VeraSun farmer-creditors mull next move

Dec 31, 2008
by WLJ
VeraSun farmer-creditors mull next move

Any hope farmers had of receiving full payment on their corn contracts from VeraSun Energy Corp. may have evaporated at the hands of a U.S. Bankruptcy Court judge in Delaware who ruled recently that the ethanol producer can accept or reject corn contracts within 10 days of their due dates.

In making the ruling, Judge Brendan Linehan Shannon also declined to force VeraSun to set a deadline to accept or reject corn contracts—leaving hundreds of farmers left wondering whether they will ever be paid for contracted prices in the $6 range for future delivery.

“I think farmers are quite upset with what’s happening,” said Ron Litterer, a Greene, IA, farmer and chairman of the National Corn Growers Association (NCGA). “I think most growers hope VeraSun will continue to operate and work their way out of it to honor the contracts the best they can.” Litterer said he contracted about 15 percent of his corn production to the Vera- Sun Charles City, IA, plant for March delivery—a contract he said he hopes the company will honor.

“Right now, I’m not planning on doing anything else,” Litterer said. VeraSun continues its attempt to acquire emergency funding to continue operating its plants. If that’s successful, Litterer said he’s willing to wait and see what happens come March.

“At this point in time, usually we have a price rally at planting time,” he said. “I’m willing to be patient and let it play out. If you didn’t have a contract delivery until mid-summer, it would place an undue burden on producers. We’re hoping to represent the interest of most growers to see what is the best possible outcome in a very bad situation.”

According to a news release from the Iowa Corn Growers Association and NCGA, the two groups have “hired legal counsel and filed a formal objection to VeraSun Energy Corporation’s bankruptcy proceedings.” Farmers are still weighing legal options.

Iowa Legislature Rep. Mark Kuhn, a Charles City, IA, farmer who helped organize a group of farmer creditors, said that while the federal bankruptcy judge seemed to understand the farmers’ position, the court ruled that it was “too early” in the proceedings for VeraSun to set any deadline.

The court’s decision to allow VeraSun to accept or reject corn contracts with a 10-day notice was like getting “hit in the mouth by a two-by-four,” Kuhn said. “We’re trying to explain the impact on farmers’ ability to negotiate,” he said. “We introduced what options farmers do have. It took awhile for the judge to understand and that the court would be receptive at some time to hear an individual case.” While the initial farmer objection has been ruled on, Kuhn said the group of farmers now is considering the next step. The court expressed a willingness to listen to a “test case” that would show how not setting a deadline would affect some farmers and their ability to market their crops, Kuhn said. “Many of our members have contracts beyond January,” he said. “It is likely we’ll seek an individual farmer with contracts over many months as a test case. We want some indicator as to what would happen ...” to such a farmer, with the hopes of convincing the court that a date-certain deadline was needed.

Kuhn said he is “expecting a rejection notice” from VeraSun regarding the status of his 15,000 bushels of corn slated for delivery to the Charles City plant in December.

Cedar Falls, IA, attorney Joseph Peiffer had filed an objection with the court on behalf of 124 farmers including Kuhn, all of whom had contracts for future delivery to VeraSun.

By law, VeraSun can reject all corn contracts and could pay the lesser of the contract and cash prices. According to the DTN cash grain index, cash corn prices nationally are now averaging about $3.07 a bushel, meaning that farmers who had contract prices that were in the $6 range could see their per-bushel price expectations cut in half. According to bankruptcy law, these farmers—who are considered to be unsecured creditors—could sell their corn to VeraSun at the local cash price, then file a claim with the court in an attempt to make up the difference between the cash price and the higher contract price.

A few weeks ago, Kuhn said farmers tried to deliver to VeraSun’s Charles City plant. At the time, they were told they would get paid no higher than the local cash price, which was then about $4 a bushel.

Since then, the cash price has fallen to $3.07 to $3.21 a bushel in the Charles City area, according to DTN grain bids. —