KANSAS CITY, Mo. – One of the nation’s largest farmer-owned cooperatives, Farmland Industries, filed for Chapter 11 bankruptcy protection last Friday.
The co-op said the move was spurred by “continued adverse market conditions in the nitrogen fertilizer business and recent increases in cash demands,” but the move also came after it was unable to reach buy-out terms with Smithfield Foods.
The company’s statement indicated it would refocus on its foods businesses and sell “nonstrategic assets.” It will cut its workforce during the reorganization.
Farmland will continue business operations, including buying hogs from its producer-owners and supplying Farmland Foods retail and foodservice customers.
USDA watching. The USDA is keeping a close eye on Farmland’s reorganization to ensure the operation of its pork division will not disrupt the market.
“USDA will do everything in its power to protect the interests of individual pork producers during the reorganization of this farmer-owned cooperative,” said U.S. Agriculture Secretary Ann Veneman.
USDA will have auditing teams from its Grain Inspection, Packers and Stockyard Administration on-site at Farmland’s three packing plants as well as at corporate headquarters in Kansas City.
Auditors will be reviewing Farmland’s payment practices and the assets available for payment if trust claims are filed under the Packers and Stockyards Act.
The corporation also has a bond as required by the act to ensure that it can meet its payment obligations, Veneman said.
USDA has received no producer complaints regarding Farmland’s payment practices.
“Farmland has assured us that they will continue to purchase hogs during this reorganization, and that their beef operation, Farmland National Beef, is not affected by this filing,” Veneman added.
Tough decision. “This was a difficult decision for us,” said Farmland President and CEO Bob Terry. “Our farmer-owned roots run deep, making Farmland a company with an independent streak and a strong work ethic. We fought to pull ourselves through this time of tight liquidity.”
The co-op’s banks, however, were hesitant to continue lending in the face of ongoing redemption payments to subordinate creditors.
While Farmland reduced its debt by more than $500 million in the last 18 months, a high debt-to-equity ratio incurred in a period of expansion in the 1990s.
Other ventures secure. Farmland Industries holds an ownership position in several business entities that are not included in this action because their operations and financing are handled separately.
They include: Farmland National Beef Packing Company, the nation’s fourth largest beef packer; Agriliance, a fertilizer marketing joint venture with CHS Cooperatives and Land O’Lakes; Land O’Lakes Farmland Feed, an animal feed joint venture with Land O’Lakes.
ADM-Farmland, a grain marketing company formed one year ago, is also a separate company not included in this action.
The company filed its voluntary petition in the U.S. Bankruptcy Court in the Western District of Missouri, located in Kansas City, Mo.
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