The Free Press, Mankato, MN

Local News

November 21, 2008

A bumper crop of bad contracts

VeraSun's bankruptcy voids corn sales

By Brian Ojanpa

WASECA — Waseca County corn farmers coldcocked by an ethanol company bankruptcy filing met Friday to determine what they could do about it.

The upshot: not much.

“Farmers are really stuck between a rock and hard place,” said farmer and meeting co-organizer Warren Enevoldsen, who has about 70 percent of his crop under contract to be sold to VeraSun Energy.

But the South Dakota-based company announced earlier this month it had filed for Chapter 11 bankruptcy and days later informed farmers that their corn contracts wouldn’t be honored.

Waseca County Commissioner and affected farmer Dan Kuhns estimates about 75 percent of county farmers hold contracts with VeraSun, whose new plant outside Janesville never opened and sits idle.

“There are guys who stand to lose a lot of money,” said Kuhns of contracts calling for VeraSun payments ranging from $3.75 to more than $7 a bushel, depending upon when farmers locked in at prevailing commodity market rates.

Corn is now selling for $3 a bushel.

“I had two contracts for December delivery, but they were small and cheap,” Kuhns said.

By contrast, Waseca farmer Richard Guse said he has some $7.70 contracts with the company.

“If I were to re-market the corn today, I’m out $3.50 a bushel,” Guse said. “So the best thing to do is try to make the best of a bad situation.”

That was the goal of Friday’s gathering at Farmamerica near Waseca, which included a bankruptcy attorney and Iowa legislator and corn farmer Mark Kuhn.

Kuhn said he would seek to file an objection in a Delaware court (where VeraSun filed for bankruptcy) to VeraSun being allowed to give farmers a 10-day notice of contract nullifications.

The farmers are seeking a minimum notice of two months, thereby allowing them greater marketing flexibility for their corn.

Meantime, about 75 farmers face two unsavory options: Sell their crop now for about half the price of their VeraSun contracts, or sit on corn contracted for sale to the company months from now, not knowing if those contracts will still be valid.

Chapter 11 bankruptcy is designed to enable a company to right itself and reorganize. Guse is optimistic: “I figure the ethanol plant will be operating by June or July at the latest.”

But probably by some company other than VeraSun, he said.

That may be just as well, Enevoldsen said, because trust has been lost.

“It would be tough for them to operate that plant because nobody’s going to contract with them.”

VeraSun officials did not return a phone call.

Another new VeraSun ethanol plant in the Faribault County town of Welcome also has been idled.

The Janesville plant was to have employed 40 people, and Waseca County spent $200,000 on infrastructure improvements around the facility.

“We put out quite a bit in order to assist the plant,” Waseca County Coordinator Bruce Boyce said. “And that, at least for the present time, has come to naught.”

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