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Sunday, 01 October 2017 17:13

Boersen Farms’ impending bankruptcy could shake West Michigan’s ag industry

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ZEELAND — When a lawsuit surfaced showing one of West Michigan’s largest corporate farmers was facing insolvency, the news sent shockwaves through the state’s agricultural industry.

The lawsuit claims that Zeeland-based Boersen Farms owes Minnesota-based CHS Capital LLC more than $145 million for unpaid debts, along with an array of other allegations that included fraud, according to documents filed in August with the U.S. District Court for the Western District of Michigan. Now the farming operation, which harvests crops across roughly 83,000 acres in Michigan, Ohio and Indiana, is in receivership and gearing up to file for Chapter 11 bankruptcy protection, according to federal court filings in the last two weeks.

The large agricultural operator’s financial difficulties have sparked concern among companies in the industry and the supply chain throughout West Michigan. On one hand, numerous suppliers could be left holding the bag if Boersen Farms fails to secure the funding it needs to harvest crops that are in the field at the time this report went to press. The case could also sour relationships between suppliers and other farming operators, as well as tighten access to credit, according to industry sources.

The Boersen Farms story also could serve as a cautionary tale about the rapid rise of a corporate farm that over-extended itself in a bullish commodity market that later cratered, leaving the company unable to keep up with its bills. It also shows how farm creditors like CHS Capital — which operates as the investment arm of CHS Inc., a large farming cooperative — may have been too liberal in offering credit to farmers.

In the near term, agricultural experts are most concerned about preserving the value of the vast acres of crops still in the ground awaiting harvest.

“There will be ripples across the board, no question about it,” said Jim Byrum, president of the East Lansing-based Michigan Agri-Business Association. “It’s not just whether the land gets farmed next spring, but how the crop gets harvested this fall. Many of our members have contracts with the operation for delivery of commodities. They’re relying on those commodities to meet commitments they have further down the line. Then going forward, it seems there’s going to be (more) fallout.”

O’Keefe & Associates Consulting LLC — a Grand Rapids-based turnaround firm appointed by the court as a receiver in the case — recommended seeking Chapter 11 bankruptcy protection for Boersen Farms and its related corporate entities in order to secure the funding necessary to harvest the existing crops.

In the lawsuit, CHS alleges the existing soybean and corn crop is valued at $50 million, a figure Boersen believes is too low, according to court documents.

As the case shakes out, it could affect other farm operators in the region, sources said. Namely, suppliers who haven’t been paid by Boersen Farms could curtail the credit they’re willing to extend to other farmers, who are often allowed to run up account balances and pay after the harvest season.

“You could allow some big numbers out there with assurance that it’d be paid with the crop harvest. That’s not happening as much any more,” said Douglas Oberst, owner of the South Haven-based Heartland Agricultural Services LLC, which consults on farm real estate transactions. Oberst noted he was speaking about the softening farm economy in general, and not specifically about the Boersen case.

One supplier speaking on the condition of anonymity struck a blunt tone in describing the implications the Boersen case could have for West Michigan suppliers.

“It really slaps agriculture in the face. … Suppliers and people have gotten hurt by it,” the person said. “From a supplier standpoint, the bigger the farm gets, the less willing we’re going to be to do business with them unless it’s prepaid or cash up front.”

CAUTIONARY TALE

For most industry observers, Boersen’s journey toward bankruptcy represents a clear case of an over-leveraged business that failed to account for a sharp dip in row-crop prices.

“Maybe it’s an example of growing too fast at too high of a rate,” said Bruce Sutherland, president of Michigan Agricultural Commodities Inc., a Lansing-based buyer and seller of commodities.

Sutherland, who wasn’t involved with Boersen Farms, described the situation as “unfortunate.”

The rise and fall of Boersen Farms can be traced to late 2012 when commodity prices for crops including corn and soybeans spiked, triggering a vast increase in credit available for farmers.

In an era of higher profits, farmers took the opportunity to access credit and rapidly scaled up their operations while times were good, Oberst said. When row-crop prices tanked between between 2013 and 2014, many of those farmers were left with debts they couldn’t repay.

“There’s cases where the creditors lost perspective on the inflationary factors taking place in ag right along with the farmers, and the extension of credit was far too liberal,” Oberst said. “That’s how situations arise and now they’re all suffering together.”

Some industry insiders say the rapid rise of the Boersen Farms business reflects that trend. In 2013, the company spent $22.8 million at auction to buy parts of Stamp Farms LLC, its related businesses and a variety of land lease agreements after the Decatur-based farm operator of nearly 46,000 acres filed for bankruptcy, according to prior reports.

When Boersen purchased the rights to farm that land, commodity prices were nearly double what they are today, leaving Boersen in a poor position to pay its bills, according to industry experts.

ALLEGATIONS OF FRAUD

CHS alleges that in addition to struggling to pay its bills, Boersen Farms committed fraud by inflating the value of its 2016 crop by $6 million to give the company the appearance of profitability, according to court documents. CHS also claims Boersen diverted $204,777 to purchase a personal residence instead of paying down debts it owed to the company.

Patrick O’Keefe, principal of O’Keefe & Associates, the court-appointed receiver for Boersen Farms, wrote in a signed declaration that sources had discussed with him other “potentially fraudulent” actions by company owner Dennis Boersen. Those allegations included Boersen acquiring a combine not owned or leased by the company to harvest crops, violating a Van Buren County Circuit Court order by storing that grain in bins in that county, hiring a broker, and converting the cash proceeds from that grain sale.

In light of the allegations, O’Keefe wrote in the declaration that the owner and family members in control of Boersen Farms should be “terminated immediately.”

For his part, Dennis Boersen denies any allegations of wrongdoing, according to his attorney, Ron Vander Veen, a partner with Cunningham Dalman PC, based in Holland.

“When (Dennis) sells corn, he does it to keep the farm in business,” Vander Veen told MiBiz.

A representative from CHS acknowledged a request for an interview but declined to comment on the case. The company is being represented by Grand Rapids-based Mika Meyers Beckett & Jones PLC.

O’Keefe and numerous other parties affiliated with the lawsuit did not respond to requests for comment.

Oberst notes the wave of farm bankruptcy locally and nationally will continue to affect the entire agricultural industry in the years to come.

“There will be a reverberating effect with the agriculture economy and it could last for years,” he said.

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