What is an Agricultural Bond?
As part of U.S. Department of Agriculture and state regulations, certain businesses in the agricultural field need to hold an agricultural bond. An agricultural bond is structured similarly to other types of surety bonds in that it offers a safeguard to regulatory agencies that the business will function in line with rules laid out in the Packers and Stockyards Act.
Market agencies, dealers, and agricultural packers must secure an agricultural bond, sometimes referred to as a stockyards bond, so that a form of protection exists when the sale of agricultural products and livestock takes place. If you would like to learn more about what surety bonds are and how they work, you can read our detailed guide here.
How Does an Agricultural Bond Work?
An agricultural bond is a surety bond that represents a contract between several different parties. The agriculture business is the principal, or the party that is required to hold the bond. The state or federal organization requiring the bond to be in place is known as the obligee, and the surety company provides the bond itself.
Should an agricultural business not comply with state or federal laws when dealing with the sale of agricultural products or livestock, a claim may be made against the bond. Any legitimate claim is paid by the surety, and then repayment is made by you, the bondholder.
How Much Does an Agricultural Bond Cost?
The cost of an agricultural bond depends on a few different factors, including the amount of the bond required by a state or federal agency where the business operates. The higher the bond amount, the higher the cost of the bond has the potential to be. Agricultural bond prices also depend on your business and personal financial situation, including aspects like your personal credit score and business assets and liabilities. If you have a less than ideal credit score, or you do not have strong business financials, you may pay more for your agricultural bond.
The good news is that you are not required to pay the total amount of the agricultural bond to fulfill the bonding requirement. Instead, you pay a fraction of this amount, based on the percentage rate your surety agency provides. This percentage can be as low as 1 to 2%. For example, if your business is required to have a $30,000 bond, and your percentage rate is 2%, you would pay $600 for your agricultural bond premium.