Nebraska’s neighbors have taken a hard look at heightened risk in the grain business, and they don’t like what they see.

Mindful of turmoil in the ethanol industry, Iowa lawmakers are considering legislation that would boost the size of an indemnity fund built with proceeds from grain sales from $8 million to $12 million.

Their South Dakota counterparts required ethanol plants to become bonded last year. Now they’re looking at increasing the bond requirement to more than $1 million per plant.

Farther east, Indiana and Michigan now require both bonds and indemnity.

Meanwhile, Nebraska has neither for its renewable fuels sector. Nor is there legislation pending here that could compensate farmers for bankruptcy losses such as those likely to be suffered from the recent collapse of VeraSun.

Chris Klenklen, administrator of Missouri’s Grain Regulatory Services Program, said the massive grain-consumption capacity of ethanol plants carries a lot of dollar signs with it.

“This is new ground for regulators,” Klenklen said, “because we’re not used to these guys being this big, buying this much grain, and having a business model put in such a position that it’s causing them concern.”

Jerry Vap of McCook, a member of Nebraska’s Public Services Commission, said the $300,000 bonds in place at the state’s grain elevators don’t seem much of a match for meltdowns of ethanol scale at even one plant.

“When you find out a $300,000 bond is not going to cover even one day’s processing,” Vap said Thursday, “you’re not getting much protection there.”

Vap likes the indemnity concept better and sees it as a self-insurance fund. But he knows he has a sales job on his hands. Whatever would apply to ethanol plants also would apply to cattle feedlots that purchase grain from other farmers.

“We’ve decided we want to take it very slow from the standpoint of getting people across the state to start talking about it and thinking that this is something we ought to do.”

That’s not to say there’s no cause for urgency. “Ethanol has added a huge dimension to this,” he said, “simply because it’s both on farm producers who sell directly to ethanol plants and then you’ve got grain dealers and cooperatives doing business directly with ethanol plants.”

People who have regulatory roles on grain sales in other states are also reassessing their ability to respond.

So far, Minnesota has $150,000 bonds per ethanol plant. Jim Gryniewski of the Minnesota Department of Agriculture has yet to detect a groundswell of support from grain producers for something more stringent.

“Usually what brings these indemnity funds on, to use a mighty word, is catastrophic failure that affects a large number of people,” Gryniewski said.

The political climate appears to be a bit more heated in Iowa, where Richard Wahl, grain warehouse bureau chief, hears lots of talk about making an existing indemnity fund bigger.

“Actually, the dialogue has been going on for two years,” Wahl said, “and we expect some sort of legislative action on it this year.”

The same proposal that would boost the fund from $8 million to $12 million also would raise grain sale contributions from a quarter cent to a half cent per bushel.

Dusty Johnson, chairman of the South Dakota Public Utilities Commission, described grain producers there “as very much supportive” of higher bonding requirements for ethanol plants. “This goes to protect them,” Johnson said.

Both he and Missouri’s Klenklen said it’s important to note bonding programs in those states are part of a package that calls for audits and inspections that also act as a check on financial viability.

Klenklen “would caution anybody who’s starting an indemnity fund. Don’t do away with bonds. Keep bonds in place.”

Johnson said a safety net based strictly on piles of cash and aimed at a major, multi-plant meltdown would have to be huge.

“One concern often raised about an indemnity fund is that, if you really want to insulate producers from what might be catastrophic failures across the industry, the size of the fund would need to be massive — like tens of millions of dollars.”

Reach Art Hovey at 473-7223 or at ahovey@journalstar.com.