never got paid for their crops are worried they’re the ones who will pay the price for the Steffensens’ losses.
“Do you think you’ll ever see any of this money back? I don’t think so,” Akkerman said.
“We’re a farm economy and when the farmers have a financial struggle, main street struggles, the region struggles and the state struggles. That’s reality in South Dakota,” Wilkinson said.
Wilkinson is hopeful that the Steffensens will recover money from the commodity hedging company, in their counter lawsuit, which could eventually go back to the farmers.
The Steffensen’s claim that CHS Hedging increased Jared’s trading limits and eventually removed them altogether in a fraudulent scheme to increase the broker’s commissions. Duane and JoAnne Steffensen are also suing their son Jared accusing him also of orchestrating a fraudulent scheme by which he defrauded H&I Grain and concealed his trading activity from them.
If there’s no settlement in the cases, the earliest they would go to trial is this fall.