Roger McEowen, Iowa State University ag law professor, says the peril continues for farmers and elevators holding contracts to deliver corn to VeraSun Energy.
On Dec. 2, the
The rejected contracts are for delivery to
Contracts to other plants apparently are not affected.
VeraSun Corn suppliers have been asking numerous questions regarding whether they should sell their corn without having received notice of rejection of their contracts, McEowen says.
"That could be a huge mistake. Until the contracts are rejected, the corn supplier is under contract to sell to VeraSun even though VeraSun may later reject the contract," he says.
Assume that a VeraSun corn supplier has a contract for February delivery to a VeraSun plant at $6 per bushel and chooses to sell the corn at the current price offered by the elevator of $3 per bushel, McEowen explains."If the prices stay low, VeraSun will most probably reject the contract and the corn supplier will not suffer any ill consequences. However, if the price of corn flips and the price for February corn increases to $7.00 per bushel, where it was last February, VeraSun would have the option to assume the contract and if the corn supplier did not have corn to fill the contract, the corn supplier would have to pay VeraSun the difference of $1.00 per bushel -- the difference between the market price and the contract price. The VeraSun corn supplier would effectively receive only $2 per bushel, instead of the $3 per bushel he thought he would receive," he says.