See also: Farmland Industries Files to Reorganize

Smithfield Foods, Smithfield Va., took a run at purchasing Farmland Industries last week, but the producer cooperative opted for reorganization under the Chapter-11 bankruptcy law instead. The filing came down to the wire on May 31, as the Kansas City-based cooperative had a $10-million debt payment due on that date—which Smithfield offered to pay, so long as it would apply to an eventual sale. (See accompanying story for more details on Farmland’s Chapter-11 filing.)

Smithfield was most interested in Farmland’s Refrigerated Foods Group, which includes beef and pork slaughter facilities, as well as packaged meat processing. It does not, however, include Farmland National Beef Packing. Smithfield also was willing to purchase “the entire company”, as it stated in a letter which the packer made public, further pressuring Farmland’s weak state of financial affairs.

Farmland’s Refrigerated Foods division has been a jewel in the cooperative’s otherwise ailing financial structure. In fiscal 2001, the meat business provided about $18 million in net income on $4.8billion in net sales.

Earnings in the first half of fiscal 2002 are more than double for the same period last year, according to a Farmland statement. “We are processing and selling more branded meat products than ever before as Farmland Foods continues to make gains in both market share and earnings,” says Bob Terry, Farmland’s chief executive officer.

“Ultimately we were unable to come to any agreement today with Smithfield,” Terry said in announcing the bankruptcy filing. He pointed out that the cooperative’s current situation with banks, vendors and creditors was too complicated to negotiate a quick deal with Smithfield.

Terry added that it was “premature” to talk about future actions. “We pursued Smithfield’s offer with interest,” he said. “While no current negotiations are underway, today’s action does not prevent any future discussions with Smithfield.”

Responding to Farmland’s bankruptcy filing, Smithfield released the following statement. “It is very disappointing to us and, we expect, to many of the 600,000 individual farmers who own Farmland, that the co-op’s management chose the uncertainty of bankruptcy rather than explore the farm more secure and valuable alternative that we proposed, which would have averted bankruptcy.”

While Smithfield would welcome the additional pork slaughter and processing capacity, the company has been trying hard to become a major beef player, beginning with its failed attempt to purchase IBP.

The sale of Farmland’s meat business would be complicated because its beef-processing division is part of a 50/50 partnership with U.S. Premium Beef, a member-owned cooperative. Members raise much of the cattle processed through this system and jointly own processing plants in Dodge City and Liberal, Kan., with Farmland. U.S. Premium Beef has an option to buy any or all of Farmland’s interest in the beef operations, says Steve Hunt, chief executive officer of U.S. Premium Beef.

USDA released a statement indicating that it will be working with Farmland to ensure that pork packing operations continue in an orderly manner, and to protect producers’ interests during the reorganization. Auditors will be on site at all three plants and at the Kansas City headquarters.

One Monday, June 3, all three pork-slaughter plants reported full lots and no cancellations as producers continued to deliver hogs as scheduled. “Since our announcement Friday (May 31), we have personally spoken with all our hog suppliers. Each and every one has agreed to deliver hogs today and on a continuing basis, ensuring that our Farmland Foods operations will continue uninterrupted,” says Jerry Leeper, Farmland vice president of livestock production.

“Consumers will continue to find Farmland Foods’ meat products in supermarket stores,” says Terry.

Farmland’s board of directors will evaluate all costs and operations to determine the business’ future direction, concludes Terry.