When Is A Contract Not A Contract?

As ethanol giant VeraSun spirals into further peril, some Minnesota corn farmers and local elevators are growing worried about who might be dragged down with it.

Back when grain prices were high, a number of southern Minnesota farmers had agreed to sell corn to VeraSun for its huge new Minnesota plants in Janesville and Welcome. But on Oct. 31, VeraSun filed for bankruptcy protection and now says it will not honour those contracts.

Several grain elevators are caught in the middle, because they agreed to buy corn from farmers and sell it to VeraSun. They're still obligated to buy corn from local farmers at a high price, but can't resell it at that price, or anything near it.

Growers who contracted with VeraSun to supply the ethanol producer with corn during the 20 days leading up to the bankruptcy filing can get prompt payment in full — but there's a catch.

By endorsing a newly issued cheque from VeraSun, producers would be agreeing to continue supplying the company not at contracted prices, but at "prevailing market prices in accordance with the most favorable terms and conditions" for the next 12 months, according to court documents.

VeraSun, which purchased US BioEnergy of Inver Grove Heights in April, has a chain of 16 ethanol plants. That includes the two in southern Minnesota that were on the brink of starting up, but now are idle.

Minnesota state officials have been monitoring complaints from farmers and elevators, but because no grain wahas been delivered on most of those voided contracts, state law provides little protection.

This casts a huge shadow over the entire grain industry.

"The real concern I have is that we have farmers questioning the validity of all contracts out there," said the head of the Minnesota Grain and Feed Dealers Association.