Knudsen Milk Supply Cut by 5%; Sales Off

Financially ailing Knudsen Foods, the West’s largest dairy company, disclosed Friday that it has lost 5% of its milk supplies since it missed $18 million in payments to dairy farmers Monday. The company said its annual sales have also dropped 2% this week.

Milk supplies in supermarkets have not been affected and no shortages are expected, company and state officials said.

Glenn Gleason, chief of the milk-pooling branch at the state Department of Food and Agriculture, said that some dairy farmers have stopped supplying Knudsen directly but are selling the milk to dairy cooperatives, which are in turn reselling the milk to Knudsen. Knudsen has faced financial difficulty since last September, when the company’s parent, Los Angeles-based Winn Enterprises, disclosed that it was unable to pay some of its debt holders. Knudsen said Tuesday that it may seek protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

Meanwhile, Knudsen faces an involuntary bankruptcy action filed by three creditors who say they are owed a total of $5.3 million. On Friday, acting at Knudsen’s request, a federal bankruptcy court judge ordered the company’s banks to honor the Knudsen payroll checks.

A Knudsen spokesman also disclosed Friday that it had lost $20 million of annual business, or 2% of its yearly revenue, since the beginning of the week. About $15 million of that was due to the loss of some of the business it had with Albertson’s. Albertson’s decided to switch to Jerseymaid in order to assure “a continuity of supply,� said Jim Jackson, an Albertson’s vice president. Jackson said Albertson’s would continue to market Knudsen products, such as cottage cheese.