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November 2008 Archive for Top of Mind

RSS By: Jeanne Bernick, Top Producer

Jeanne, Top Producer Editor, grew up on a beef cattle operation in Southwest Missouri and now writes from the heart of corn country in Eastern Iowa.

Lawsuit keeps farmers top of mind for VeraSun

Nov 25, 2008
Corn grower Ron Litterer is one of the unfortunate farmers who has an outstanding contract to deliver corn to VeraSun Energy Corporation, which filed for bankruptcy earlier this month.
 
Now Litterer – a Greene, Iowa farmer who is also Chairman of the National Corn Growers Association (NCGA) - is worried that VeraSun’s proposed procedures under bankruptcy will allow the ethanol producer to wait until 10 days before contracted delivery date to notify growers of a rejection of grower contracts. This would essentially leave corn suppliers in a state of limbo while VeraSun is free to determine the market price for corn before deciding whether to accept deliveries under a contract or summarily reject the contract.
 
Litterer believes this would be fundamentally unfair to corn growers and other corn suppliers. He and others have filed a formal objection with the U.S. Bankruptcy Court in Delaware regarding the proposed disposition of corn contracts by VeraSun Energy Corporation. Potentially thousands of corn growers from Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and other states have contracts with VeraSun, according to NCGA.
  
What is interesting is that Litterer doesn’t really believe these legal steps will make a hill of beans difference when it comes to getting VeraSun to pay the contracted price for corn.
 
“It is doubtful that we can influence the courts to require VeraSun to pay the contracted price for our corn. However, we do hope to influence other issues of concern to growers,” Litterer said in a NCGA statement.
 
By filing this objection, Litterer and a committee of producers from other states hope to serve as a voice for corn growers and advocate for corn suppliers’ interests with the Court. Further, they hope to help keep corn growers informed regarding the process and activities of VeraSun.
 
I’m not sure legal steps are the best solution right now, but the action does place farmers’ interests in the forefront of VeraSun’s restructuring. Stay tuned….
 

VeraSun's Big Gamble

Nov 07, 2008
 VeraSun used to stake its claim as one of the nation’s largest ethanol producers. But a claim that grand means little when corn jumps to record high prices. The energy company bought contract positions betting that corn would rise even higher, but lost out when corn prices dropped this fall.
 
“They took a gamble and they lost,” a farmer said to me yesterday at a field day in Iowa. “We all take gambles, but this one was a doozey.”
 
A doozey indeed. In its bankruptcy filing last Friday, VeraSun officials said the company is “essentially out of cash”. Meanwhile, the value of its stock - which was already on the downturn – fell 98% before trading was suspended due to the bankruptcy.
 
As for farmers who supply VeraSun with the corn, they took a gamble, too. VeraSun is working to continue operations and pay its corn suppliers. The company operates 17 ethanol plants in eight states, including Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio and South Dakota.
 
Will VeraSun treat all corn suppliers the same? VeraSun will treat claims of corn suppliers that supplied corn to it at different times differently as required by the bankruptcy code, says Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation. VeraSun will treat all corn suppliers that supplied corn to its plants before Oct. 11, 2008 as unsecured creditors that may share in a dividend at some time, many months in the future. However, VeraSun has received confirmation from the Delaware Bankruptcy Court that corn suppliers who supplied corn from October 11 through October 21 will be treated as priority creditors that can be paid in full from VeraSun’s cash provided they agree to continue supplying corn at prevailing market prices, not contracted prices.
 
Will VeraSun honor its contracts? McEowen says the bankruptcy code allows a debtor to decide whether to accept or reject contracts like grain supply contracts through the date of confirmation of the plan.  Thus, if a farmer or elevator has a contract to sell grain to VeraSun for $5.25 per bushel and the prevailing market price increases to $6.00 per bushel VeraSun has the option to enforce the contract by accepting the contract. 
 
“At this time, VeraSun appears to have the upper hand as it can wait until plan confirmation to decide whether to accept or reject corn contracts while the farmers and elevators that have agreed to sell to VeraSun are required to honor those contracts until VeraSun decides whether to accept them,” McEowen says.
 
For more analysis from Roger McEowen on the VeraSun bankruptcy impact on farmers, visit www.calt.iastate.edu/verasun.html
 
 
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