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December 19th, 2008

“Green” Company Leaves Farmers Seeing Red

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Chapter 11 bankruptcy has forced one biofuel company to leave several farmers in the lurch. VeraSun, a company which ran shipments of corn from farms to ethanol plants, is still unce/rtain whether or not they will be able to honor future contracts that American corn farmers are depending on:

“This puts people in a terrible bind,” said [Mark] Kuhn of Charles City, Iowa, where VeraSun runs a plant. “There is so much uncertainty with the contracts and how they will be dealt with. We’re being held hostage.”

Kuhn, also an Iowa state legislator, holds a contract to sell VeraSun corn for $6.03 a bushel. 

Corn farmers had little to worry about this summer when food prices soared, and ethanol was in high demand across the country. Yet, after the price of corn fell nearly five dollars a bushel, and their main buyer tangled up in court proceedings, corn farmers say the fate of their contracts will not be revealed until 10 days before their scheduled pick ups:

VeraSun can opt to buy the corn at the original price or cancel the contract, according to a recent Delaware court ruling.

VeraSun has “no intention of honoring some of these contracts,” claims Keith Bolin, who runs the American Corn Growers Association and grows corn in Illinois. 

Does any of this sound familiar? It sounds like the plight of homeowners across the nation. They made purchases at a price they agreed their homes were worth. Home prices have since plummeted, and suddenly the market for homes has dried up. Millions of homeowners have already proven they can not keep up their end of the deal.

Ethanol, and the entire “green” industry was, and is still is, forecast to be one of the next great booming industries in the U.S. Yet, we have already begun to see the desire and need for alternative-fuel products diminish, as oil prices have dropped over $100 in five months.

While legal proceedings are still underway, it will be interesting who — if anyone — the courts find responsible for this debacle. Is it VeraSun’s fault for committing to contracts that they cannot financially support (wait, now this scenario is growing reminiscent of the American auto industry)? Can we simply pass the blame off to the economy? If so, one could argue it’s time for the government to step in and make sure these hard-working-American farmers get what they were promised.

What do you think? The government has already supported failing homeowners and automakers. Will farmers be next?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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