Borden Files Chapter 11; Moves to Protect Farmer Payments for Pre-Petition Milk; Interim Motion Approved on Jan. 8th

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UPDATE: Jan. 9th:  The Court issued an Order, posted late on Jan. 8th, which did indeed authorize Borden to pay independent farmers and co-ops, but there is some leeway as to the amount those producers and handlers might be paid.  Independent producers especially are encouraged to read the full 7 pgs. of the Order found here (you may also download and print), and perhaps consult with an attorney for interpretation and clarification.  Some situations may differ per state laws and milk bonding statutes.

Dave Natzke, Progressive Dairyman, has also published a report of the hearing with added information from the courtroom, which may be read here.

 

Borden Dairy Company, et al.,  now becomes the 2nd major dairy company within two months to file for Chapter 11 Bankruptcy to reorganize their financial structure.  Dean Foods, the nation’s largest processor of fluid milk, filed for Chapter 11 protection in November.

The Borden Chapter 11 filing caught many grass-roots dairy farmers off guard, especially due to renewed optimism due to recent new product introductions under the leadership of Tony Sarsam.

Progressive Dairy published an informative report written by Dave Natzke, Editor.

Borden Dairy  issued the following press release about the filing, which can also be accessed on the web:

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When a milk-purchasing company announces bankruptcy, the first question that grass-roots farmers and rural communities is concerned with is “Will those farmers get paid for ‘pre-petition’ milk?”  (That is the milk delivered in the period prior to the filing for which the farmer has not received payment.)   Payment for milk delivered from the day of filing forward is generally protected by the Court.

Normally, independent farmers, those who sell milk directly to a plant or company, and who are not members of a milk cooperative, are left holding the bag, and don’t get paid, because they are generally considered ‘unsecured creditors.’  Some states, but not all, have ‘milk bonding’ statutes, which protect payments to farmers to some degree; some states may protect payment for all or a significant portion of the milk delivered, while others may have bonding statutes which cover only a tiny portion.

In this Borden Dairy Chapter 11 process, the company has filed a Motion with the Court to ask that the Company be allowed to complete those payments to those independent farmers and five milk cooperatives. This Motion was scheduled to be heard as part of the “First Day Hearings” on January 7th, but at the writing of this blogpost, (midnigh/early am, Jan 8th) an Order has not been entered which will actually permit that to happen.  An Order must be entered on the Court’s Docket which will finalize payment.

The documents below, on page 3, paragraphs 7 and 8, note that Borden purchases raw milk from ‘approximately 262 independent family dairy farms’ and ‘five farmers’ cooperatives; collectively, those farmers and cooperatives are called ‘Milk Vendors.’  They also detail the normal times of payment.

The Borden Chapter 11 proceeding is legally known as Case 20-10010-CSS, and is being heard in the United States Bankruptcy Court for the District of Delaware.    Below are the 7 pages of Document 11 in the above captioned case, titled “Declaration of Jason Monaco in Support of Debtors’ Motion for Authorization to Pay Critical Vendors,” which is the Motion asking for payment to farmers.

Affected parties residing in or operating farms in the states of Mississippi or Texas likely need to pay special attention to a Footnote (3)  at the bottom of Page 3. Such parties may need to have this Document 1, along with other documents in this case reviewed by an attorney for interpretation, and have such a qualified attorney determine how this footnote may affect their farming operations.

NOTE:  The author of this blog is not an attorney, and any information posted SHOULD NOT be considered legal advice, only observations. These public documents are posted for information purposes only; it will be up to individual farms affected in this matter to consult attorneys to review their legal rights.

 

Here are the pages of Document 11, the Motion requesting payment to farmers:

 

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Any updates of significant events and/or official rulings by the Court will be added or noted when they are available, as will additional information related to this process.

NOTE:  The AUTHOR of this blog IS NOT AN ATTORNEY, and any information posted SHOULD NOT be considered legal advice. These public documents are posted for information purposes only; it will be up to individual farms affected in this matter to consult attorneys to review their legal rights per their individual situations.  The author has experienced a milk company bankruptcy as a producer, so therefore is familiar with the process from a farmer/producer perspective

 

ON A PERSONAL NOTE:  As Borden now joins Dean Foods in Chapter 11 proceedings, this is the second Financial Reorganization/Bankruptcy filing of a major purchaser of fluid milk in the United States within two months.  Many, many family farms will be affected to some degree by these proceedings, no matter if a farm is an ‘independent’ or a member of a cooperative. In turn, the rural communities across the country in which those farms are located will be affected as well.  May I ask that anyone who is a Believer in a Higher Power please join me in keeping the entire US Dairy Farm industry in your collective prayers?  Thank you for doing that!

May God Bless our Dairy Farms, and our Farming Communities!!

 

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3 Southeast Dairy Events: Networks Working Together to Find Solutions

A Compilation of stories and news about 3 challenges affecting Southeast Dairy Producers:  Dean Foods, Maryland-Virginia and Piedmont

 Southeast Dairy:  In the News. Pushing Forward.
 
Introduction:
In the past two weeks, in a time of already depressed milk prices, there has been a three-fold challenge to dairy farms in the southeast.  Tennessee, Kentucky, Virginia, and North Carolina all have farmers affected, with varying degrees of uncertainty about their milk buyer futures.
To say these past days have been painful and a flurry of concern, high emotions, and rumor mills have resulted is an understatement, but yet, as the dust settles, some activity has encouraged some hope, and herd owners are beginning to look forward. Many are making decisions based on faith, and in a calm fashion based on what they believe best for their farm. Some of those farms are being public, while others are remaining cautious and quietly seeking answers behind the scenes.
Bright Spot? Yes!   One farmer asked if there was going to be any good news to share about this whole mess, and yes, actually, there are two:
First, phone calls, texts, and Social Media outcries have indicated loudly and clearly that consumers, government officials, fellow farm organizations, and economic development personnel are indeed concerned about preserving ‘local’ or ‘regional’ milk in their areas, and appear to be eager to learn how they can help accomplish that.
Hopefully, this newfound energy can be channeled for long-term purchases of local milk, from local farms.  Time will tell. Consumer outreach is going to have to continue.
The second is this:  We still have upwards of 40 herds (at least in TN) shipping to Dean. The company is still the largest volume buyer of ‘local’ milk in TN at its three plants.  Putting that in perspective, every Dean Direct herd in Indiana,  with the exception of one, received letters of notice. Several were herds well over 1000 cows.
Background:  The three part challenge:
1.) Dean Foods:  On Friday, March 2, news broke of upwards of 115 (tallies still underway) farmers in 8 states receiving 90-day termination notices of their supply agreements to Dean Foods plants.  10 Tennessee herds and 22-25 Kentucky herds were affected, with 25-27  in Indiana, 42 in Pennsylvania, 6 in the Carolinas, and a yet unknown number in New York.  Three plants in our area – at Athens, TN, Spartanburg, SC, and Louisville, KY are involved in the contract termination decisions.   Herd sizes in all states range from under 100 to 1000 cows; 20 Million pounds of Indiana milk will need to find a new home, or be removed from the already overabundant nationwide supply.
The herds involved were Dean Direct producers, meaning the farm itself had a purchase agreement with Dean Foods plants, instead of gaining access to the plant through a milk co-op. Farmers who were members of co-ops did not receive these termination letters.  All of this activity followed a Dean Foods Earnings Announcement on Monday, Feb. 26 in which the phrases such as ‘rescaling the supply line’ foretold of company wide cuts to come.
2.)  During:  the week prior to the Dean Foods announcement, rumors began to circulate that Piedmont Milk Producers, based in Blountville, TN and serving farms in TN, VA, and NC,  was restructuring their business. (Story below with a video link)
3.)  MD-VA Milk Cooperative with 1,500 members from Pennsylvania to Florida, and some in Kentucky and Tennessee, sent a Feb. 27th letter to all of its members that their advance milk payment checks, expected at the end of the month, would fall to levels of $12.62 cwt in FO 5 & 7, and $10 in FO 1 and $33. The company said it was working on financial restructuring and was renegotiating credit facilities. Over the weekend, sources have begun to indicate that the problems may have been resolved to some degree, but the company has not made any official announcements. With settlement checks expected within a couple of days, some direction will be known.
In the days since, there has been a flurry of activity following the first notices: meetings of  farmers, meetings of farmers and agribusiness personnel, meetings of dairy organizations, and frequent phone calls between many parties in positions to help chart a future course.  AgCentral has been busy assisting producers in a variety of ways in a three-state area. While we have yet to have a formal working group to address what can be done and how to approach a dairy future, a tremendous amount of contacts have been made information gathered.
Following is a “Digest” of some the best information available, in no particular order – stories mentioned include stories of the Watsons and the Stooksburys, as well as a couple of stories from Ohio which further outline the far-reaching affects of the Dean announcements:
1.) Dave Natzke, an experienced and respected dairy industry reporter, now with Progressive Dairyman, published a broad perspective view of the Dean Foods story, and puts it in context with the dairy industry and events across the country. In his article, Dave reports that the Walmart plant was originally announced as a $165 Million Dollar venture, and provides a glimpse into how the Walmart plant may source their milk.
2.) Sherry Bunting, Farmshine, reports with a focus on PA, where 42 herds lost Dean contractsShe notes hauling routes were a factor in terminated Pennsylvania herds, and reports the loss of a Food Lion contract, which was a factor which triggered a decision regarding 5 TN herds in Greene and Hamblen Counties.
From the article: “This affects all size herds and is not a large or small farm thing,” said [Reace] Smith, [of Dean Foods Corporate Communications.]  While she was unable to supply specific information about the farms that were terminated, she said the widespread volume adjustments at multiple plants across four Federal Orders was necessary do to the new Class I plant (Walmart) coming online this month and the loss of a contract through a competitive bidding process. (Food Lion).” 
It is the loss of that Food Lion contract, previously filled largely through a Carolina plant(s), which created a shift in milk hauling from plant to plant, and created an excess at the Dean/Pet plant at Spartanburg, SC, which had to be eliminated.  The milk from five (5) producers in Hamblen and Greene Counties in TN was being hauled to Spartanburg. Those producers are now searching for new markets or making decisions to sell cows.
Dewey Morgan, of the Daily Post-Athenian, in the hometown of the Mayfield plant,  cites these significant stats:
Regarding declining consumption and increased production: “Americans are drinking about 3 gallons less per person since 2010, and 11 gallons less than 1975, while every year, 350 Million more gallons of milk are produced than the year before.”
Amount of local milk: The Dean Foods plant in Athens ‘still sources 90% of our milk from Tennessee.’
The Watson Family: their stories on WVLT-TV and on the Knoxville News-Sentinel website:
The Watsons, who farm near Sweetwater, TN, were one of the southeast TN farms who received 90-day notices.  The senior generation is Robert and Rosemary Watson (mom and dad), who farm with their sons Josh and Caleb.  The family is known for being extremely generous members of their community.  Both Josh and Caleb have been featured in news stories in Knoxville, TN media:
  •  Josh: From WVLT-TV, a story and video clip: Josh states that he doesn’t entirely blame Dean Foods. He adds: “there’s a lot of jobs that revolve around the dairy – it will hurt them.”
  • Caleb: Both a video and a photo album have been posted at the Knoxville Sentinel website. Caleb notes the family will continue to look for a milk buyer, and will look at other options to diversify, he says they will survive.
  • Front Page: The Knoxville News Sentinel published a front page story featuring Caleb on Tuesday, March 13.
Piedmont considering new business structure and how the company operates: story on Knoxville WBIR-TV
  • Brant Stooksbury, and his father Brian in Jefferson County, currently ship their milk through Piedmont Milk Sales, with offices at Blountville, TN. Piedmont, who represents farms in Northeast TN, Virginia, and North Carolina (the great majority are in NC) is making business changes.
 
Farm & Dairy:  Provides additional details on  WalMart distibution
WKBN-TN at Waynesboro, Pennsylvania – a video story describing some of the trickle down effects.
Ongoing:  This story will continue to evolve over the next few weeks, and spring crop work is already cranking up.  We know this challenge is great, but this region has overcome challenges before: at this time 25 years ago, many of us were digging out from a record blizzard, and some went without power for days. 27 years ago, in February of 1991, 400 herds received notices of a Pet bankruptcy, and lost a month’s worth of milk payments, along with having to scramble to find new milk handlers – there were no 90-day notices.
No doubt, our dairy industry is changing, but we have proven we can survive.
P.S.   Rod Carmichael has scheduled a complete herd dispersal for April 27.  Please mark that date on your calendars and keep Rod and Donna in your thoughts.