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Archive for Thursday, September 28, 2000

Farmers Co-op files bankruptcy

Lawrence-based agriculture group blames bad farm economy and meager federal subsidies

September 28, 2000

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The state's largest agricultural cooperative association has filed for bankruptcy protection.

Lawrence-based Farmers Cooperative Assn. filed its Chapter 11 reorganization plan Wednesday in U.S. Bankruptcy Court in Kansas City, Kan.

"We had two choices, really: Reorganize or shut down. We want to go on."

Don Dumler, co-op president and CEO

The organization, with 140 employees and more than 3,500 member-owners, listed both debts and assets ranging from $10 million to $50 million. The filing also showed there were from 200 to 999 creditors.

A depressed farm economy is to blame, along with dwindling federal subsidies and elimination of crop-storage programs, said Don Dumler, the co-op's president and chief executive officer. Sales fell from $100 million in 1997 to $76.7 million in 1998 and $62.7 million a year ago.

The latest fiscal year, which closed July 31, was even worse, Dumler said. An audit confirmed that the co-op had defaulted on its "substantial" line of credit with CoBank in Wichita.

"We had two choices, really: Reorganize or shut down," Dumler said. "We want to go on."

'Horrible time'

Without any money to spend, the co-op was forced to stop buying grain a shutdown that hit just as an already disappointing fall harvest moved into full stride. Employees at the co-op's elevators throughout northeast Kansas were instructed to accept grain only for storage, not for purchase.

Todd Howard, a partner in May-Way Farms south of Lawrence, said he couldn't even sell his grain already stored at the co-op's south elevator in Lawrence.

"It's a horrible time for us, that's for sure," said Howard, who was cutting some of his 1,300 acres of soybeans eight miles south of town. "I hope they can get it squared away, so we can afford to patronize the co-op."

The bankruptcy filing will not immediately affect the status of co-op employees, who will continue to receive paychecks, Dumler said.

But other changes are on the way.

When Dumler joined the co-op in June brought in to clean up after the previous president's firing he said that the organization needed to become "leaner, stronger." Among his suggestions at the time: consolidating its 13 fertilizer distribution centers into two or three; cutting nine feed mills to four; and idling two elevators in Leavenworth because of inactivity.

No specifics

On Wednesday, Dumler said it was premature to talk specifics about the reorganization.

"We have to eliminate some facilities," he said. "This is a process we have to start after the filing is done."

Kermit Kalb, an area farmer who heads the co-op's board of directors, declined Wednesday to discuss the bankruptcy. He referred all questions to Dumler.

But Howard, whose farm has been doing business with the co-op for as long as he can remember, said the organization likely had grown beyond its means.

During the past decade, the co-op has acquired or merged with several others in the area and today has 19 locations serving farmers in Atchison, Meriden, Scranton and everywhere in between.

The need to make all locations pay off has forced the co-op to lower its grain prices and raise prices on fuel, seed, fertilizer and other products, he said. That sent farmers looking for other sources.

May-Way farms did "100 percent" of its business at the co-op five years ago, Howard said, but since then the total has fallen to 30 percent. Howard now sells most of his grain at Ottawa Co-op.

"I'm not picking money off the money tree," he said. "I have to do something with my bottom line also. If I can go someplace down the road and save 25 percent on my input costs, I've got to do it. I can't afford not to.

"They've priced themselves out of business, that's what they've done."

Mergers, alliances grow

The co-op has hired John Cruciani, a bankruptcy attorney in Overland Park, to handle on the case. He was unavailable for comment Wednesday.

Janet Schoniger, a vice president for Denver-based CoBank, declined to discuss the specifics of the co-op's case. She noted that the bank had 106 customers in Kansas with $305 million in loans outstanding.

The Lawrence-based co-op is among them.

"They're an important part of the economy," she said.

As of July 1, the bank had $10.3 billion in agribusiness loans nationwide. Ninety percent of the bank's customers are cooperatives, including Farmland Industries, Sunkist and Ocean Spray.

She couldn't recall another co-op filing for Chapter 11 protection.

"Throughout the country, we're seeing increasing consolidation, joint ventures, strategic alliances," Schoniger said. "They're doing what it takes to be competitive in the marketplace, and they're doing what it takes to serve their farmers and ranchers."

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