Gregory co-op called regulatory success
GREGORY -- The elevator goes by Interstate Commodities Inc., Gregory branch -- successor of Gregory Farmers Elevator -- a cooperative that failed this spring after 98 years.
The South Dakota Public Utilities Commission describes what happened in the Gregory Farmers failure as an example of proper handling of an elevator insolvency -- evidence that a system for regulating marketing grain is not broken in the state.
The elevator has about 600,000 bushels of storage and a feed program, with no rail. The company had been monitored since August 2012, after a complaint by a farmer who said he'd waited a week for payment on grain.
"The next day, we had inspectors in there to find out what's going on," said Chris Nelson, vice president of the PUC, in a July 17 meeting on grain marketing rules in Chamberlain. The agency checked in weekly through January, but "it became apparent they couldn't raise capital or create a plan to stay operational," Nelson said.
Sherman Vomacka, a Gregory farmer and president of the co-op, which has not formally dissolved, says he's learned in the past year how elevators fail quickly, and easily.
Vomacka, who went into farming immediately after graduating high school in 1972, says the failure was, in part, a result of a succession of managers and farmers taking business out of the town. He says some poor judgments were made.
Former co-op manager Melissa Vosika had being investigated for embezzlement starting October 2012. She was arraigned May 1, 2013, on 14 counts and is accused of taking a total of $17,000 from the elevator between May and September in 2012.
But the problems went beyond that. The elevator had lost about $400,000 in fiscal year 2011. It made a small profit in 2012, but suffered from some bad grain deals and lack of loyalty.
The elevator tried to right itself. In February, it tried in vain to merge with Rosebud Farmers Union Co-op, a local farm supply co-op next door. In March 2013, the company failed to raise $400,000 in new preferred stock investments to put it back on its feet. On April 23, the PUC said it had become insolvent and revoked its grain buyer's and warehouse licenses. When the company stopped buying grain in March, the co-op defaulted on a loan with BankWest -- based in Pierre, but with a branch in Gregory.
"That bank -- BankWest -- they came to the table, and they played," Nelson said at the July 17 meeting. "[PUC Grain Director Jim Mehlhaff] and I stood across from their head guy and made it very clear that farmers were our priority. At the end of the day, they got that and they took their loss."
The co-op business was appraised at about $650,000 in 2011. On May 20, the patrons voted to sell it to Interstate Commodities Inc. of Troy, N.Y., for about $550,000.
Nelson says BankWest took a loss on a portion of its note. Only two farmers -- Vomacka and a former board member, took the hit for the time being, Vomacka says, but may eventually be made whole, depending on whether accounts receivable are collected. He expects a formal dissolution vote within a month or two.
Dennis Stanley, a Presho farmer and critic of the current system, says that just because the bank was agreeable in the Gregory case doesn't mean the system works for farmers. In Chamberlain, Nelson acknowledged he hadn't talked to lenders and U.S. Bank officials the same way in the Anderson Seed case, and he didn't know whether PUC legal counsel had, either.
Vomacka isn't sure whether the Gregory case taught any lessons. He expects to do business with Gregory Interstate Commodities. He says generally, he'll just ask more questions about companies he sells grain to, but declines to say whether the state should enact more protections for farmers in insolvencies.
"If banks fail or the economy fails, is there any guarantee?" Vomacka says. "There is no guarantee in anything, I don't care how many rules you can write. Those things will happen."