By KEVIN WALKER
Michigan Correspondent
 
LAKE ODESSA, Mich. — The Michigan Dept. of Agriculture (MDA) is keeping a close eye on developments related to VeraSun’s bankruptcy, the large ethanol company that filed Chapter 11 on Oct. 31.

Jeff Haarer, producer security manager for the MDA, said those with forward contracts are the most likely to be injured from the bankruptcy. He said he believes VeraSun has the right to enforce a forward contract up until just 10 days before it’s set to begin.

One bright spot, he said, is that corn prices have been going up lately and if they keep going up, producers in this situation might not be as injured as one might think. Also, Haarer said only one farmer in Michigan hasn’t gotten paid for grain delivered before Oct. 11, and they have made a claim against the fund for coverage.

That farmer will be compensated by the state’s Farm Produce Insurance Fund, which was created to protect farmers against just this type of financial risk.

The fund isn’t designed, however, to compensate producers who haven’t delivered any grain.

Haarer said one farmer is attempting to make a claim on forward contracts against the fund even though he hasn’t suffered a loss for grain already delivered. The fund’s board will meet to make a decision about this claim. If the producer isn’t satisfied with the board’s decision, his only option will be to take the matter to court.
Haarer also stated that VeraSun has paid producers for grain delivered between Oct. 11-31 even though it filed for bankruptcy on Oct. 31. These checks had a statement on the back of them that appeared to obligate the producer to keep making deliveries if the check was endorsed.

“There are still some interpretation issues about those checks,” Haarer said. “I don’t believe checks issued after October 31 have the endorsement language on the back of them.”

One grain elevator so far in the state has had its license suspended because of VeraSun’s bankruptcy. That operator is Smith Brothers of Lake Odessa.

“About 30 farmers will have claims in under Smith Brothers,” Haarer said.

“I believe those claims will be covered under the letter of credit. VeraSun put the operator in a position where they are just insolvent.”

Producers’ forward contracts in Michigan directly affected by the VeraSun bankruptcy are worth $7 million-$8 million, while elevator operator forward contracts similarly affected are worth $2 million-$3 million, all depending on market price.

Michigan’s Farm Produce Insurance Fund was created in 2003 to compensate producers when a grain elevator fails.

The fund currently has a balance of over $6 million. Assessments on producers will continue to be suspended unless and until the fund’s balance goes below $3 million.

Haarer doesn’t think the fund will be negatively affected by this latest incident. As grain prices have soared over the past couple of years, so has the fund’s balance, which is paid for by a 0.2 percent assessment rate on eligible produce.