Part of the Crop Management Decision Cases (other cases available)
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1. "What do I do now?" wondered Jared Benson on a rainy October evening as he drove from the parking lot of the Phenix Biocomposites manufacturing plant in Mankato. He had just attended a meeting of Phenix company representatives and Minnesota soybean farmers who had invested in Phenix The meeting had been called to discuss the soybean delivery notice, recently issued to farmer investors, requesting that they deliver to the company a minimum of 250 bushels for every share they owned. The notice had surprised some investors, who had come to the meeting with lots of questions and concerns. It was a lively meeting. Company representatives gave a tour of the new plant and a pep talk about Phenix's promising future, while Jared and other farmers asked pointed questions regarding the value of their investments and the reasons for the recent soybean delivery notice. As Jared drove across town to pick up his daughter from dance practice, he mulled over the events of the last few years, debating whether to comply with the soybean delivery notice. If he did, how many bushels should he deliver?

2. Jared, an experienced farmer who had been in the agriculture business for almost 25 years, farmed 1000 acres in South Central Minnesota-with 450 acres of soybean, 450 of corn and 100 of canning crops. An active member of the Adams County Soybean Association, he was first the association's secretary and later the chairman. He and his wife had good business sense, and they had a personal banker who considered their business financially sound.

3. Several years ago, the Bensons had begun to consider investing when a neighbor made a large profit from investments in a corn processing plant. The Bensons were particularly interested in investing in companies that would use and promote their crops. At trade shows, state and county fairs, and soybean association meetings, Jared had seen displays for the startup company, Phenix Biocomposites that manufactured building products created from soybeans and newsprint. Jared liked the idea of a building material that "looks like stone, works like wood," and was impressed by the samples of "Environ" and "NewStone" (Exhibit A), and by the company's fact sheets (Exhibits B, C and D).

4. Over the course of a year and a half, Jared considered making the investment in Phenix. He read company materials and discussed the decision with various people. His wife, who was more inclined to take risks than he was, thought the investment was a good idea. And a fellow farmer, whom Jared respected for his financial and business knowledge, agreed that the company's products had a lot of potential. But Jared's friend, a farm management instructor at the local college, advised him to be careful about the amount he invested in any one company. "Don't put all your eggs in one basket," he cautioned Jared. And still another acquaintance of Jared's had done business with one of Phenix's founders and thought that this person might not be trustworthy.

5. There were obvious risks and benefits to the investment. There was the risk that the company would fail due to financial difficulties, management problems, or through lack of market for the products. On the other hand, if Jared "got in on the ground floor" by investing right away and the company proved successful, he could make a profit over the years and feel good that his investments were promoting his crop. Overall, Jared felt the benefits outweighed the risks, and in 1994 he took out an operating loan and bought two shares of Phenix at 3500 dollars each.

6. Total investments from the Minnesota soybean farmers made up 60 percent of the financial backing for the company. This money was used to finance the start-up of a fiberboard manufacturing plant in Mankato, which was not yet in operation (Exhibit E). Various other investors, including grain coops in Minnesota and North Dakota, the USDA, and private investors provided the remaining 40 percent. This money was being used to support the plant in St. Peter that was already manufacturing "NewStone" and "Environ."

7. At the time of the October meeting, three years had passed since Jared had purchased his shares. In that time, Phenix had experienced several financial and logistical setbacks. The money that farmers had invested was being used to build a new plant that would produce particleboard from soybean straw. Original plans to build the plant in LeCenter were abandoned because the financial arrangements between the city and developer fell through. The delay spurred a need for additional financing, so Phenix offered a second round of shares to farmers in 1995 and also secured a loan from a European bank. The company had decided to build the new plant in Mankato, but the start-up date had been pushed back several times. The plant the farmers had invested in was still not in operation.

8. Now Phenix was asking for further financial backing, requesting that by the end of the month shareholders deliver a minimum of 250 and a maximum of 500 bushels of soybeans per share they owned (Exhibit F). In return, the company promised after one year to give the farmers the current market price for their beans plus a 22 percent premium. According to a document called the Uniform Marketing Agreement that farmers signed at the time they purchased shares, the company had the right to request 200 bushels per share each year. The current soybean delivery notice requesting 250 bushels included 200 bushels for the 1998 crop and 50 bushels from the 1997 crop. Since there had been a 3 for 2 stock split shortly after Jared's investment, he now owned 3 shares and was required to deliver a minimum of 750 bushels of soybeans. Jared couldn't recall the details of the Uniform Marketing Agreement three years after signing it, and was thus surprised by the delivery notice.

9. Jared was becoming increasingly skeptical about his investments due to plant start-up delays and the company's repeated requests for additional money and beans from farmers. The recent soybean delivery notice was one more in a series of disappointments for him. He was paying 8.25 percent interest on his original investment of 7000 dollars. Now if he complied with the delivery notice and gave a minimum of 750 bushels of soybeans valued at about 3800 dollars, his total investment would be over 10,000 dollars-without seeing a penny of interest from his investments. According to the soybean delivery notice, he would deliver his soybeans as an unsecured creditor. His financial risk would be much greater than for the secured creditors, such as the private investors and the European bank. Sometimes he felt he was being "schnookered" by the Phenix company reps, which hurt his pride as a farmer. "If I give them 750 bushels, am I just putting good money after bad?" he wondered.

10. He still saw advantages to his investments, however. Even though he hadn't earned any interest, his shares on paper had increased in value. The 3 for 2 stock split meant that he now had 3 shares that had cost him 2333 dollars per share, and were currently trading at 3000 to 3500 dollars per share. And the recent soybean delivery notice gave Jared the opportunity one year from now to earn a 22 percent premium on a maximum of 1500 bushels. He still thought that "Environ" and "NewStone" were innovative products with many potential uses in the manufacturing industry.

11. If he gave up his shares, he would have to find a buyer offering a fair price who could deliver 200 bushels of soybeans per share each year as required by the Uniform Marketing Agreement.

12. Jared picked up his daughter and headed home, planning to talk to his wife after dinner about what to do about the soybean delivery notice from Phenix.

While this case represents an actual situation, all names of people have been changed.

Part of the Crop Management Decision Cases (other cases available)
View Teaching Note for this case.