BLOOMING PRAIRIE – Another rural Minnesota grain elevator bites the grain dust in the still lingering aftermath of the hedge-to-arrive grain contract crisis of the mid-1990s.

Thursday, August 05, 1999

BLOOMING PRAIRIE – Another rural Minnesota grain elevator bites the grain dust in the still lingering aftermath of the hedge-to-arrive grain contract crisis of the mid-1990s.

Tonight, the farmer-members of Farmers Cooperative Elevator Association will learn who, if anyone else, will buy their elevator.

On Tuesday night, the stockholders voted, 46-9, to liquidate their cooperative and sell the grain elevator at Blooming Prairie.

A special meeting of the cooperative’s board of directors will take place beginning at 7:30 p.m. tonight with the members’ meeting starting at 8 p.m. Both will take place at the Blooming Prairie Servicemen’s Club.

The deadline for submitting bids for the grain elevator is 5 p.m. today.

"You fellows have a thankless job and I think you did the best you could," said Helmer Peterson, a member, who led a standing ovation after the long and tense meeting Tuesday night.

Rick Klemmensen, who has been farming since 1971 and is a member, is the president of the cooperative’s board of directors. Flanked by other cooperative board members and Jim Trotman, the elevator’s manager, Klemmensen told the stockholders what events spiraled out of control, necessitating the grim meeting.

"It’s the (hedge to arrive)," he said. "Basically, that’s what has taken care of our assets and the bank has seen fit not to renew our operating loan."

"The longer we wait, there won’t be any patronage dividends left," he said. "We’re trying to save some of your patronage now."

With the elevator’s short-term debt due Sept. 1, the directors face a time-crunch to find a buyer and approve the sale in order to ensure the elevator will remain open for this year’s harvest. Also, the new owners would have to assure state officials of their licensing and have the bonding to operate the elevator.

Unusual market conditions and tight grain supplies sent corn futures prices soaring in the early 1990s.

Growers entered into hedge-to-arrive contracts offered by grain elevators throughout the Corn Belt in 1993, 1994 and 1995, but the higher price in the market, than their contract allowed, changed the rules of the HTA game.

Some farmers, who had contracted to sell grain at a specific price, did not comply with the agreements when corn prices skyrocketed and did not deliver the grain.

Court battles between farmers and elevators ensued.

Grain elevators suffered huge financial losses and many failed, having to close their doors or merge with another, or be bought out by a grain company conglomerate.

Klemmensen said the board was united in doing what it can to keep the Blooming Prairie elevator open, going so far as to say they will not sell to a buyer who wants the elevator for his own personal use.

The grave financial picture of the elevator has been discussed at the last three annual meetings of stockholders.

There is short-term debt of $942,882 and long-term debt of $274,000 and continually falling market prices are increasing the elevator’s debt.

An appraisal completed in March of this year showed the Blooming Prairie’s facilities and equipment has a value of $567,000. It has a capacity of 750,000 bushels storage and it is, like other elevators, presently filled.

Their legal counsel predicts a silver-lining to the HTA court battles.

"Our chances are good to collect," according to Klemmensen.

Klemmensen said, like other elevators, the Farmers Cooperative has suffered from the grain car shortage crisis and the inability to move grain, 1993’s weather and other complications and bad decisions by a previous elevator manager.

"But it keeps coming back to HTAs," he said.

While there are more than 600 members listed on the elevator’s rolls, Klemmensen guessed less than 100 are active users of the elevator; i.e., grain farmers.

Once before in 1980, the elevator’s prime lender requested the elevator’s directors prowl the countryside for cash donations from members to keep the elevator financially solvent. "That didn’t work then and it won’t work now," he said. "We need $1 million by Sept. 1."

For the last five years, the elevator’s debt has risen from $8,000 in 1995 to $22,000 a year later, $70,000 in 1997 and $162,000 a year ago and $133,000 this year.

HTA interest payments made by the elevator have during the same period gone from $55,000 in 1995 to $134,000, $198,000, $122,00 and this year, $100,000.

"The trend, unfortunately, hasn’t been good," he said. "If we postpone it (selling the elevator) for another year, who knows what the future will bring?"

The farmer-members listened to Klemmensen’s presentation and asked many questions until Sterling Himle made the motion and L. Dean Christianson seconded it to bring the discussion to a close and take a vote.

With no patience expected from the elevator’s short-term debt-holder and other refinancing doubtful, the elevator’s directors and members find themselves cornered by things beyond their control.

In addition, there is the continuing financial fallout of HTA contracts and grain price uncertainties, plus fierce competition.

The only other option briefly considered was bankruptcy and a reorganization of the elevator’s debts. "We can’t do that, because we aren’t in debt," Klemmensen said with finality.

So, sell is what must be done.

"Margins are down, there’s new competition out there for grain, but paying interest has gotten to be too much," Klemmensen said. "Almost to the date, our losses started with the HTA mess."