VeraSun bankruptcy hitting Minnesota farmers in the walletby Mark Steil, Minnesota Public Radio
The collapse of VeraSun Energy is costing hundreds of Minnesota farmers millions of dollars. The Sioux Falls ethanol company filed for bankruptcy three weeks ago after losing almost $500 million since last summer. Now the company said it will terminate many of the corn contracts it signed with farmers. That's taking revenue away from farms as falling corn prices hurt their ability to make up for lost income.
St. Paul, Minn. — VeraSun built two ethanol plants in southern Minnesota, but the bankruptcy made it impossible for the company to open the faculties near Janesville and Welcome.
Neither has produced a gallon of ethanol. But, in the months before bankruptcy, the company laid the groundwork to start the plants. VeraSun contracted with nearby farmers to buy millions of bushels of corn.
Now, it's refusing to pay on many of those contracts. Richard Guse said he has a half dozen VeraSun corn contracts. He said if the company breaks them he stands to lose a lot of money.
"I'm going to say my potential loss is two hundred to three hundred thousand dollars," Guse said.
Guse said under the contracts VeraSun agreed to pay him anywhere from about $5.00 per bushel to almost $8.00 a bushel. Since he signed the deals, corn prices have fallen sharply, to just over $3.00 a bushel.
If the contracts are voided, he'd have to take today's market price and lose the lucrative value of the VeraSun deals.
Guse said he's not alone. He said about 200 farmers were at a meeting near Waseca today to talk about the VeraSun contracts.
"Obviously they're all disappointed that their contracts aren't going to be honored," Guse said. "They were just all looking for how to make the best of a bad situation."
VeraSun has already asked the bankruptcy judge for permission to void its December corn contracts in Minnesota. Many farmers expect the company to continue to do the same later for the 2009 contracts.
VeraSun issued a statement saying the 2009 agreements may be rejected or renegotiated. Rep. Tony Cornish, R-Good Thunder, was also at the Waseca meeting. He said the canceled VeraSun contracts could put some farmers out of business.
"Some of them can afford to take the loss if it's a small amount and they're a big farmer it might be manageable," Cornish said. "But for most of them it's just a real severe impact on their business and some it could make or break."
Cornish said it's not just farmers being affected by the bankruptcy. He said grain elevators with VeraSun contracts will also lose money on the bankruptcy. Contractors who helped build the two plants also could come up short.
"It's going to send a shock wave through the community if they prevail and don't honor their contracts," Cornish said. "It's just a huge economic impact for southern Minnesota."
VeraSun expanded rapidly as an ethanol boom swept the U.S. in 2006 and 2007. The boom increased demand for corn so much that corn prices rose sharply.
VeraSun bet corn prices would stay high when it signed the corn contracts. When prices fell last summer the company lost hundreds of millions of dollars.
Many other ethanol companies are also going through hard times, with several closing plants or filing bankruptcy. VeraSun announced this week it was closing one of its plants in Iowa.
Despite his losses, southern Minnesota farmer Richard Guse said he still believes in ethanol. He said it will help lessen the nation's dependence on foreign oil.
"If we throw this ethanol industry away now, I'll tell you we'll be back in the same shoes in 10-15 years wondering why we're paying $200 a barrel for crude," Guse said.
VeraSun will be in bankruptcy court next month to make its case for voiding the December contracts.
- All Things Considered, 11/21/2008, 5:24 p.m.