Growers Could Get Burned by VeraSun
Posted: November 25, 2008
There’s a bunch of corn growers out there worried about getting burned by VeraSun’s falling star.
The nation’s second largest ethanol producer filed Chapter 11 reorganization less than a month ago and now the National Corn Growers Association (NCGA) Chairman Ron Litterer and others have filed a formal objection with the U.S. Bankruptcy Court over how corn contracts with the VeraSun may be handled. The grower from Greene, Iowa stands to lose personally because he has an outstanding contract to deliver corn to VeraSun. He filed the objection with and on behalf of corn growers in at least seven other states that have similar situations and are concerned with VeraSun’s proposed procedures to reject outstanding contracts.
“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.
VeraSun released a statement recently saying that they are continuing to work with suppliers while pursuing long-term financing. “Unfortunately, the Company will need to reject some corn contracts for delivery through Dec. 31, 2008 at our Janesville and Welcome, Minn., facilities due to the delayed startups,” the statement continues. “Other contracts may need to be rejected or renegotiated as we continue to work through them on an individual basis.”
The corn growers are objecting to specific concerns with VeraSun’s proposed procedures under bankruptcy, which may allow VeraSun to wait until 10 days before contracted delivery date to notify growers of their rejection of the contract. 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.
According to information available to NCGA, potentially thousands of corn growers from Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and other states have contracts with VeraSun.
Meanwhile, VeraSun has announced that it received a “non-binding unsolicited indication of interest with respect to the purchase of substantially all of its assets.” At the same time, POET – the world’s largest ethanol producer – says they are “in serious discussions with a couple of ethanol producers regarding possible acquisitions.” You do the math.