Too little, too late: Belfield farmer burned in seed company’s insolvency said regulators slow on the draw
BELFIELD — Kevin Kessel said if it wasn’t for an off-farm job in North Dakota’s oil fields, the loss of $149,000 in sunflower seeds in the Anderson Seed debacle would have forced him into an auction sale.
Anderson Seed of Mentor, Minn., went insolvent in February 2012, closing sunflower processing facilities in Mentor and in Redfield, S.D. Farmers like Kessel, as well as farmers and elevators in the Dakotas, say they’re owed a total of about $4.8 million for sunflowers delivered.
Anderson Seed sold its assets to Canadian processor Legumex Walker Inc., which claims its purchase of $1.5 million in seed inventory was done in the “normal course of business” and that the buyer is not responsible for the seller’s debts. But the North Dakota Public Service Commission is challenging that claim.
As it stands, the 33-year-old farmer from Belfield is increasingly upset with the lack of priority the PSC is giving the case, with a conclusion now nearly two years in the making.
“I’ll be honest. Things haven’t been settling very easy for me in the last two years,” Kessel said. “I work on borrowed money. I had to really tighten the belt on a lot of things. Fortunately, I had a local banker willing to work with me. You have to come up with the money and pay it, or we foreclose and sell everything out.”
Blended farm, oil careers
Kessel grew up on the farm north of Belfield taking with his father retiring in 2005.
“That’s when I took the big leap to start my farming operation,” Kessel said.
In 2008, he expanded, even as he kept his “40 to 70 hours a week” job in the energy business. In 2010, he took a sales job with the Mission Products Group, an oil well products company and division of National Oilwell Varco. He became a district sales manager, covering North Dakota, eastern Montana and South Dakota.
The farming used to be his “relaxing time,” but that was before Anderson Seed.
Kessel’s part-time farming is 1,408 acres. He grows wheat and corn, as well as sunflowers.
“The first crop I grew, I contracted and sold to Anderson Seed in 2010,” he said. He contracted 317 acres of his crop in February that year and averaged 1,500 pounds per acre.
“I contracted because I work on borrowed money,” Kessel said. “I contract on price — whatever is going to give me my best ROI (return-on-investment).”
He sold to Anderson Seed because it contracted for “conoils.”
Conoils are sunflower hybrids developed using both oil-type and confection parentage. They have higher oil content than traditional confection varieties and tend to yield better. The main market is for kernels in the baking industry, which was a key market for Anderson Seed.
“They treated me fairly well in 2010, so I went back and contracted with them again in 2011.”
In 2011, Kessel had an opportunity to expand onto some land that was conveniently close to his headquarters farm. He contracted 600 acres with Anderson Seed, harvested in November and contracted them in December, directly with Stephanie Anderson, who was running Anderson Seed at the time. The crop yielded about 746,000 pounds in total. All of it went to Anderson.
He delivered the seed to Durbin, N.D., in Cass County — about 325 miles away.
“I had a contract of 1,200 pounds to the acre,” he said. “As usual, whatever over-run I’d have I’d take to the person I had the contract with.”
Kessel had gotten stuck digging sunflowers out of on-farm bins in 2010, so he asked Anderson Seed if it would take seeds in December to satisfy the January portion of his contract.
So in the last week of December, he delivered the last 175,000 pounds — about five semi-loads. He deferred payment until the new year.
“I kept my copy of the contract, of course,” he said. “I’m glad I did.”
If things had gone as planned, Anderson Seed should have cut Kessel one big check the first week of January 2012. Instead, he received three partial payments, starting Jan. 15 — a total of roughly 30 percent of what he was owed.
“I would call and try to talk to Stephanie and that’s when I would not get the returned phone calls,” he said.
Anderson Seed’s law firm in St. Cloud, Minn., wasn’t returning calls.
“I figured, ‘this ain’t going to be good,’” Kessel recalls.
With a $280,000 elevator bond, farmers were reporting losses of $2.2 million in North Dakota alone. In mid-February 2012, Kessel learned that Anderson Seed had sold out to Legumex Walker, the Winnipeg-based company with a Seattle headquarters in its U.S. division. That year, Legumex Walker contacted Kessel to contract the 2012 crop of sunflowers.
“I said, ‘Why don’t you pay me what Anderson Seed owed me? If you did, I’d consider (a new contract).’” Kessel said. “I kind of felt sorry for the fellow.”
They explained to him that the company did not take on the debts of Anderson Seed. He said Legumex Walker called him again in 2013. Same answer. In fact, Kessel did plant sunflowers again in 2012, but switched to oilseeds and sold to Cargill.
“I like to help the local guy, the smaller operator, but after this whole situation it made me more prone to go to a Cargill or ADM (Archer Daniels Midland) for the financial security.”
Another indemnity fund?
Kessel said his unpaid sales to Anderson Seed were 50:50, cash sales and credit-sale contracts, which might be covered in part by a state indemnity fund.
“I haven’t heard anything on that either,” Kessel said. In round numbers, he’d be eligible for about $50,000 from the indemnity fund, if paid 80 percent of his credit-sale contracts.
He said Sue Richter, the PSC licensing director, asked him if farmers might be in favor of a second, new indemnity fund that would cover cash sale contracts in insolvencies.
“I said why should the farmer be interested in that? He’s giving up so many cents per bushel on his grain again to protect an elevator? The elevator has no risk if we put something like that in place.”
Kessel is in the federal Beginning Farmer Loan Program. 2011 was supposed to be the year he could have “graduated” from the program and gone to only his private lender.
“I’d have had enough equity to walk away and have just one banker,” he said. “Now I’m not ‘graduated’ and I won’t be for another two years down the road.” He said the lack of payments has cost him “time, headaches and interest.”
“I have to pay interest on the money I couldn’t pay back to my banker, because they didn’t pay me,” he said.
Kessel is angry with the PSC. He said he doesn’t have the resources to go after Anderson Seed or determine whether the value of seeds sold to Legumex Walker need to be retrieved. He said most farmers don’t have the time or resources to study in depth the financial wherewithal of companies they do business with.
“I really feel that Anderson Seed created this mess and the PSC hasn’t really held their feet to the fire to make it right. The farmer is left out in the open again,” Kessel said. “For a young producer to take a loss like that makes it a very uphill battle afterward.”
On Nov. 13, Richter said there was nothing new to report on the Anderson Seed matter “today” but encouraged Agweek to check back soon.
“We want to get this insolvency moving,” she said.
She could not say whether the appointment of attorney Jon Jensen to a judgeship might affect the timing of a resolution.
Kessel is not pleased with the slowness of the courts.
A special PSC attorney to sort out jurisdictions among three states — North Dakota, South Dakota and Minnesota — hasn’t seemed to move things along.
“I think the PSC has forgotten what built this state,” he said. “I work in the oil industry, yes — but oil industry is all I feel a lot of our government is focused on right now. They’ve forgotten that it was farmers that built this state. We are just the peons on the block to them. We don’t matter because we’re not big, big, big money.”
Kessel said the $4.8 million loss by farmers in the Dakotas because of the Anderson Seed case should be big enough to matter.
“I’m thankful my grain was delivered in North Dakota,” Kessel said. “I know South Dakota is in a bigger mess. In North Dakota I still own that grain until I’m paid for it.”
He said if the PSC doesn’t have the time or resources to deal with the case in a timely fashion, it should turn it over to the state ag department. “I really feel the ag department should be regulating all that is ag-related,” Kessel said.
“I’ve had to use my second income to help keep my expenses down on the farm, on certain items.” Kessel said.
“I don’t support my family with the farm,” he said. “Some people would call that a hobby, but for me to do it full-time I’d have to triple my acres. My ultimate goal — eventually — is that I do not need the second job.”
When asked whether he ever seriously considered quitting farming, Kessel mentions his son Wyatt, 7, who already “lives and breathes” farming. He “reads” farm machinery magazine statistics about International Harvester machines.
But Kessel acknowledges he’s had serious talks with his wife about why he wants to stay in farming when something like this can happen. “It’s a hard one to answer,” Kessel said, estimating it’ll probably be another two years before it’s all sorted out.