VeraSun Energy Corporation, based out of Sioux Falls, SD, and 24 subsidiaries filed for Chapter 11 bankruptcy on Oct. 31, 2008. VeraSun operates 17 ethanol plants in eight states, including two plants in Minnesota at Janesville and Welcome, and five plants in Iowa at Albert City, Charles City, Dyersville, Fort Dodge and Hartley. Chapter 11 bankruptcy is for re-organization and protects a company from collections by certain creditors while the business continues to operate and is being reorganized.

The VeraSun bankruptcy is likely to have a significant impact on local communities. The ethanol plant at Welcome, MN, is not currently in operation; the plant in Dyersville, IA, will be closed; and it has been announced that the anticipated start-up of the plant at Janesville, MN, will be delayed indefinitely. These plant closings and delays affect jobs for local residents and the economy of surrounding communities. Many residents, businesses and financial institutions that invested in ethanol plants operated by VeraSun Energy now have those investment dollars in jeopardy. However, the biggest financial impact of the VeraSun bankruptcy may be on farm operators and grain elevators that have grain forward contracted with the ethanol plants operated by VeraSun.

VeraSun Energy had contracted with farm operators and local grain elevators to deliver millions of bushels of corn at harvest, shortly after harvest at the end of 2008 and in early 2009, as well as into the spring and summer months of 2009. Much of the corn was contracted at higher corn market prices that existed earlier this year. Current cash price for corn in south-central Minnesota is under $3.50/bu., compared to contracted corn prices of $5-6/bu. or higher. As part of the bankruptcy stipulations, VeraSun is not required to honor the contracted price for the corn that is delivered, and is only required to pay equivalent to the market price – if they choose to require corn delivery at all. This could potentially be a huge financial loss for farm operators and grain elevators that have corn contracted with VeraSun, and could keep the contracted corn tied up for several months before the outcome is known. Some farm operators and grain elevators have already delivered corn to VeraSun and have not yet received payment, and could be bound by further stipulations if they do accept payment.

The losses on the contracted grain to farm operators and grain elevators could be quite large. Many farm operators had made plans to purchase farm machinery, as well as other farm and non-farm assets with the added cash from the contracted grain. Many of those planned purchases may now be cancelled, which could affect several other local businesses. The uncertainty regarding the status of the contracted corn could also lead to some issues for affected farm operators with their ag lenders, as they set up their 2009 farm operating lines of credit. It is possible that farm operators and grain elevators could recoup some of those losses at a later time through the bankruptcy process. However, there is no guarantee on any future payment beyond the market price on the contracted grain on any given day, until the grain is either to delivered to VeraSun or VeraSun releases the contract.