Farm bankruptcy stuns lenders and landlords

Feb 8, 2013

A U.S. bankruptcy court in Michigan is set to auction off, on Feb. 5, assets worth tens of millions of dollars, including hundreds of unexpired land leases from Decatur, MIbased Stamp Farms LLC following the farm’s filing for Chapter 11 protection in November.

The farm and its related businesses claimed assets valued at $131 million and a net worth of $39 million barely a year ago, its lender told the U.S. Bankruptcy Court Western District of Michigan. By July, those assets had dwindled to about $93 million, an audit found. Now the court is seeking bids to buy the farm’s assets in bulk, including irrigation equipment

and unexpired three- and five-year leases on a farm that once claimed to operate 46,000 acres. The court has received a so-called “stalking horse bid” of $22.8 million, which effectively sets a floor on the bulk price.

The case has left southwestern Michigan landowners and creditors jolted by what legal experts believe is the largest grain farm bankruptcy in U.S. history. Top Producer magazine had featured the farm and its owner Michael Stamp on the November 2012 cover as one of the publication’s top producers of the year—the same month Stamp filed for bankruptcy.

Stamp owns a number of related businesses that are part of the farm bankruptcy case. They include a custom farming operation, a trucking business, an excavating operation and grain elevator Northstar Grain LLC, which has a reported 4.2 million bushels of grain capacity.

Beyond the local repercussions, the case could have national implications for both lenders and high-growth farmers who rent most of their land. After the highprofile Illinois Family Farms/ Rosentreter operation declared bankruptcy two years ago, some ag lenders began requiring more working capital and placing more emphasis on financial ratios in loan covenants for super-sized farms. The national ag bankers conference last fall devoted special sessions to lending to “go-go” farmers.

While southwest Michigan was hard hit by drought in 2012, it is unclear what actually led to Stamp Farms’ downfall in an era of booming commodity prices. Stamp’s attorney, Norman C. Witte, based in Lansing, MI, declined to comment on specifics and declined a DTN request to interview his client, citing the pending legal action.

According to USDA, corn yields slipped statewide in 2012, falling from an average yield of 153 bushels an acre in 2011 to about 118 last year. Ironically, one of Stamp’s affiliated farms placed third in the Michigan Corn Growers Association yield contest with a dryland yield of 259.9 bushels.

Wells Fargo initiated action against Stamp on June 30, 2012, when it found the business in noncompliance on loan agreements, including working capital and other ratios. According to court documents in his individual bankruptcy case, Wells Fargo claimed it had made a $68 million loan in December 2011 based on representations that Stamp Farms and its affiliates farmed 46,000 acres. Audits later could uncover only about 27,000 acres, the bank claimed.

Lease holders wait

Decatur landowner and dairyman Kenneth McLeese, whose family has some 300 acres in unexpired leases with Stamp Farms, said Stamp still owes the family “thousands” in back rent. The McLeese family charges anywhere from $150 to $600 an acre, he said.

McLeese said he had planned to use some of the rent money to pay off property taxes and other farm expenses. “It just makes it tough to get things,” he said. “It is tough on everybody who can’t get paid off. I’m glad it’s [the asset liquidation] on a fast track.”

Laura J. Genovich, a Grand Rapids, MI, attorney who represents several of the 200-plus lease holders, said if the assets cannot be sold in bulk, they will be divided into parcels and sold at future auctions. As part of the sale, any past-due rent will have to be paid to the lease holders, she said.

One controversial issue is that landlords who rented land to Stamp Farms will have little say about who farms their land in 2013.

Objections to any bids are due by Feb. 6, the day after the auction. The court will hold a hearing to either approve or disapprove the sale on Feb. 7.

Numerous farmers have filed motions to compel payment of the past-due amounts, Genovich said. So far, the court has not ruled on any of those requests and the issue may be resolved if the sale is approved.

Holding pattern

Decatur, MI, farmer Tod Kubiszak said with just a couple of months until planting begins, farmers need to make decisions on inputs.

Southwest Michigan features a more diverse crop mix than many areas in the Corn Belt where corn and soybeans are king. Planting decisions on Stamp Farms’ acres can have a ripple effect in an area that features primarily fruits and vegetable crops and where Welch’s produces jams and jellies.

Kubiszak said that if a farmer who is not a traditional corn and soybean producer changed the crop mix, it could affect the rotation of other farmers in the area.

“It’s just all the uncertainty,” said Kubiszak, who is the Van Buren County Farm Bureau president and farms some 600 acres to corn and beans. He believes some of the landowners intend to farm the land themselves, or Stamp Farms may emerge through the Chapter 11 and handle some of the properties.

“You kind of just got to sit and wait,” Kubiszak said.

Area farmers already are coming off a difficult growing season from drought. On his farm, Kubiszak said corn yields were down some 70 percent compared to 2011.

Genovich said land owners she represents are having a hard time looking ahead.

“A big concern was the uncertainty—not knowing if the back rent would get paid, not knowing who, if anyone, would be farming the land this season,” she said.

“This makes it difficult to plan, and of course not getting paid the rent is a huge concern for these lessors. There will still be uncertainty until a sale is actually approved and finalized.”

Rental rates

High cash rents have raised the stakes and capital demands throughout the Corn Belt. Thomas F. Jerdon, an associate broker with Jerdon Real Estate Inc. based in Dowagiac, MI, said the national commodity boom has made it a more expensive proposition to rent farm land in the Decatur area.

Jerdon said dryland rents range from $150 to $225 an acre. Some land with richer soils can bring in $300 an acre. If a landowner owns irrigation, they can get from $350 to $700 an acre.

“There is concern because the local farmers have been banging on doors trying to lease their land but the owners have their hands tied and their farms’ fate is solely in the hands of the federal court,” Jerdon said.

“Their other concern is whether or not the bidder will cure the rent defaults, not strip the soils going forward, and be a good farm tenant for the remainder of their leases.”

Jerdon said he has leased land to Stamp and other tenants but required pre-payment in full before planting takes place. He said he expects more Michigan landowners to consider pre-paid leases.

“I think also annual leases are coming so that a bankruptcy court cannot control your land,” Jerdon said.

“The reason why so many had long-term leases was that Mike was installing his own irrigation on their land. He was sinking a $30,000-water well that is obviously not mobile. So, he rightfully demanded a five-year or longer lease because of this capital investment. Obviously, it provided him security.”

Reasonable explanation

Norman Witte, Stamp’s attorney, told DTN there was a “reasonable explanation” for what happened on Stamp Farms, but said he could not elaborate.

“What we’ve seen so far is Wells Fargo has thrown out all kinds of allegations,” Witte said. “I’ve heard lots of things said and so far I have not seen one thing—nothing— that establishes any wrong doing.”

Witte said Wells Fargo has offered no supporting evidence to the court other than Stamp’s financial statements. Stamp has not been charged with a crime, Witte said. In addition, he said forensic examiners took computer hard drives, documents and other information from Stamp Farms.

“The information we have received is that they found no wrong-doing,” Witte said. “My client has been frozen out of his business.

“Right now, Mike’s focus is to maximize the value of his assets. We think that the best solution is for the creditors to be paid in full, or the best they can be paid.

“I want to try to resolve this. In the time I’ve spent with Mike, he seems like an honest, hard-working guy who has a good reputation in the community.

“We had no desire to have a big fight with Wells Fargo. We are perfectly comfortable with a trustee. I certainly hope we have a chance to tell his story to the fullest.” — Todd Neeley, DTN