Kansas City, Mo ? Bankrupt Farmland Industries Inc. has agreed to sell its interest in its beef processing business to its partner, U.S. Premium Beef, for $232 million.

Farmland National Beef, the fourth-largest beef processor in the country, is mostly owned by Farmland, the nation’s largest agriculture cooperative, which filed for Chapter 11 bankruptcy protection in May 2002. U.S. Premium Beef, a Kansas City, Mo.-based cooperative of cattle ranchers, has had a 29 percent share of Farmland National Beef since December 1997. Its members provide much of the beef processed by the company.

Farmland Industries announced the deal to sell its interest in the beef business at a hearing Tuesday before U.S. Bankruptcy Judge Jerry Venters. The beef business is run separately from Farmland’s other operations. It was not part of the bankruptcy, although proceeds of Farmland’s sale of its stake in the beef operation will help pay off its creditors.

Other potential bidders have until July 7 to try to outbid U.S. Premium Beef. If any come forward, an auction would be July 9, said Larry Frazen, Farmland’s lead bankruptcy attorney.

Venters approved the offer and procedures for an auction.

Farmland also owns a pork processing operation, which it is marketing for sale. Farmland officials have indicated they might try to reorganize the company around the pork business.

Last month, Farmland closed a deal valued at $293 million to sell its fertilizer business to Koch Nitrogen of Wichita. The deal didn’t include Farmland’s vacant Lawrence fertilizer plant.

Steve Hunt, chief executive of U.S. Premium Beef, said the reputation of Farmland National Beef should enable U.S. Premium Beef to expand the business.

Twenty-five companies showed interest in buying Farmland’s beef business, Frazen said, and three looked seriously at its financial information. He said U.S. Premium Beef did not get special consideration.

Premium Beef would receive a breakup fee of $5 million to $7 million if Farmland were to accept another offer. If U.S. Premium Beef does not have its financing together when the deal is ready to close, it would forfeit a $5 million deposit, Frazen said.

Jerry Hostetter, a vice president with Smithfield Foods, which has expressed an interest in Farmland’s beef and pork businesses, said his company was evaluating whether it wanted to join an auction for the beef business.