Farmland Industries - Growth and The Sale of Assets

Growth and The Sale of Assets

Throughout the 90s, the company continued to grow, serving markets worldwide. Its activities became increasingly complex and extensive. In 1998, the company's $2.8 billion asset base included nitrogen complexes in the U.S. and abroad; the second-largest petroleum refinery in the Midwest; phosphate mining operations; grain storage capacity of 145 million bushels; diverse feed manufacturing entities that included feed mills, spray dry plants and commodity sheds; 12 meat plants; and a transportation fleet of more than 4,400 rail cars, 1,060 over-the-road trucks and 1,850 trailers, and interest in 100 dry cargo barges and several ocean-vessels. During this time, the company continued its mission to benefit the independent family farmer and farming interests, stating its mission "to be a global, consumer-driven, producer-owned 'farm-to-table' cooperative system."

In 1997, Farmland entered into a joint venture with Mississippi Chemical Corp. to build an ammonia plant in Trinidad designed to lower production cost of nitrogen fertilizers by utilizing Trinidad's plentiful and lower-cost natural gas supply. Another expansion occurred at the company's Rock Springs, Wyoming SF Phosphates plant, a joint venture with J.R. Simplot Company. Other efforts included a focus on precision farming through programs such as Resource 21, a remote sensing project with Boeing and GDE, AgInfo, a GIS software system offered through Agronomy Services Bureau; and Integrated Crop Management (ICM), a precision farming data management tool. These efforts were designed to stay at the forefront of technologies such as remote sensing, variable rate fertilization, grid sampling, yield mapping and global positioning and geographic information systems. The cooperative built a highly innovative coke-to-nitrogen fertilizer plant adjacent to its petroleum refinery operation in Coffeyville, Kansas. The plant allowed the cooperative to convert petroleum coke -- a waste product from the petroleum division -- into ammonia that could be used for fertilizer. This project was lauded for its environmental impact.

In June 1999, the company broke ground for a 280,000-square-foot (26,000 m2) headquarters on a 40-acre (160,000 m2) campus just east of Kansas City International Airport to consolidate the offices for 1,000 employees. The building was completed in 2001.

Throughout the 90's, Farmland was a highly successful venture, serving the needs of its members and participating as an integral part of North American farming. During this time, however, its financial structure became highly leveraged. In 2002, the company faced a liquidity crisis resulting from fluctuations in commodity prices and increased operational and capital costs, as well as the tightening of credit terms from suppliers and increased demands from its bondholders. To achieve stability and to obtain time to explore refinancing alternatives, the cooperative filed for Chapter 11 in May 2002 (in its filing it listed $2.7 billion in assets and $1.9 billion in debt). Although the cooperative continued to operate as a going concern, the reorganization process ultimately resulted in the decision to sell virtually all of the company's assets, including the following subsidiaries: Farmland Foods, Inc., the pork processing division to Smithfield Foods for $367M; Farmland National Beef Packing Company to US Premium Beef for $232M; and the fertilizer production division to Koch Industries. The company's refinery and coke-to-nitrogen fertilizer plant were sold to a hedge fund. It has been noted that the value of Farmland assets far exceeded the amount of its indebtedness. The "Farmland" brand continues to be widely recognized in the food industry.

The Co-op Retirement Plan, which provides a final salary defined benefit retirement plan for member cooperatives' employees, was administered by Farmland. A non-profit, United Benefits Group, was incorporated to take over this service, from 2003.

The reorganization process resulted in the sale of the cooperative's assets, with all creditors completely (over 100 cents on the dollar) repaid by 2006. According to JPMorgan, the liquidating trustee, unsecured creditors received $891 million, which was 104 cents on the dollar, the maximum allowed by law, and allows for interest.

Before the liquidation was completed, it was accepted that no assets remained to be distributed to the members, the local cooperatives, who had to write off the loss of their equity account balances. A 2004 study in Oklahoma suggested that the most significant effects on cooperatives related to farmer connections and lost business relationships, and the direct financial impact of the write off was low.