By Janet Kubat Willette
jkubat@agrinews.com
WASECA, Minn. — More than 150 people crowded into Farmamerica’s meeting room on Friday to learn more about their options since VeraSun filed for bankruptcy and canceled delivery contracts through December.
VeraSun Energy Corporation, one of the nation’s largest ethanol producers, filed for bankruptcy on Oct. 31. The corporation has since fired Danny C. Herron, its president and chief executive officer.
Last week, VeraSun announced its third quarter financial results. The corporation reported a net loss of $476.1 million for the three months, compared with a net income of $7.8 million for the comparable three months in 2007. The loss is far more than VeraSun estimated as recently as two weeks ago, according to the Oil Price Information Service.
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The impact of the bankruptcy filing is spreading throughout the Minnesota and Iowa. VeraSun has five ethanol plants in Iowa and two in Minnesota, though neither of the Minnesota plants are operating.
The impact of the bankruptcy filing is spreading throughout the Minnesota and Iowa. VeraSun has five ethanol plants in Iowa and two in Minnesota, though neither of the Minnesota plants are operating.
The corporation recently mailed letters to farmers and elevators in Minnesota, canceling their contracts for corn delivery through Dec. 31, contingent upon approval by the bankruptcy court.
The contract cancelation means farmers who contracted with VeraSun to capture higher corn prices are left to market their grain in the current market, where prices have dropped significantly.
It also leaves some elevators in the unfortunate situation of having back-to-back contracts with VeraSun and farmers. VeraSun is asking the bankruptcy judge to void its contracts, but elevators still have to honor their commitments to farmers. Some grain elevators face the loss of $1.50 to $2 per bushel, said Bob Zelenka, executive director of the Minnesota Grain and Feed Association.
Another ramification of the contract cancelation by VeraSun is an increasing concern about the validity of contracts.
"Those contracts are as good as they were," Zelenka said, and the banks elevators work with are in pretty good shape. Agricultural credit is available, he said, to allow elevators access to credit to honor their commitments.
In light of VeraSun’s filing and an unrelated alleged grain scheme, elevators are exploring their options, Zelenka said. Contract issues will be discussed at the organization’s annual meeting in February.
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Elevators are in the most precarious position, said Minnesota Agriculture Commissioner Gene Hugoson. They agreed to pay farmers one price based on what VeraSun was going to pay them, but they can’t get their contract price from VeraSun.
"Contracts, like cash sales, are only as good as the person you’re doing business with," Hugoson said. A person takes a risk by doing business with someone, he said, and farmers need to diversify who they are doing business with to spread their risk.
The VeraSun bankruptcy filing reminds everyone that there’s risk in even what appears to be a sure thing, he said.
Hugoson said the MDA has no idea how much farmers and elevators stand to lose if the contracts are canceled, nor has the department heard from anyone who sold grain to a VeraSun plant in Minnesota through a cash sale and wasn’t paid.
If anyone sold grain to either the plant in Welcome or in Janesville on a cash sale and wasn’t paid, they should contact the Minnesota Department of Agriculture. Only those who sold on a cash sale and delivered to either plant have the opportunity to file a claim against the plant’s bond, said Doug Spanier, assistant director of MDA’s agricultural marketing services.
Hugoson advised meeting participants that by filing for bankruptcy protection, VeraSun is protected and they as unsecured creditors aren’t. His best advice them was to work with legal counsel.
