Milk checks short again; creamery looks for new bank

Creamery hopes to deliver $400,000 to producers by Friday; CoBank wants out

Originally published in the "4-2-09" issue.



Humboldt Creamery producers barbecued hotdogs and hamburgers at their annual meeting and lunch Tuesday, held at the fairground’s Turf Room.

It was an altogether different scene from years past at the Humboldt Creamery’s annual membership lunch and meeting Tuesday afternoon.

Instead of a catered lunch at the River Lodge in Fortuna, it was a potluck barbecue at the Turf Room in Ferndale. And, many of the member/ producers didn’t stick around for lunch after receiving their first of the month milk checks. The joke was, many had headed straight to the bank.

“No one has an appetite,” commented one producer. “They should have put out a jug of whiskey.”

Interim Chief Executive Officer Len Mayer said the 50 producerswere paid 80 percent, or $1.8 million of what was due them and that by the end of this week, they should receive the rest — $400,000.

“Hopefully, we’ll be able to continue to pay them from here forward,” said Mayer, adding that producers were “okay” with the news. “We’ve told them all along that our motivation is to pay them, but we have a cash flow issue.”

Board member Dennis Leonardi explained that beginning this month, producers will get paid for their milk sooner rather than 45 days later, “so that we can keep milk checks current,” he said. “But, it’s all based on cash flow,” he reiterated.

On March 1, producers deferred $2million of what was owed them for January milk.

“I’m happy to still be shipping milk to Humboldt Creamery,” noted dairyman Robin Renner, whose Diamond R Ranch took first place in the creamery’s milk quality awards, recognizing the dairies with the “cleanest” milk and the lowest bacteria counts. (For the record, the George and Tina Toste dairy took second; the Mark and Nicole Miranda dairy took third; the Don Pedrotti dairy took fourth and Blake and Stephanie Alexandre dairies took fifth place.)

Meanwhile, while waiting to dish up a barbecued hamburger cooked by members, Mayer told The Enterprise that the creamery is now looking for a new bank.

CoBank, headquartered in Denver, Colorado and which the creamery owes more than $25 million (out of a total of $55 million in loans — the remainder with American AgCredit and Northwest Farm Credit) “is willing to work” with the creamery while it hunts for a new bank, said Mayer. And, the bank knows it will “take a haircut,” noting that all the banks and the creamery employees’ union had audited the creamery’s books in the past and had not found any red flags.

“Our job over the next few weeks is to find a new bank,” he said, noting that the news was “definitive” with a call from the bank on Monday. “It’s what they call, ‘banker’s fatigue’.”

Mayer said best case scenario is that the creamery is successful obtaining funding from the USDA’s Rural Ag Development Loan Guarantee Program.

Congressman Mike Thompson is assisting the creamery in the effort and a community coalition of local elected officials and economic development individuals is building, according to First District County Supervisor Jimmy Smith.

Mayer further explained to The Enterprise on Wednesday that May is a critical month for the creamery, since normally they ramp up production to meet increased ice cream demand.

“The sooner we get a normal banking relationship with a line of credit, we can build inventory,” he said. “Right now, we don’t have a good solution for building inventories and doing all the things we need to do this summer. Our whole financial model takes into account our payment to dairymen and vendors and depends on the buildup through sales in the summer. If we don’t get a solution by May, we will have to change the business model even more severely.”

Meanwhile, in hopes of raising cash, three possible buyers are interested in the creamery’s Los Angeles ice cream plant, said Mayer. Bids will be accepted for the plant which was appraised in 2006 for $11.5 million, he said. Shifts at the ice cream plant at Fernbridge have been reduced from three to two, affecting approximately 25 employees, said Mayer.

“We’re calling them furloughs,” he said, “as we attempt to preserve cash.”

About 15 mid-level and senior staff administrative staff members have been laid off between the company’s three operations in L.A., Stockton and Fernbridge. (Ten at the Fernbridge location.)

As for confirmation of reported bonuses paid administrative employees in past years, Mayer said $90,000 was paid to about 20 employees for calendar year 2007 and for two years prior to that. Former CEO Rich Ghilarducci was paid an annual salary “in the range of $250,000” and did receive bonuses “for a number of years,” said Mayer.

As for the status of creamery customers through these uncertain times, Mayer said, so far the creamery has lost just one customer.

“And, it was a customer we were debating about keeping,” he said. “We have retained all the customers we want to retain.”

As for the possibility of filing for bankruptcy protection, Mayer acknowledge the move has not been ruled out.

“If it’s in the best interest for farmers and the community, we’ll consider it,” he said.

As for the investigation into alleged fraud by Ghilarducci, Mayer said the creamery this week is assembling a “truckload of stuff ” requested by the US Justice Department, including up to six years of past board minutes and packets and financial statements.

Reflecting back to February 20, the day the creamery received Ghilarducci’s resignation and a tip from his attorney that there “may be” financial irregularities, Mayer said at that point “every possible resource had been drained dry.

“He couldn’t buy one more day,” Mayer said referring to Ghilarducci. “He had no ability left to convince anyone anymore.”

Emails and calls to Ghilarducci’s attorney by The Enterprise requesting comment this week were not answered.

In other creamery business, board members Gary Nicholson and Tom Ghidinelli were re-elected to three year terms. Andy Titus will take the seat formally held by Frank Leonardo.