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Coops Adapt To Remain Competitve In Grain Market

posted on January 28, 2005


Often-delayed and much squabbled over, the Congress is ready to tackle controversial energy legislation again.

The House has set a mid-February date to mark-up the bill. From there, it shouldn't take long to approve, since the House has passed an energy bill four times since 201. Action will take longer in the Senate, where disagreements over a liability waiver for the fuel additive MTBE have stalled debate in the past.

The energy bill is important to farm interests because it carries provisions to boost the production of ethanol, which producers regard as a value-added market for their corn. The vehicle to merchandise that corn often is a new generation of co-ops ... local elevators that provide expanded services to their members.

But it's not just product processing that marks the way elevators are changing. As Nancy Crowfoot explains, many cooperatives adapt in other ways to the changing needs of agriculture.

Coops Adapt To Remain Competitve In Grain Market This coop elevator in north central Iowa is spending $2-to-$3 million dollars to add and upgrade rail lines. The cost includes the addition of outside conveyors, a grading room where a USDA inspector checks the quality of grain to be shipped out, and a bulk weigh scale to keep an accurate record of grain loaded into rail cars. All these improvements here, and at three other elevators owned by the NEW cooperative, are to increase the number of rail cars and the speed at which grain can be loaded into 100-to-110 cars.

Upgrading to what is called "shuttle" rail service is one of the most expensive items the NEW Cooperative has undertaken. But it is one that the general manager says was necessary to remain competitive in the grain business.

Brent Bunte, General Manager, NEW Cooperative: "We just felt we needed access to the best rail rates available to secure as high a price for grain as we could for our membership. It's pretty important to our membership to be able to handle the grain as efficiently and effectively as we can."

It is an efficiency that initially may have been forced upon the grain industry by the railroads decades ago ... at least for the NEW Cooperative, established in 1973. When one country elevator (in Badger, Iowa) lost its rail service, it merged with a nearby coop (in Vincent) that needed more grain to fill 50 rail cars. Over the years, for various reasons, other elevators in the area joined NEW & which now comprises 16 sites with a grain storage capacity of 28-to-30 million bushels.

It's not the largest coop in the state, but one that is doing all the right things to survive, says the executive director of the Iowa Institute for Cooperatives, in Ames.

David Holm, Executive Director, Iowa Institute for Cooperatives: "Bigger is a reality and I think in many cases it takes a certain size to be economically viable.

The other part of that is there has been a tremendous amount of consolidation from the suppliers to the cooperatives, whether that be the chemical manufacturing, the seed industry, the grain purchasers there's been a tremendous consolidation at that level also."

Economy of scale has been incentive enough for NEW Cooperative to purchase bulk quantities of inputs. For example, last year the coop expanded one of its warehouses to hold 20,000 tons of fertilizer. The business also installed bulk seed storage where farmers can drive up and fill their soybean orders directly into their trucks instead of buying numerous bags of seed.

NEW Cooperative also built additional receiving -- or "dumping" -- pits and increased the number of "legs" to move the grain to storage.

It almost appears to be modeled after the fast food industry. Get the farmer in and out in a fast and efficient manner.

Brent Bunte, NEW Cooperative: "A farmer harvests his grain faster and faster all the time so we need to be in position to dump his grain faster and faster all the time at harvest time. And we've spend a lot of money doing that in the past and we'll continue to make those investments."

It may seem like the NEW Cooperative has caught up with where it needs to be, not only for grain handling  but like many elevator operations, it offers a number of other services to members. Among them: a thriving agronomy services department which provides GPS application of fertilizer, chemicals and seed.

But a new challenge is facing the cooperative. Much of the coop's expansion during the past year was based on crop projections in the future. Some of the expectations may not be realized as potential competitive markets for corn are being created. In the past year, announcements were made that three ethanol plants would be built within several miles of some of the coop's 16 operations. The largest plant would utilize 39 million bushels of corn.

Brent Bunte, NEW Cooperative: "It may reduce some of our post-harvest volumes some, if more grain moves directly to the ethanol plants. And we'll make those adjustments."

David Holm, Institute for Iowa Cooperatives: "Well, the ethanol plants will be consuming corn locally that will not be available to export. And if you're going to export that corn you're going to have to be the low cost shipper of it and the best way to be the low cost shipper is do it on a shuttle train status."

Basically, Holm is saying the NEW Cooperative, with shuttle train service at four of its sites -- has its bases covered to be competitive in the corn market. And there is a belief by some that there will be enough corn for everyone.

David Holm, Iowa Institute for Cooperatives: "I think as you watch this year will be very interesting as we shift to more corn production. I think that will be driven by a combination of local corn demand by the ethanol plants and then some of the threats to soybean production that could become of Asian Rust and weve had aphids and white mold and as farmers shift that production from their standard corn/soybean rotation to more corn on corn, it will provide opportunity to handle more bushels of grain."

Whether or not more corn is planted this spring one thing seems certain-- the NEW Cooperative expects to be ready with a plan to survive the future -- just as it has adapted to all the changes in agriculture over the past 30 years.

Brent Bunte, NEW Cooperative: "As any other changes that have taken place with NEW Cooperative, it's good for our membership, eventually it will be good for NEW Cooperative too. And we'll adjust and continue to find ways to create value for our membership."

For Market To Market, I'm Nancy Crowfoot.


Tags: agriculture co-op news