12 April 2002

Viking calls in receivers

By Robert Harris

VIKING Cereals, the farmer-owned marketing and trading business, has called in the receivers leaving many growers wondering if they will be paid for their grain.

Directors of the troubled firm invited in administrative receivers on Friday afternoon (Apr 5), after what Viking Cereals describes as "substantial" trading losses left it insolvent.

NatWest, Vikings bankers, appointed accountant KPMG as joint receiver on Monday.

Allan Graham of KPMG said: "Our aim is to achieve a direct transfer of the business to protect the interests of member farmers. We intend to call a meeting of member farmers as soon as possible and involve the NFU in order to find the best solution for the business."

Mike Jackson, Viking Cereals chairman, said: "This situation is extremely regrettable for all those involved. The board of Viking Cereals will, of course, be co-operating with the receivers to look at how any losses to the companys creditors and members can be minimised."

Rumours abound as to the level of the losses, though most estimates suggest £8m-10m. The final figure will also depend on money due from stocks and debtors.

One observer described events as a shock. Viking Cereals, which is based at Colsterworth, Lincs and started trading in 1976, showed a profit of £134,000 and net assets of £1.3m in the year ending July 2001.

But trade whispers have suggested that Viking Cereals was one of the biggest futures traders in the country, a risky business unless the right hedges are used.

Such rumours were backed by calls made by directors to members over the weekend. One reportedly blamed a rogue trader who chalked up big losses on futures trading. Another call suggested the co-op had over-borrowed to cover interim payments on the long grain pool.

Exposure on Chicago grain futures alone is believed to be several million £s.

Some of the groups 385 members are concerned that they will not receive payments due on their grain.

Simon Fisher, NFU policy adviser for Lincs, said the union has been trying to piece together the structure of the business to find out how much farmers will be affected. "We are facilitating the first round of legal advice for Viking members and farmers affected on the spot market. The big question that needs to be cleared up is the liability of the membership."

The union is also concerned whether farmers who received interim payments through Viking Cereals will have to pay back their money, whether grain had been shifted or not.

Richard Macdonald, NFU Director General, described the situation as deeply regrettable. But he said it did not change the unions belief in the need for farmers to collaborate so they could increase their power in the food chain.

It is understood that Viking Storage, through which almost 80 members have invested thousands of £s buying storage space, is a separate business and will not be affected.

Closed for business…Viking Cereals has admitted substantial trading losses, which could amount to several millions of £s.

Long grain pool causing most concern for farmers

Farmers exposure to the problems at Viking Cereals is unclear. The long grain pool is causing most concern, especially as farmers agree to commit 100% of their grain to it.

Observers hope that receivers will hold the view that Viking Cereals was established as a marketing and trading company and does not own grain stored on behalf of members.

If so, receivers could adjust payments already made to members in line with the proportion of pool grain sold. The rest could be sold on the open market and the price returned to farmers.

The worst-case scenario is that receivers try to argue that members liability is more extensive then the shares they hold in the company. If that happened, those farmers who received interim payments (in September and February) of £50/t on their grain might find that receivers treat it as a loan (as interest is charged) and are entitled to recover it.

Other farmers opting for later interim payments, normally due on Apr 1, May 1 and Aug 1, received £50/t on account on Mar 28. But unexpected or early payments could make farmers preferred creditors, so the amount usually paid in May and August could be reclaimed.

Balancing payments, due on the long pool, and final payments, due on long and probably the short pool too, would be unlikely to be paid. These could amount to £25/t.

Farmers simply trading grain with Viking Cereals could also lose out. If they have sold grain, and it has been delivered to the customer, they are likely to be treated as unsecured creditors and may not receive any money at all. It also appears that some of these farmers have been paid for their grain sooner than the usual 28-day period. This could make them preferred creditors and receivers could be entitled to recover payment.