North Dakota pulse marketer files Chapter 11 bankruptcy

BISMARCK — One of North Dakota’s outstanding pulse crop marketers has filed for Chapter 11 bankruptcy protection and reorganization, a victim of tariffs and weather.

JM Grain Inc., with offices at Garrison, N.D., and Great Falls, Mont., filed a voluntary Chapter 11 bankruptcy June 25 in Fargo. The company says sales in the current year are about $3.5 million compared to the average of about $13 million, in part due to tariff and trade disruptions.

U.S. Bankruptcy Judge Shon Hastings in Fargo on July 2 issued an interim order allowing the use of cash collateral to keep the company going. A hearing is set for July 16 in Fargo.

Meanwhile, it is the first case as the North Dakota Agriculture Department takes over grain marketing regulation on July 1, according to Agriculture Commissioner Doug Goehring. He said the department is in the process of determining whether and how to use a trustee to oversee the company’s bond.

Long-time player

JM Grain started as a general partnership between Marvin Flaten and his son, Justin, in 2001. They opened a processing plant at Garrison in 2003 and incorporated in 2004. The company trades in edible beans, peas, lentils, chickpeas (garbanzo beans) and does custom seed cleaning. They have 10 full-time employees.

The company in 2011 received a state export award from the North Dakota Trade Office. Justin served as president of the U.S. Dry Pea and Lentil Trade Association in 2016.

In 2015, the company added toll processing facilities — to clean, sort and package for others — in Montana, and Cummings in eastern North Dakota, with rapid growth due to expanding chickpea sales.

In 2017, 2018 and 2019, the company experienced financial setbacks.

In the fall of 2016 and winter of 2017, the company contracted chickpeas with growers with a shipping schedule after harvest in 2017. They offered an “act of God” clause that allowed growers to under-deliver or not deliver if weather affected production quantities. Then JM sold 80% of contracted quantities to customers.

Due to a drought in 2017, JM Grain received only 55% of its contracted quantities of chickpeas. Due to lack of supply, prices increased to record levels, with grower bids reaching 50 cents per pound. JM covered their sales with spot purchases at 10 cents to 20 cents per pound higher than contracted prices.

Tariffying times

About that time, India — the world’s largest importer of chickpeas — placed tariffs on pulse crops: chickpeas, 44%; peas, 33%; and lentils, 50%. Since fall 2017, chickpea prices have dropped by 70%, lentils down 55%, and peas by 30%.

Further complicating things, China and the European Union, the second- and third-ranking markets for U.S. pulse crops, have placed tariffs of 25% on U.S.-origin pulses, “effectively shutting down those markets,” the company said in the Chapter 11 declaration.

“The closing of the three largest markets has been devastating,” JM Grain said. “Debtor was caught with large inventories of chickpeas and lentils at the start of 2018 with nowhere to sell and sustained heavy losses in 2018 as the inventory was liquidated.”

At the same time, the company experienced defaults on contracts from buyers in India, Dubai, Sri Lanka and Canada, accounting for non-payments on shipments of $1.64 million. Farmers who failed to provide proof of loss for undelivered contracts was $700,000.

Finally, JM Grain had been a U.S. Department of Agriculture vendor since 2004. For fiscal year 2019 (Oct. 1 through the current time) the USDA has purchased only 25% of its normal pulse crop purchases.

“JM’s plan is to reorganize company debts, restructure operations,” the company said in a statement. According to bankruptcy documents, grain receipt-holders are owed a total of $609,804 and the company is planning to restructure debt to pay the creditors in full. The debts include a total of $363,504 to ten North Dakota farmers, who have a superior lien. The company also owes $246,000 to two Montana farmers. Crops involved include green peas, yellow peas,chickpeas, red lentils, small green lentils and medium green lentils.

The company plans to invest another $1.5 million and have operating line of credit with First Western Bank & Trust. It has cut administrative staff and salaries and has expanded its service provider business.

The company is represented by Caren Stanley and Jon Brakke of the Vogel Law Firm in Fargo.

Goehring said the bankruptcy court notified the department of the bankruptcy July 2. The department in late June hired Shaun Quissell as its new Grain and Livestock Licensing Division director. Quissell has been with the department since 2007.

Goehring said the department hired one full-time inspector, will hire two more by July 22 and will meet with constituent groups and a legislative interim committee that is looking at ways to improve grain regulation, which had been done through the Public Service Commission prior to the last legislative session.