Grain and other commodities often serve as important collateral for farm loans. With declining commodity prices and rising expenses, many farmers may be feeling increased financial pressure following the end of the 2025 crop year. Poor cash flow may have producers looking to sources of cash, and that may lead some to deceptive practices like grain fronting. Grain fronting is a tactic used to circumvent legal requirements intended to protect a lender’s security interest in grain and therefore can present a significant risk to agricultural lenders. Even if the funds can be recovered, litigation will often be unavoidable. It is important to understand what grain fronting is and what steps you can take to prevent yourself from falling victim to the fraud.
Commonly, farm operating loans are secured in part by crops grown, to be grown, or stored by the borrower. A security interest in farm products, including grain, is perfected by filing a UCC-1 financing statement.¹ However, under the Food Security Act of 1985, a buyer of farm products takes the crops free of a security interest created by the seller unless the buyer has (1) direct notice of the security interest or (2) the lender files an Effective Financing Statement (“EFS”) in a central filing system.² What this means is that a grain elevator or similar buyer would be able to purchase the grain free of the lender’s security interest unless one of those steps is followed. In the direct notice or the EFS, the lender follows a statutory method of providing notice to the grain buyer and can specify conditions for the release of the security interest, often the issuance of a two-party check listing the lender as one of the parties.³ By providing direct notice or filing an EFS where available,⁴ lenders can generally ensure that their collateral is not sold without their knowledge and that they receive the proceeds they expect. But grain fronting circumvents the protections afforded by the notice and perfected security interest.
Grain fronting is a type of fraud. In a typical grain fronting scheme, a farmer who has pledged grain as collateral will sell that grain in the name of a third party, such as a relative, friend, or business associate, often having that third-party deliver the grain, representing that it belongs to them. This tactic allows the borrower to access the proceeds of the sale and hide those proceeds from their lender. The grain buyer, ostensibly without knowledge that the owner of the grain is someone else, would not see the security interest when reviewing the direct notices or EFS list when searching for the purported “seller’s” name, and would not. As a result, the buyer issues payment without the bank’s name listed on the check and without the bank’s consent or release. The third party then remits some or all of the proceeds to the borrower.⁵
The loss of collateral, particularly with a borrower that is insolvent or nearing insolvency, which is likely the case if someone is resorting to grain fronting, significantly undermines a lender’s ability to recover in the event of a default and reduces the lender’s secured position. While the bank may still be able to recover from the buyer or even the third parties involved in the fraud, often that recovery will involve significant time consuming litigation. In Minnesota, the Supreme Court has ruled that 7 U.S.C. § 1631(e) does not protect buyers in grain fronting situations from potentially being liable to a secured lender.⁶ In Fin Ag, Inc. v. Hufnagle, Inc., an agricultural lender successfully brought an action for conversion against a grain buyer in a grain fronting situation, resulting in the buyer being liable to the lender for the value of the fronted grain, plus costs and interest.⁷ In Star Bank v. Anderson, the Minnesota Court of Appeals more recently upheld an agricultural lender’s right to recover from a grain buyer where the lender gave proper notice of its interest and can show that the grain purchased by the buyer was subject to the lender’s security interest.⁸ The Star Bank Court further clarified that the buyer does not need to have actual knowledge of who owned the corn.⁹ Thus, even an oblivious grain buyer may be responsible to a lender for the value of fronted grain. A word of caution, however, that not every state comes to the same conclusion in grain fronting cases.
Grain fronting transactions can often be difficult to detect, particularly if the borrower provides inaccurate or fabricated records or information. Agricultural lenders must be vigilant to detect grain fronting because it directly impacts their ability to recover the collateral and reduces the lender’s secured position. Lenders should regularly conduct audits of both on-farm and offsite storage facilities. Often, lenders should ensure that they, or a third party acting on their behalf, engage in those inspections, and not simply rely on the borrower’s representations. Lenders may also wish to require their borrowers to disclose intended sales and provide clear documentation of all sales, which in turn should be scrutinized for authenticity.
If grain fronting is suspected, swift legal action may be required to stop the outflow of collateral. This may take the form of seeking the appointment of a receiver to take control of and sell any remaining grain¹⁰ or an order for claim and delivery of personal property¹¹ (aka replevin). In Minnesota, if informing a borrower that the lender is seeking possession of its security “would endanger the ability of the [lender] to recovery the property[,]” and the borrower has or is about to remove the property from the state or conceal, damage or dispose of the property “with the intent to hinder, delay, or defraud” the lender, lenders can apply to a court, without notice to the borrower, for an order authorizing the lender to seize the collateral and liquidate it in a commercially reasonable manner in accordance with the UCC.¹² After the order is issued, the matter is set for a hearing and the borrower has an opportunity to contest the order.¹³ Generally, the occurrence of fraud, including grain fronting, is grounds for proceeding to immediate litigation without first turning to farmer-lender mediation.¹⁴ Once the immediate risk that additional grain is sold illicitly is handled, lenders can proceed through traditional collection methods against the borrower, and can bring actions against the buyers and involved third-parties.¹⁵
Grain fronting presents a significant risk to agricultural lenders, particularly when borrowers become cash-strapped and lenders are not carefully monitoring their collateral. By understanding the risks and looking out for missing collateral and other concerning behaviors, lenders can mitigate the consequences of grain fronting. In particular, early detection and swift legal action to gain control over the remaining collateral may help prevent the need to engage in extensive litigation involving third parties to recover loan amounts.
1 Minn. Stat. §§ 336.9-308, .9-310.
2 7 U.S.C. § 1631(e).
3 Id.
4 Nineteen states have a central notification system including Minnesota, Nebraska, North Dakota, and South Dakota. Clear Title, U.S. DEP’T OF AGRICULTURE, https://www.ams.usda.gov/rules-regulations/food-security-act/clear-title (accessed Nov. 24, 2025). In states where there is no central notification system, such as Iowa, Wisconsin, and Illinois, direct notice is required. 7 U.S.C. § 1631(e). 5 See generally Fin Ag, Inc. v. Hufnagle, Inc., 720 N.W.2d 579, 583–84 (Minn. 2006) (describing a grain fronting scheme).
⁶ Id. at 585 (7 U.S.C. § 1631(e) “does not provide protection for buyers in a fronting situation where the security interest from
which protection is sought was not created by the fronting parties.”).
⁷ Id. at 584.
⁸ No. A23-1802, 2024 WL 3405400 (Minn. App. July 15, 2024).
⁹ Id. at *5
¹⁰ See Minn. Stat. §§ 576-.21–.53.
¹¹ See Minn. Stat. §§ 565.21–.29.
¹² Minn. Stat. § 565.24, subd. 2.
¹³ Id. at subd. 3–4.
¹⁴ See Minn. Stat. § 583.27, subd. 7. Grain fronting makes a debtor “ineligible” for farmer-lender mediation, but a lender must still
petition the court for an order permitting the lender to proceed with its remedies notwithstanding the Farmer-Lender Mediation
Act.
¹⁵ See, e.g., Fin Ag, 720 N.W.2d 579; Star Bank, 2024 WL 3405400.
