The farmer-owned packing plant shutdown raises more questions and discontent.
News of Meadowbrook Farms Cooperative suspending operations at its $39 million pork plant in Rantoul, IL, brought a flurry of questions about what led to the farmer-owned cooperative's financial meltdown, and what will happen next. Approximately 600 employees were laid off in the wake of the shutdown, which occurred in early February.
Meadowbrook officials contend cash flow problems resulting from a defaulted customer contract and unpaid fines levied against members for not meeting their contract quotas are to blame. Some members claim the cooperative's leadership lacked foresight in managing operations.
Meadowbrook has faced other turbulent episodes, including a 2007 dispute involving 37 members who stopped delivering hogs to the plant in protest after receiving lower prices for their hogs than they could have obtained on the cash spot market.
When the cooperative began operations in 2004, it had 200 members; today, about 100 remain.
Cash Flow Crunch
Meadowbrook Board Chairman Roger Walk of Neoga, IL, says the plant closing is not intended to be permanent. “We suspended operations because we felt we could no longer buy pigs and be able to pay for them. We basically were out of working capital,” he says.
Walk says that although the plant earned $1.5 million in net revenue in 2008, a swine production subsidiary — Meadowbrook Farms Cooperative Livestock Services (MFCLS) — lost $5 million.
He blames poor economic conditions and the Chicago-based Triad Foods' move in early September to pull out of a strategic agreement to sell antibiotic-free pork supplied by MFCLS.
“Basically, we had all these pigs on feed and no place to go with this high- priced meat,” Walk says.
Meadowbrook filed a lawsuit last December against Triad, claiming $3 million in damages. Since then, remaining MFCLS pigs have been sold or slaughtered, according to Walk.
Carl Swinford, a Meadowbrook member from Hillsdale, IN, says that cooperative managers and the board of directors should have liquidated the company-owned hogs sooner. “In late October they were looking for more space to finish more hogs for Meadowbrook. That was at least six to eight weeks after Triad had cancelled the contract,” Swinford says.
Swinford committed to ship approximately 20% of the 25,000-30,000 market hogs he finishes annually to Meadowbrook, but has been frustrated by the co-op's performance. He stopped shipping hogs to Meadowbrook in June 2008, when he earned $34 and $36/head less than pigs he sold to another packer during the same time frame.
Meadowbrook fines members $24/head for not fulfilling their contract obligations.
On average, Swinford says he averaged $21/head less on pigs marketed through Meadowbrook vs. other packers, a nearly half-million-dollar loss. He has not resumed selling to Meadowbrook because he was concerned about the co-op's financial future.
“The losses just got too big. I had decided I would rather have the fines against me than have hogs not paid for,” he says. Swinford has not yet paid the fines.
Walk says unpaid fines, which he claims total $2 million, have contributed to Meadowbrook's financial crisis. “If you add up $2 million in unpaid fines and $3 million in Triad losses, that's the $5 million in working capital we are short,” he says.
Walk says he is unsure whether existing member contracts remain valid following the shutdown, or if new contracts will be necessary when and if the plant reopens.
Not Paying for Pigs
Meadowbrook became the subject of an investigation by the USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) when the administration learned the cooperative was late in paying for pigs, says Jay Johnson, GIPSA regional director.
On Jan. 15, 2009, GIPSA requested Meadowbrook increase its bond — required of all slaughterhouses that do more than $500,000 in business annually — from the minimum level of $740,000 to nearly $6 million. Why the big jump? “Producers had extended credit to approximately that level,” Johnson says.
GIPSA held a public meeting on Feb. 9, 2009 in East Peoria, IL, to explain producers' rights under the Packers and Stockyards Act. Producers can file to recoup losses covered under the bond so long as they file within 60 days of the date of livestock delivery and provide proper documentation supporting the transaction.
About 100 producers attended the meeting and approximately 35 filed bond claims. Cash livestock sellers can file to recoup losses under Packers and Stockers' statutory trust, which provides access to assets in inventories and receivables, Johnson explains. Filing under the trust must be done within 30 days of when payment is due.
Melvin Coulter, who produces 20,000 pigs annually in Paxton, IL, attended the meeting and filed a claim under the bond provision. Still, he is optimistic that Meadowbrook will reopen.
“I don't like losing the money; I especially don't like what we were short over the last five years compared to the open market. But I think it will be better if it opens again,” he says. “The board's plan, if the plant reopens, is to hire a well-respected meat industry advisor and that's a positive sign,” he adds.
Meadowbrook is currently working with lenders to secure a USDA Rural Development guaranteed loan in order to raise the cash needed to restart operations. “Without this bridge loan, the problem is not going to get fixed. Every week we go (with operations suspended), our work force is going to get more scattered. The longer it goes, the harder it is going to be to start it back up,” Walk said.