Prompted by a cash shortage, Farmland Industries Inc. filed Chapter 11 bankruptcy protection in U.S. Bankruptcy Court Friday.

The company said meat production would be the core of its future operation, and it would continue efforts to rebuild the Albert Lea plant. But, at the same time, the profit-making meat division would be the most marketable asset to sell, which brings some uncertainty to the proposed project in Albert Lea.

“Farmland has been in a period of high liquidity,” said newly appointed CEO Bob Terry in a telephone conference with reporters across the nation. “Regrettably, we were unable to overcome one significant challenge &045; aggressive early redemption demands from our subordinated debt holders.”

According to Terry, Farmland has about 15,000 to 20,000 individual security holders in its subordinated debt program. The program has been a steady source of financing, providing $570 million. But concerns about the company’s financial health have urged investors to cash out. Early redemptions in the past six weeks amount to between $30 to $40 million, said Terry.

The massive divestment aggravated their cash flow problems and consequently made it impossible for the company to fulfill a $10 million payment due Friday on a $500 million loan it obtained in February from a consortium of banks led by Deutsche Bank, said company officials.

“This was a difficult decision for us,” Terry explained. “But we believe it is in the best interest of our company.”

The company will maintain its current business operations while reviewing its cost structure and asset base, he said.

Terry described meat production as a core asset around which Farmland would restructure its future, along with fertilizer production. Grain and feed divisions are less central to the company’s mission today, he said.

“One of the areas that is not being considered for any cost reduction is our food production operation.”

The meat operation, which includes the packaged meat products which an Albert Lea plant would supply, has doubled its gain in the first half of the current fiscal year, bringing $34 million in profit compared to last year.

Despite the filing, company officials still are continuing to plan for a new plant in Albert Lea.

“I do not think it does anything to that situation. We have been negotiating and working with our insurance companies to determine an appropriate level of recovery . . . Rebuilding in Albert Lea is very much tied to the successful resolution of our insurance claims,&uot; Terry said.

However, the high profitability of their meat production operations has already brought an offer to purchase that division from another meat-processing corporation.

Virginia-based Smithfield Foods, the world’s largest pork processor, contacted Farmland by letter Thursday, proposing to buy the meat operation, which is estimated to be worth over $1 billion. Smithfield also offered to subrogate the $10 million due banks so that Farmland would avoid filing the bankruptcy.

Farmland management discussed a possible purchase with Smithfield until the last moment Friday, but did not reach an agreement.

“Today’s action does not eliminate the possibility of further discussions with Smithfield. There is no reason not to continue discussions if there is a basis to do so. And we are open to that,&uot; said Terry.

Whether or not Smithfield would want a plant in Albert Lea, if it does end up purchasing Farmland’s meat production facilities, is an unknown at this time.