The recent economic downturn has affected all different kinds of industries, from agriculture to manufacturing. One California poultry farm has recently chosen to file for bankruptcy to pay off creditors. Zacky Farms LLC owes creditors close to $100 million.
Zacky points to the dramatically rising feed costs and heavy debt as the reasons for filing. Zacky is a closely held company and is facing the same fate as many other smaller farms in the California area. Corn and soybean meal prices are at an all-time high, which has lead to significant losses in its poultry operations. Droughts in the United States, South America and Russia are to blame for the increased feed costs. This increase in the price of corn, which is the main in gradient in livestock feed, has lead to Zacky spending almost $2 million a week on feed for 1.9 million turkeys and 600,000 chickens.
Zacky tried to avoid commercial bankruptcy by borrowing heavily in the spring. The company borrowed around $7 million from the trust account that owns half of Zacky. To remain in operation during bankruptcy, the company must borrow $71 million. This debt arrangement is currently being made by a separate Zacky family trust. The company's goal in bankruptcy is to reorganize the debt and continue operating.
Bankruptcy is a beneficial option for companies in a situation such as Zacky. It stops all collection actions immediately and allows the company to create a debt reorganization plan that will allow it to continue operating. Most of these plans reduce interest payments, and penalties or fees that have accumulated may be reduced or eliminated completely.
Source: Bloomberg Businessweek, "Zacky Farms Files Bankruptcy, Cites Cost of Poultry Feed," Steven Church and Phil Milford, Oct. 9, 2012