NEWSLINE

Engel to succeed Sims
as CoBank CEO
CoBank CEO Doug Sims under whose leadership the bank nearly tripled its assets,$12 billion to $31 billion will retire June 30. Sims has been the bank's CEO since 1994 and has 37 years of service with the Farm Credit System, of which CoBank is a part. He will be succeeded by Robert B. Engel, who joined the bank in 2000 as president and chief operating officer.

"we're fortunate to have had two such exceptional individuals on the bank's management team for the past 5 years", OJ. Roy Orton, board chairman of Denver-based CoBank, who predicted a smoth transition. "Under Mr. Sim's leadeship, the bank has maintained consistently strong financial performance and expanded its capacity to serve a broader base of customers and businesses in U.S. agriculture and rural America.”

Sims managed the bank through 15 mergers and acquisitions, the opening of its first representative office outside the United States and its first issuance of preferred stock, which brought $500 million of new investment capital into the bank.

Sims is chairman of the Farm Credit System’s Presidents Planning Committee and co-chairman of HORIZONS, a system-wide customer research and strategic planning initiative. He is the current chairman of the National Council of Farmer Cooperatives and past chairman of the Graduate Institute of Cooperative Leadership, Lutheran Family Services of Colorado and the FarmHouse Foundation. He is also a member of the Finance Governors of the World Economic Forum and a founding member of the Center for Corporate Excellence in Vail, Colo.

Engel has nearly 20 years of banking experience, primarily with HSBC Bank USA, and 8 years of accounting experience, including an agribusiness specialization, with KPMG and Deloitte & Touche. During his 14-year tenure at HSBC, he served in a variety of management and credit positions, including chief credit officer, before being named chief banking officer. Engel serves on the board of directors for the Federal Farm Credit Banks Funding Corporation, Farm Credit Leasing Services Corp. and Financial Partners Inc. He also serves on the board of trustees for Niagara University, and is a recipient of the Ellis Island Medal of Honor.

“We have confidence in Mr. Engel’s experience, expertise and leadership,” Orton said. “He has a deep understanding of CoBank and our customers, as well as a proven track record of implementing strategic plans and positioning CoBank for success.”

CoBank, part of the $135 billion U.S. Farm Credit System, specializes in providing financial and leasing services to cooperatives, agribusinesses, Farm Credit associations and rural communications, energy and water companies. The bank also finances agricultural exports.

DFA’s Hanman, Schriver retire;
Rick Smith named new CEO
Two top executives at Dairy Farmers of America (DFA), headquartered in Kansas City, Mo., retired Jan. 1. CEO Gary Hanman and Executive Vice President Donald Schriver are both ending careers with DFA and its predecessor co-ops. They were key players in the creation of the co-op and built it into the nation’s largest dairy co-op, accounting for just under one-third of the nation’s milk supply. Both will continue to advise DFA on various programs and projects. Rick Smith, who had been president and chief operating officer, has been named as the new CEO.

“DFA was created by dairy farmers, who wanted to take control over their destiny in a rapidly changing business environment, and Gary Hanman helped us make that a reality,” said Tom Camerlo, DFA board chairman and a dairy farmer from Florence, Colo. He saluted Hanman for “building a marketing cooperative that can compete on a global level, while providing a grassroots structure that ensures dairy farmer input and control. We look forward to building on that legacy for the benefit of our farmer members.” DFA today markets and processes milk for 21,946 dairy farmer members in 49 states.

A native of north-central Missouri, Hanman, 71, has been CEO of DFA since its creation in 1998. From 1975 to 1997, he served as CEO of one of DFA’s predecessor cooperatives, Mid-America Dairymen, Inc. (Mid-Am) of Springfield, Mo. Schriver has also served in his position since DFA’s inception, and had led Ohio-based Milk Marketing Inc. prior to then.

Smith entered the dairy industry in 1982 when he joined Dairylea Cooperative Inc. as vice president and general counsel. In 1988 he became CEO of Dairylea, the Northeast’s leading agricultural service and milk marketing organization with 5.5 billion pounds of milk marketed annually for 2,500 dairy farmer-members.

“We are delighted to have a proven dairy leader like Rick Smith to take DFA into the future,” said Camerlo, “He understands the dairy industry, the DFA organization and, most importantly, the priorities of the dairy farmer members whom he serves.”

In August, Smith, who had served on DFA’s management team since January 2001, was promoted to president and chief operating officer of DFA. In that position, he had oversight over all business operations, including economic and marketing analysis; member, government and public relations; human resources; fluid marketing operations; value-added manufacturing; accounting/treasury; and legal and risk management functions.

James Andrew to lead
USDA rural utility program
Agriculture Secretary Mike Johanns has welcomed James Andrew as administrator of USDA Rural Development’s rural utilities program. Andrew will administer Rural Development’s electric, telecommunications and water programs. In 2005, those programs provided over $5.5 billion in investment to rural America. Johanns said Andrew is a strong leader who “brings a wealth of knowledge and expertise to the position.”

Andrew was nominated by President Bush on Aug. 25 and was confirmed unanimously by the Senate on Nov. 10. A former president of the National Rural Electric Cooperative Association, Andrew served on the board from 1988 to 2004. As president, he led the association’s effort to overhaul education and training programs for member co-ops. A graduate of the University of Alabama, he is a former small business owner and banker and helped to manage a family farm. Andrew began his involvement with rural cooperatives in 1968, when he became director of marketing for Georgia Electric Membership Corporation. Later, he was elected to serve on his local electric cooperative board and remained a board member for 25 years.

AMPI dedicates rebuilt plant,
solidifies future in industry
Associated Milk Producers Inc. (AMPI) dedicated its rebuilt butter churning and packaging plant on Dec. 6. The plant, nearly destroyed by a fire in December 2004, occupies much of a city block in the south central Minnesota town of New Ulm, located in the heart of AMPI’s seven-state membership area.

Minnesota Governor Tim Pawlenty and a host of local, state and federal officials were on hand to congratulate AMPI members for reinvesting in the Minnesota dairy industry. Following last year’s fire, the cooperative’s board of directors chose to rebuild the facility, signaling a long-term commitment to Midwest dairy farmers and the butter business.

“Minnesotans are strong people who are resilient in the face of loss,” Pawlenty said. “The return of this plant is tremendous news for the hardworking dairy farmers of this region and the whole Minnesota economy. It’s yet another promise of the bright future that lies ahead of us.”

Churning and packaging butter is one way AMPI dairy farmers add value to their milk. “This plant will enable us to further diversify our milk marketing business, offering a complete line of dairy products to customers,” said Mark Furth, AMPI general manager.

During plant reconstruction, AMPI gradually increased production as packaging equipment was rebuilt. Production at the plant is near pre-fire capacity. “Rebuilding gave us an opportunity to improve our butter packaging equipment and plant. This butter plant is now more efficient, enabling us to increase overall volume,” Furth said. “This plant will help us improve our farmer-owned business.” AMPI has about 5,000 members who annually market more than 5 billion pounds of milk.

Basin Electric CEO says nation
must develop new power supplies
Despite many uncertainties, it is time for the nation to move forward and build new power supplies for the future, says Ron Harper, CEO and general manager of Basin Electric Power Cooperative in Bismarck, N.D. Speaking at the co-op’s 2005 annual meeting, Harper said Basin Electric — a consumer-owned, power generating and transmission co-op — must continue to manage its energy destiny, which translates into economic opportunity and well-being for its region. Basin Electric provides electricity to 121 member rural electric systems in nine Western and Upper Midwest states.

“We build plants because our members need the power. Our membership is growing, our region is growing and we must grow to meet the demands (for electricity),” Harper said. “As we move forward in our resource development efforts, we are seeking to understand the benefits of all the various types of generation technologies, including nuclear. It is our time to make the tough calls and break new ground to ensure a bright future for our region.”

Basin Electric’s power requirement projections show a demand for electricity growing at a rate of 3.1 percent between now and 2019. “That growth equals the need for 927 megawatts of generating capacity to meet that member demand,” Harper said. The co-op is moving ahead on new projects, even though there are many uncertainties, such as environmental regulations.

“One concern I have is for our continued ability to burn coal,” he said. “There are many that would prefer coal not be used as a fuel source for any industrial purpose. They have discounted the benefits of low-cost and reliable energy to this nation’s economy.” Fortunately, he continued, there’s a continuing strong recognition of the benefits of coal as a generation fuel by policy makers and those who believe low-cost and reliable energy is important.

Harper said coal gasification will be a part of our energy future. “A great deal of the energy bill is focused on gasification and its benefits for the continued use of coal,” he noted. The environmental community supports gasification because it provides an option to deal with carbon dioxide emissions, he said. However, gasification technologies are not yet available to reliably generate electric energy. Dakota Gasification Co., a Basin Electric subsidiary, has been successfully operating the nation’s only commercial-scale coal gasification plant for more than 20 years.

"I have long felt that there should be recognition of risk with new technologies and as a result there should be a sharing of the risk," Harper said. "I am pleased that the (recently passed) energy bill provides the opportunity for the sharing of risk." Basin Electric's fuel of choice is coal, according to Harper, becasue it is abundant in the region and meets the Cooperative's mission of being a reliable energy provider to members.

The movement to deregulate the power transmission system continues, and Harper questioned if there will be a benefit to the end-use consumer.

Blue Diamond has record sales
Members of Blue Diamond Growers received a 43-percent pay boost for their 2004 crop of almonds, wich follows a 35-percent price increase for the 2003 crop. According to the California Ag Statistical Service, 2004 crop industry returns averaged $2.21 per pound.

As a CPA, businessman and almond grower, I appreciate the value of busines measurements and cost controls. Blue Diamond is a master at both," board Chairman Howard Isom said during the co-op's 95th annual meeting in Modesto, Calif. Isom said it is the duty of board members to "make sure every product pays its own way."

Isom reported a record sales year of $615 million, attibuting the company's success to an "intelligent, informative marketing strategy that does ont react to overnight market swings or rumors. We are virtual business partners with major users globally and we are able to calculate projected demand into our sales plans and systematically schedule sales by variety, product and availability."

By the end of this decade, California's almond crop is expected to swell to 1.5 billion pounds, he noted, saying that members' long-term profitability will be enhaced by higher margins derived from Blue Diamond's branded product line.

blue Diamond's consumer product business alone has doubled to $100 million in the last 3 years and is expected to doulbe again by the end of the decade. Its branded Nut Thins cracker line sales increased 43 percent in 2004-05, while Almond Breez non-dairy beverage sales grew 128 percent during the same time.

South Dakota co-ops merge
The 600-member Farmers Union of Pierpont and Bristol has merged with the larger Four Seasons Cooperative. “It’s hard for a small co-op to compete in today’s world,” Steve Cameron, manager of Farmers Union Oil Co. in Pierpont, told the Aberdeen (South Dakota) American News. “So we decided to be part of a bigger one.”

Four Seasons, of Britton, also has operations in Amherst, Claremont, Doland, Hecla and Redfield. Four Seasons will not have a presence in Bristol. The Farmers Union service station there has been sold. Little change is expected in Pierpont, where Four Seasons will offer agronomy services, as did Farmers Union, the American News reported.

USDA commits $1.2 million
for entrepreneurial outreach
USDA is providing $1.2 million to a dozen 1890s Land-Grant Universities to support technology and business development assistance in rural communities. “The 1890 colleges and universities play a key role in providing technical assistance and business development leadership to rural minority communities,” Agriculture Secretary Mike Johanns said in announcing the grants. “USDA’s partnership with these outstanding institutions significantly advances President Bush’s commitment to enhance educational opportunities, encourage entrepreneurship and create jobs in rural America.”

The 1890 Institutions have some of the finest agricultural science and business education programs in the nation and, in partnership with USDA, they have devoted significant resources to business development and technical assistance in local communities.

At the University of Arkansas-Pine Bluff, for example, funding will be used for business enterprise creation, specializing in technology-based products and services. Funds will also be used to establish a business incubator that will house a dozen or more new and startup businesses. Southern University and A&M College in Louisiana will receive funds to provide outreach and technical assistance to entrepreneurs, businesses and cooperatives in four rural communities and parishes.

Florida A&M University will receive funds to provide business and economic development outreach to eight rural counties in northern Florida. A complete list of the grants is available at: http://www.rurdev.usda.gov.

Chesapeake Fields Institute
launches equity drive
Chesapeake Fields Institute Inc. (CFI) is launching an equity drive to raise $1.4 million to purchase property for an agriculture business park/visitor center. The nonprofit organization works to help farm families increase profits and educate citizens on the important role agriculture plays in their community’s health and economy.

CFI’s work has resulted in the development of a community-based food system enterprise that is owned locally, operated with environmentally sound practices and which promotes both human and economic health through its educational entities. This 501(c)(3) nonprofit organization completed market research and feasibility studies to identify marketing opportunities for locally grown grains and oil seeds. It located several niche markets and is completing its fourth year of shipping specialty identity-preserved soybeans to Japan. In 2004 this project added $60,000 above commodity-priced beans to the local economy.

CFI launched the for-profit Chesapeake Fields Farmers LLC in 2003, which has developed a line of artisan breads, soy and popcorn snacks now marketed in the Chesapeake Bay area. Chesapeake Fields Farmers Cooperative Inc. was incorporated in August as the crop production arm of CFI to give farmers a way to increase their profits through whole-grain sales and value-added products. The common mission, preservation through profitability, links the three Chesapeake Fields organizations together, but they are three distinct entities, each with its own function, purpose, mission approach and leadership.

Chesapeake Fields’ three entities have the common goal of developing an agriculture business park to house their operations and develop a visitor center to tell agriculture’s story. The visitor center could be a key economic business- driver for the Delmarva (Delaware and Eastern Maryland and Virginia) region’s destinations and attractions.

“Since its inception, CFI has recognized a need for a significant multiplier to educate citizens of the importance and value of preserving and investing in America’s existing farmlands,” explains John Hall, CFI’s president.

For more information, visit: www.chesapeakefields.com, or call (410) 810-2082.

CHS reports record sales and income
CHS Inc. reported record net income of $250 million for fiscal 2005, marking its second consecutive year of record earnings and the highest ever recorded by a U.S. agricultural cooperative. In 2004, CHS earned $221.3 million. Fueled by higher energy prices, net sales of $11.8 billion in 2005 also set at record for the second straight year. That compares to $10.8 billion in sales for fiscal 2004.

CHS Chairman Michael Toelle, a Browns Valley, Minn., producer, said that — based on the record earnings — CHS expects to return a record $151 million to owners in cash patronage, equity redemptions and preferred stock, beginning in January.

“During my nearly 30 years with this organization, I can’t remember a year in which we made so many pivotal decisions,” John Johnson, CHS president and CEO, told the 2,500 members and guests who gathered for the cooperative’s annual meeting in Minneapolis.

Key business decisions included: investing $325 million in its Montana fuel refinery to yield more gasoline and diesel from crude oil; expanding its role in renewable fuels manufacturing with an investment in US BioEnergy; selling its Mexican foods production business (which had a loss of $16.8 million) to instead focus food manufacturing efforts in its Ventura Foods LLC joint venture and in supplying grain and grain-based ingredients to other food companies; and supporting the conversion of the cooperatively owned CF Industries fertilizer joint venture into a publicly traded company, of which CHS remains both a minority owner and (through Agriliance LLC) a customer. CHS earned $9.6 million for its sale of shares in CF Industries.

Strong refining margins, combined with improved performance by CHS lubricants, contributed to the highest energy segment earnings in company history. The company’s Ag Business segment — consisting of its grain marketing, country retail locations and 50 percent ownership in the Agriliance LLC — earnings were up 46 percent.

CHS Processing operation results were down 55 percent. Within that segment, earnings increased for the co-op’s 50 percent ownership of the vegetable oil-based food manufacturer Ventura Foods. However, earnings in oilseed processing declined due to weak crush margins; wheat milling results fell due to overcapacity and soft demand.



Co-ops generate $210 billion,
employ 500,000 Americans

Cooperative businesses in six key sectors are major contributors to economic growth, generating more than $210 billion in annual revenue and employing more than half a million Americans, according to Cooperative Businesses in the United State: A 2005 Snapshot, a report issued by the National Cooperative Month Planning Committee. The survey identified 21,367 co-ops in six sectors: agriculture, credit unions, farm credit lending, electric utilities, food and housing. Together, these co-ops serve nearly 130 million members, or 43 percent of all Americans.

"This report confirms the considerable economic power of America's cooperative businesses," said Charles E. Snyder, CEO of the National Cooperative Bank and 2005 chair of the Planning committee. "Cooperatives are an inportant part of the economy. They range from small storefronts to FORTUNE 500 companies."

Snyder noted that the actual economic impact of cooperatives is greater than is reflected in the report, since data on some sectors was not easily obtainable. Among those not inculded in the report were telecommunications co-ops, some consumer co-ops and most purchasing co-ops.

The $211.9 billion in annual revenue generated by co-ops in the six sectors studied represents nearly 2 percent of the U.S. economy, as measured by gross domestic products. Totoal employment was 537,898, with aggregate payroll of $15.1 billion. Left out, however, was total employment of the food and grocery sector and the total payroll of the agriculture and farm credit sectors. These gaps in the data mean these numbers are lower than the actual numbers.

Among the findings by sector: In part because the co-op community is so diverse, there is no reliable data covering all copperative businesses and their economic impact. Past estimates on the number of U.S. co-ops have ranged as high as 40,000. The new report is the start of an effort to develop new estimates of the economic impact of all cooperatives. Legislation has been proposed that would make $500,000 available to expand this effort.



Court dismisses lawsuit
aimed at Farmland officers

By Alan Borst, Ag Economist
Cooperative Programs
USDA Rural Development


Twenty-nine former officers and directors of farmland Industries Inc. are no longer in jeopardy over a possible $300 million payment that had been saught by creditors in the massive bankruptcy case. On Nov. 16, U.S. Bankruptcy Judge Jerry Venters of the Western District of Missouri dismissed the lawsuit brought by J.P. Morgan Trust Co., the liquidating trustee in Farmland's bankruptcy. Venteers ruled that J.P. Morgan had failed to include any allegations in its complaint that showed bad faith by the officers and directors.

In January 2005, J.P. Morgan filed a lawsuit against the former officers and directors, including former CEO Harold Cleberg and former Executive Vice President (and later CEO) Robert Honse, charging in four counts that the agricultural cooperative's leadership was negligent in performing their fiduciary duties by: In a fifth count, J.P. Morgan charged the directors with corporate waste by approving the allegedly underserved bonus for Cleberg.

The lawsuit sought payment of more than $300 million that would be distributed to about 60,000 unsecured creditors, including many farmers.

Venters dismissed all of the plaintiff's counts except on alleging that Cleberg breached his duties by accepting the bonus and the fifth count.

J.P. Morgan has decided not to pursue the two remaining counts because Venters ruled in October that the plaintiff was responsible for paying the legal fees of the defendants, based on Framland's bylawas and statutes in Kansas, where Framland was incorporated. The case was closed in mid-December, when the 30-day window for J.P. Morgan to appeal expired.

Unsecured creditors were scheduled to receive payments in mid December to cover interest owed to them by Farmland. One of the defendant's attorneys reported that all unsecured creditors would receive 100 cents on the dollar, plus interest. Unsecured creditors have so far received anywhere from 94 cents to over 100 cents on the dollar, depending on the category of their claims.

Farmland descended into Chapter 11 bankruptcy in June 2002 after acquiring debt of almost $2 billion and suffering from weak fertilizer sales. The former Fortune 500 company was the biggest U.S. agricultural cooperative, and in 2001 had more that 600,000 farmer members, 14,000 employees, and $11.8 billion in revenue.





January/February Table of Contents