Ethanol plant announces rejected corn contracts

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Farmers holding corn contracts for one of VeraSun Energy Corporation’s ethanol plants learned last week they’re not worth the paper they’re printed on.

VeraSun, the second largest ethanol producer in the country, and 24 of its subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code on Oct. 31.

After last week’s hearing, the bankruptcy court approved VeraSun’s motion to accept or reject corn contracts with 10 days notice, and the company announced it had rejected all corn contracts for delivery through Jan. 15, 2009, for plants in Nebraska, Iowa, North Dakota and Michigan, and through Jan. 31 at two plants in Minnesota.

For the 7,800 farmers in the Midwest who had contracted to sell corn to VeraSun, many of them at prices of up to $7 per bushel, the ruling meant major losses, as cash corn has dropped to about $3 per bushel.

One Bureau County man had a special interest in last week’s hearing.

Keith Bolin of Manlius said he attended the hearing in his role as president of the American Corn Growers Association to support the farmers he represents.

“This ruling leaves a lot of farm families in limbo, uncertain what their contracted bushels are worth and when they can actually sell them,” Bolin said. “The VeraSun bankruptcy proceedings on the East Coast are having serious reverberations throughout the Midwestern Corn Belt.”

What frustrated Bolin about the hearing was that the corn farmer with signed contracts in hand was discussed for only about 15 minutes.

“The rest of the day was about discussing and agreeing to ‘carve outs’ to make sure the lawyers were paid and the banks were covered,” he said. “But what about the farmer, who borrowed, grew, started and marketed his crop — his life’s work?”

Bolin called the situation a “black eye” on the ethanol industry.

“When farmers have a grain contract with an ethanol plant, they need to feel that it’s a valuable piece of paper,” he said. “We’ve got to give farmers confidence to do business with ethanol plants.”

Bolin said Bureau County farmers might not be impacted by VeraSun’s bankruptcy, but all farmers selling to ethanol plants are susceptible to the same problems.

“These folks did serious damage to the ethanol industry,” he said. “If left unchecked, this debacle will erode the integrity of the markets and the rights of farmers.”

Bolin said there needs to be safeguards in the marketplace to protect farmers, grain elevators and co-ops so that the ethanol business can flourish. He suggested something similar to the Federal Deposit Insurance Corporation, which was put into place in 1933 to give investors confidence in the nation’s banks.

“Without the depositors, there is no banking industry,” he said. “Government must realize without corn for ethanol, there is no ethanol industry.”

Bolin is confident the ethanol industry will continue, but the big question is about ownership.

“Who owns them and who’s going to make a profit long-term,” he said. “Big oil is not going to give up that big a market share to a bunch of farmers and local investors.”

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