(1) In order that commodity loans and advances may be exempt from the twenty-five (25) percent legal loan limitation of the lending bank, strict compliance with the following requirements must be met.
(a) The commodity must have a market value with ready sale in the open market.
(b) First lien security title to the commodity must be indicated on record in the name of the bank. Where commodities are stored in a warehouse, such lien must be evidenced by the bank's physical possession of warehouse receipts covering the commodities or, if electronic warehouse receipts are utilized, by recordation of bank's lien position on the electronic warehouse receipt or the electronic records of the state approved electronic receipt provider, which must be accessible to the bank. Bank must also have appropriately executed security agreements and financing statements.
(c) The commodity must be covered by insurance against fire and other appropriate hazards with loss payee designated as the lending bank.
(d) The initial advance or loan shall not exceed eighty-five (85) percent of the market value of the commodity on the date of the loan, the margin of fifteen (15) percent between the market value and outstanding loan is maintained at all times, and to that end, the bank shall have the right to call for additional collateral if the margin falls below fifteen (15) percent, and, if the additional collateral is not provided, the bank shall have the right to sell the commodity on the open market. For purposes of this paragraph, "market value" shall mean the local cash price bid for the commodity in question or the nearby future price applicable to future contracts to sell existing commodities but in no event shall the market value exceed fifty (50) percent of the originating bank's statutory capital base.
(e) Where the borrower is not independent of the warehouseman or other person holding the commodity, the commodity must be subjected to inspection by the lender or his agent at least monthly and a written record of such inspections must be maintained.
(f) The obligation matures in not more than twelve (12) months if secured by nonperishable staples; or the obligation matures in not more than six (6) months if secured by refrigerated or frozen staples.
(g) There must be a written agreement, signed by both the bank and the borrower, which clearly outlines the requirements of the bank and the duties and responsibilities of the borrower.
(2) Manufactured or agricultural products in the processing stages shall not be considered as commodities within the meaning of this regulation, but are inventory or goods-in-process to be treated as additional collateral only.
(3) In order for livestock to qualify as commodities subject to treatment under Section (1) of this Rule, the borrower must be engaged in livestock production and the collateral must be marked for identification and confined to feed lots ready for sale in the open market. Livestock held as fixed assets such as for reproduction or dairy purposes do not qualify for the treatment accorded under Section (1) of this Rule.
(4) Manufactured products commonly financed under floor-plan arrangements shall be subject to treatment as commodities under Section (1) of this Rule if they meet the requirements of that section and the conveyance of title identifies each individual unit and does not convey merchandise in bulk. Liens on merchandise in bulk are considered as inventory loans and not commodity loans.
