Several Kansas co-ops enter into dispute
MOUNDRIDGE — Three farmers co-ops are asking that the company they use for marketing and grain sales be liquidated and its profits dispersed. Alleging unfair actions and the violation of a credit agreement by the company, they are asking for approximately $5 million to be returned to them.
Farmers Cooperative Elevator Company of Halstead, Cooperative Grain and Supply of Hillsboro and Central Prairie Co-op of Sterling filed a petition in district court in early February against Team Marketing Alliance of Moundridge. In that petition, they ask that the company be dissolved.
Team Marketing Alliance is the grain division for three other companies. Mid-Kansas Cooperative of Moundridge, Producer Ag of Topeka and Mid-West Fertilizer of Moundridge make up the other three members that have not filed against TMA. The six companies that utilize TMA own more than 65 country elevator facilities and two rail terminals for the handling of bulk grain.
Founded in 2000, TMA's mission states the organization was formed to help farmers protect their revenue and preserve equity by combining crop insurance, crop inputs and grain marketing. The company is focused on collectively marketing grain for the owner-members and building relationships with end-users. MKC stated in a release, that since the organization began, TMA has returned more than $280 million to its owner-members.
For two decades, MKC and Producer Ag have worked with TMA for their merchandising, logistics, accounting and e-commerce. MKC and Producer Ag are majority owners of TMA, holding approximately 73% of its shares. Farmer's Co-op, Cooperative Grain and Central Prairie Co-op make up approximately 25% of ownership. Midwest Fertilizer owns about 2%.
According to the petition, TMA’s members’ interests in both capital and profits and losses have not been calculated in accordance with TMA’s operating agreement since March 1, 2016. The petition said the operating agreement mandates a distribution of available cash with respect to TMA’s income for each fiscal quarter.
The operating agreement, according to the petition, states there should be quarterly mandated disbursement of income to all of the parties. According to the document, approximately $8 million was to be distributed proportionately to all six organizations by the end of TMA's fiscal year — Feb. 29, 2020. This amount was due to be distributed in April 2020. In addition, another $12 million was to be dispersed to the six companies during the next two quarters.
In June, the document contends that Central Prairie Co-op asked that there should be a distribution of available cash, stating this was to be done "only to the extent of the minimum percentages that each member agrees or believes each other member owns in the capital or profits of TMA."
It is alleged that MKC and Producer Ag voted against this motion and the motion failed. Another meeting was called to discuss this matter, but a quorum was not reached. On July 22, a compromise distribution of cash motion was brought up by Farmers Cooperative Elevator Company, but the motion was once again defeated.
In September, MKC’s CEO sent an email to the chief executive officers of Farmers Cooperative Elevator Company, Cooperative Grain and Supply and Central Prairie Co-op, asking that lawyers be present during any additional communications.
Because they allege they are not able to obtain their money as per the operating agreement, Farmers Cooperative Elevator Company, Cooperative Grain and Supply and Central Prairie Co-op filed a petition to dissolve TMA and have the court settle the disbursement of cash assets totaling slightly less than $20 million. According to the three smaller companies' legal documents, this would allocate approximately $10 million for MKC; a little more than $3.5 million for Producer Ag; about $400,000 to Midwest fertilizer; slightly less than $1.5 million each to Farmers Cooperative Elevator Company and Cooperative Grain and Supply; and slightly more than $3.5 million to Central Prairie Co-op.
The petition also alleges that during November 2018, TMA loaned $3 million to MKC without disclosing this loan to the other members or obtaining the consent of a super majority interest, which is required by the operating agreement.
Cooperative Grain and Supply, Central Prairie Co-op and Central Prairie Co-op have also asked for an independent audit of TMA. According to MKC, in a release that was generated in response to this petition, independent auditors approved by all TMA owners have conducted annual audits and have reported no discrepancies in the financial statements, including the distribution calculations.
The document filed in Marion District Court on Feb. 2 states that Farmer's Co-op, Cooperative Grain and Central Prairie Co-op desire to dissolve TMA and to dispose of its assets in accordance with a plan to be agreed upon by TMA’s members or as determined by the court.
MKC and Producer Ag plan to stay with TMA.
"We are committed to TMA's goal of delivering value-added solutions to our customers and their operations to reduce their risk and increase revenue," Brad Stedman, president and CEO of MKC, said in a statement. "By all measures, TMA has been a successful business over the past 20 years and will continue that success into the future focusing on new markets, risk management and technology."
Farmer's Co-op, Cooperative Grain and Central Prairie Co-op have asked that TMA not engage in transactions outside the ordinary course of business without first obtaining the consent of a supermajority interest of its members.
“Recently the minority owners of TMA have expressed their intention to leave TMA. The majority owners of TMA have assured us they fully support our organization and are committed to continued growth and success, and the success of our farmer-customers,” said Ted Schultz, executive vice president and chief operating officer of TMA. “We will continue to work tirelessly during this transition period to ensure there is no impact on the services TMA provides to farmers.”
According to the petition, Cooperative Grain and Supply, Central Prairie Co-op and Central Prairie Co-op offered and continue to offer to enter into mediation concerning TMA’s operating agreement and the liquidation of the company.
There are two other grain alliances in Kansas that are similar in structure to TMA. These include Comark Equity Alliance in Cheney and AgMark in Beloit. They are not a part of this dispute.