NEWS LINE

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CWT Round II removing
nearly 1-billion pounds of milk

Cooperatives Working Together (CWT) — a dairy industry funded and administered program to help better balance milk supply and demand — has accepted bids from 363 farms to retire their dairy herds. These bids represent 50,478 dairy cows, all of which will be sold by the participating farmers for beef. The cows being retired produced 908 million pounds of milk annually, or a little more than 0.5 percent of the 170 billion pounds of U.S. milk produced in 2004.

“Our field auditors visited each of the 378 farms we initially accepted into the program,” says Jerry Kozak, president and CEO of National Milk Producers Federation, which manages CWT. “We had excellent cooperation from all the farmers, which allowed us to complete our auditing process ahead of schedule. That process screened out a small number of bids that, it turned out, didn’t meet our program’s criteria.”

The average bid accepted in the second herd retirement program was $5.24/cwt, with no bid accepted above $7.63. The 363 accepted bids were selected from 736 submitted. The 908 million pounds of milk removed is 4 percent higher than CWT’s initial goal of 870 million pounds. In the first herd retirement program in the fall of 2003, CWT accepted bids from 299 farms that retired 33,000 cows representing 608 million pounds of milk.

“This program is a winwin for all of America’s dairy producers,” Kozak says. “Producers who wished to retire their herds are able to do so through a bidding process that assures they receive fair market value for their milk production capacity, while those dairy farmers who remain in business will benefit because of a better balance between supply and demand.” Under CWT, farmers bid to be paid for the volume of milk that their herds produced, and also recover the market price for those herds when sold for beef.

Southern States Co-op acquires
Agway’s share of Co-op Milling

Southern States Cooperative Inc. (SSC) is now the sole owner of Cooperative Milling in Gettysburg, Pa., following its acquisition of the 50- percent interest Agway had held in the business. The milling business produces premium horse feeds under the Triple Crown and Legends brands, as well as other livestock feeds. SSC plans to expand distribution of the mill’s feed into New York and Connecticut.

Agway is now defunct, having declared bankruptcy in 2002, while SSC has been making marked progress in restoring its operations back to fiscal health after several years of losses. Southern States has 300,000 members and serves nearly 1,200 retail outlets in 19 states with agricultural inputs and farm and home products.

Bio-energy priority for
USDA value-added grants

Agriculture Secretary Mike Johanns has announced the availability of $14.3 million in grants that will support the development of value-added agriculture business ventures and support President Bush’s energy plan to develop alternative sources of renewable energy. “The Bush Administration is committed to working with rural farmers, ranchers and entrepreneurs to increase their economic opportunities, and to create jobs that boost local economies,” says Johanns. “These grants provide America’s farmers and ranchers with the investment funds needed to expand their role in developing and marketing value-added products.”

Priority consideration will be given to those grant applications that have at least 51 percent of project costs dedicated to activities for a bio-energy project. The renewable energy projects involve biodiesel, ethanol or wind energy production or the use of biomass to generate energy. The funds are provided through the Value-Added Producer Grant program, administered by USDA Rural Development. Grants are available to independent producers, agricultural producer groups, farmer or rancher cooperatives and majority- controlled producer-based business ventures. They may be used to: (1) fund planning activities needed to establish a viable value-added marketing opportunity for an agricultural product (e.g. conduct a feasibility study, develop a business plan, develop a marketing plan), or (2) acquire working capital to operate a value-added business venture that will allow producers to better compete in domestic and international markets.

Awards will be made on a competitive basis. Applications must be received no later than May 6, 2005. For more details about application and program requirements, visit: http://www.rurdev.usda.gov/rbs/coops/ vadg.htm, or call (202) 690-2426.

DFA acquires Keller’s Creamery
The producer-owners of Dairy Farmers of America Inc. (DFA) have acquired all of the ownership interests in Keller’s Creamery LP, the nation’s second largest manufacturer of butter for retail, food service and industrial uses. Terms of the deal were not announced. Keller’s was formed in May of 2000 as a joint venture between DFA and Frank Otis and Glenn Millar, the former management team of Sodiaal North America Corporation (although dairy products have been produced under the Keller’s brand for more than a century). With this transaction, DFA becomes the majority owner of the partnership in the butter business and will oversee the management of Keller’s warehouse and office operations in Harleysville, Pa., and the butter processing plant in Winnsboro, Texas.

“For the past four years, our dairy farm families have helped to supply milk and cream that goes into Keller’s butter churns,” says Gary Hanman, DFA’s president and CEO. “This transaction doesn’t really change the operations, except it creates an even stronger relationship between our farmers and the butter brands. It also provides opportunities for future efficiencies and market synergies among our processing units.”

In 2003, the Winnsboro, Texas, plant churned cream into more than 100 million pounds of dairy products, including premium and bulk butter, butter oil, non-fat dry milk powder and other dairy ingredients. Mark Korsmeyer, president of DFA’s American Dairy Brands (ADB) division, will assume managerial responsibilities for Keller’s marketing, sales and manufacturing functions. ADB is the retail brand division of DFA’s manufacturing group, which markets processed and natural cheese, as well as formulated, dairy-based beverages under DFA’s regional and national product brands including: Borden cheese, Cache Valley cheese, Sport Shake, Sport Shake Max and VitalCal.

Health care co-ops get
boost in Wis., Minn.

President George Bush in December made official the $2.25 million earmarked for Co-op Care, the project developed by Wisconsin Federation of Cooperatives (WFC) and Minnesota Association of Cooperatives (MAC) to increase access to affordable health benefit plans. The funds will be used for establishment and administration of a “stop loss fund” that will help diminish the highrisk label that insurers have attached to many farmers and small business owners.

“We are very pleased Co-op Care was among the projects funded,” said Bill Oemichen, WFC President and CEO. “The funds will help pay for some of the higher-cost claims incurred by cooperative members, which will in turn help stabilize premium rates over a number of years, a priority of the Co-op Care project.”

In related news, WFC and MAC members gave their overwhelming approval to unification of the two organizations. The action was taken at the joint annual meeting of the organizations held in November.

LO’L sales top $7.7 billion;
CEO Jack Gherty to retire

Land O’ Lakes reported $7.7 billion in sales for 2004, up sharply from $6.3 billion in 2003. But net earnings of $21 million were down from $82 million in 2003. The co-op returned $35 million in cash to members in 2004, up from $24 million in 2003, boosting the co-op’s five-year cash payout to members to $198 million.

Land O’Lakes is poised to transform itself into a farmer-owned organization that is more focused, financially stronger and positioned to deliver on the strategic and financial potential of its recent growth initiatives, President and CEO Jack Gherty told 2,000 delegates and visitors at LOL’s 84th annual meeting in Minneapolis. He said LOL will focus on three key strategies in driving this transformation: building on a foundation of excellent people; accomplishing key portfolio initiatives and delivering industrycompetitive results in core businesses.

“Organizations don’t transform people,” Gherty said. “People — the right people — transform organizations.” Gherty, who has led the co-op since 1989 and been on the staff for more than 34 years, has announced that he will retire at the end of this year. The board is now in the process of selecting his successor.

Chief Financial Officer Dan Knutson said the decline in net earnings was due to a $36.5 million charge related to the company’s $249.5 million investment in CF Industries (its joint venture fertilizer manufacturing unit) and a $23.1 million non-cash adjustment related to hedging losses. Proceeds from litigation settlements were also $17.4 million less in 2004 than in 2003.

“If you factor out these three items, and their tax impact, you would see net earnings of $66.5 million from our base business in 2004, a $13 million increase from comparable base business performance in 2003,” said Knutson.

Land O’Lakes also continued to make progress in paying down debt and strengthening the balance sheet in 2004, Knutson said. Since the company’s acquisition of Purina Mills in 2001, total balance sheet debt is down more than $200 million. In total, the co-op has achieved $416 million in debt reduction over that period. He also indicated that the expected proceeds from the recently announced sale of the company’s swine business would enable further debt reduction.

The co-op saw improved earnings in the Dairy Foods, Seed, and Agronomy businesses, as well as strong performance in Layers/Eggs. Although CF Industries’ 2004 performance was strong, domestic nitrogen manufacturers remain at a considerable competitive disadvantage in today’s global market, Gherty noted. “The doubling of natural gas costs over the past few years has created considerable stress on U.S. nitrogen manufacturers,” he said. “We are engaged with the other CF owners to aggressively evaluate the strategic options to improve performance and returns.”

Preserving rural heritage, culture
goal of White House/USDA effort

Agriculture Secretary Mike Johanns marked the second anniversary of the Preserve America initiative by announcing that Preserve America communities will be given priority consideration for community facility funding projects that support efforts to preserve and encourage enjoyment of America’s priceless cultural and natural heritage.

“There are significant economic, educational and cultural benefits that historic preservation provides, especially to rural communities,” said Johanns. “Sustainable preservation is not a cost for maintaining the past, it is an investment in the future. Rural communities that are dedicated to historic preservation will be rewarded for their vision for the future, as their efforts help revitalize their local economy and sense of community pride.”

The Preserve America initiative, announced by First Lady Laura Bush in March 2003, is a White House effort to encourage and support community efforts to preserve America’s priceless cultural and natural heritage. The goals of the initiative include: a greater shared knowledge about the nation’s past; strengthened regional identities and local pride; increased local participation in preserving the country’s cultural and natural heritage assets and support for the economic vitality of communities. To date, more than 220 communities in 37 states have received the designation as Preserve America communities and will be considered for priority funding under the Rural Development Community Facilities program.

“We want to provide incentives to communities to look for projects that will help rejuvenate their local economies, as well as preserve and promote our national heritage,” said Gil Gonzalez, USDA Acting Under Secretary for Rural Development. The Community Facilities Loan and Grant program provides communities with financial tools and facilitates essential community facilities such as health care clinics, police and fire stations, schools and child care centers. The program’s flexibility also allows funding for projects that revitalize rural economies, such as interpretative centers, museums or restored historical buildings. Further information on eligibility for priority funding can be obtained by contacting any local USDA Rural Development office or by visiting www.rurdev.usda.gov.

Communities designated through Preserve America receive national recognition for their efforts. Benefits include use of the Preserve America logo, listing in a government Webbased directory to showcase preservation and heritage tourism efforts, and eligibility for special existing and proposed Preserve America grants and funding through various government agencies. The next quarterly deadline for Preserve America Community applications is June 1, 2005. For more information, application forms, and procedures, visit: www.PreserveAmerica.gov.

CoBank pays record patronage;
smaller board approved in vote

CoBank’s 2004 earnings of $275 million climbed 5 percent from $261 million in 2003. The increase was driven largely by a lower provision for credit losses — reflecting improved credit quality — and by lower financial assistance expenses for the Farm Credit System. The strong showing will allow the co-op bank to return $160 million in patronage and stock retirements to customer-owners for 2004. The cash distributions represent a record 13.3-percent return on average invested capital for customer-owners. For the past five years, CoBank customer-owners have received an average of $121 million per year in cash as a result of their investment in the bank.

Total loans and leases outstanding to U.S. and international customers declined slightly, to $24 billion, down from $24.8 billion in 2003. Most of the reduction can be attributed to changing market conditions and refocusing portfolio strategy with core rural customers.

“For customers, patronage remains one of the most tangible measures of our success,” Douglas D. Sims, CoBank CEO said. “In 2004, we continued to build on our history of consistent financial performance. Even though loans and leases declined slightly for 2004, capital grew, our risk profile improved and earnings increased.”

CoBank — part of the $125 billion U.S. Farm Credit System — has enhanced its capital plan for 2004 by increasing the overall rate at which patronage is calculated and by increasing the level of cash patronage paid to stockholders. With $30.9 billion in assets, CoBank specializes in financing for agribusinesses and Farm Credit associations, as well as rural communications, energy and water systems.

In other developments, 96 percent of the bank’s stockholders recently cast votes approving bylaw changes which will reduce the size of the current 26- member board to 15 to 17 members. Existing representational districts will be combined into three regions (East, Central and West), each of which will elect four directors. The board will also include a maximum of three outside directors (who can have no customer affiliation with the bank) and two appointed directors (who may have a customer affiliation). Director terms are being expanded from three to four years.

Isom, Toelle NCFC’s
directors of the year

The National Council of Farmer Cooperatives (NCFC) has awarded Howard Isom, a farmer from Chico, Calif., and board chairman of Blue Diamond Growers, the Farmer Cooperative Director of the Year award for directors with 12 or more years tenure. Mike Toelle, a farmer from Browns Valley, Minn., and chairman of CHS Inc., won the award for the director with less than 12 years tenure on the board. Isom and Toelle were saluted for leading their cooperatives to meet the needs of farmer-members while positioning their co-op’s to compete in a rapidly changing global marketplace.

Isom, a Blue Diamond member since 1969 and a director for 16 years, farms 1,200 acres of almonds, walnuts and grapes. He is also president of Matson and Isom, an accounting firm in Chico. Toelle, a co-op member his entire adult life, works a 3,200-acre grain, hog and cattle operation with his family near Browns Valley. “Both Harold and Mike are dedicated to the principles of farmer-ownership and their leadership of their respective boards makes them worthy recipients of the Director of the Year award,” says Jean-Mari Peltier, president and CEO of NCFC. The awards were presented Jan. 23 at NCFC’s 76th annual meeting in Carlsbad, Calif. The award was established to recognize the outstanding achievements of farmer cooperative directors who take the lead to help their boards make decisions vital to their cooperative.

FCS America board election
reflects anti-sale sentiment

Results of a board election in January for Omaha-based Farm Credit Services of America give further evidence of members dissatisfaction with a plan that would have sold the co-op lender to Rabobank had it not been scuttled by member opposition and the concern of Congress. Five directors elected to the co-op’s 17-member board were all endorsed by Farmers for Farm Credit, the grassroots group that led opposition to the sale.

Myron Edelman of Watertown, S.D., chairman of Farmers for Farm Credit, which opposed the sale, said the election indicates that the cooperative’s members want to stay within the national Farm Credit System, according to a report in the Omaha World Herald. “A strong majority of the stockholders seem to agree with our position,” Edelman said.

“Sometimes we forget, particularly in large business entities, that they still work for the owners,” Neil Harl, an Iowa State University professor, told the World Herald. “Sometimes the shareholders are goaded into taking matters into their hands. I think this is one of those examples.”

Incumbent board members Alan J. Steffens and James K. Geyer were defeated by Darrell Cain of Elwood, Iowa, and Larry Paulsen of Coleridge, Neb. Cain and Paulsen were nominated from the floor at the co-op’s annual meeting. Incumbents Dean Chapman of Russell, Iowa, Gene Hammen of Wellman, Iowa, and Lyndon Limberg of Gary, S.D., were re-elected.

“Payback” new CHS feed brand
Payback is the new ‘umbrella’ brand for all animal feed formulations from CHS, available through some 500 local co-ops and independent dealers in nine northern states. “With the CHS corporate name change in 2003, it was time to establish a product brand identity for animal feeds that was separate from the company name,” says John Steffen, vice president for nutrition. “Our biggest challenge is reassuring dealers and producers that the formulas have not changed.”

Payback products include a complete feed line for livestock, horse, swine and poultry, as well as specialty blends that were manufactured for decades by Harvest States Feeds, one of CHS’ predecessor co-ops.

The process of establishing a new brand name included developing a Web-based survey sent to beef producers in six states across CHS’ core trade territory. Overall, the single most important attribute respondents said they wanted from their feed company was the commitment to help them be more profitable. The proposed Payback name ranked highest as appealing, memorable and relevant.

In other news, the CHS Foundation has announced that it will contribute $172,840 to CARE for Asian tsunami relief efforts. In early January, the CHS Foundation pledged an initial $100,000 contribution and implemented a match program for CHS Inc. member cooperative locations and employees of CHS and Agriliance LLC, a CHS joint venture company.

Michigan cattle producers unite
to pursue market opportunities

Frustrated with the obstacles facing the beef industry and the challenges posed by bovine tuberculosis, a group of northeastern Michigan cattle producers have banded together to form North Country Beef Producers Cooperative. The group was formed to explore new marketing opportunities, increase profitability and provide educational opportunities for members.

In addition to working to strengthen their business skills, the 40 members also are educating themselves about vaccination, animal health and nutrition, genetics and management practices for cow/calf producers as well as backgrounders and feeders. As part of this effort, they approached Michigan State University (MSU) Extension, the MSU Product Center for Agriculture and Natural Resources, and the Michigan Department of Agriculture (MDA) to explore new marketing opportunities to increase profitability.

“The biggest challenge is finding new ways to market beef,” says Dave Glenn, Presque Isle County MSU Extension director. “We are looking into value-added options to increase the profitability of beef producers in northeast Michigan. “Glenn is an innovation counselor with the MSU Product Center. He is working with a core group of seven of the cooperative’s members to create a business plan and determine the best way to market beef using options that are feasible for the group. One option being considered is retained ownership — finishing the cattle rather than selling young stock — which will result in increased profitability.

“By feeding out our cattle, we don’t have to worry about as many obstacles relating to TB — this removes one obstacle facing farmers in our area,” says Marty Galbraith, a member of the North Country Beef Producers Cooperative. “One of the problems many of the producers face is that as individuals, they don’t have sufficient cattle to attract buyers,” says veterinarian John Molesworth, the co-op’s executive director. “Forming a cooperative is one way of putting together larger groups of like kind cattle to attract buyers.” For more information about the co-op, contact Marty Galbraith at (989) 826-3793.

Georgia Co-op Center gets
boost from USDA grant

A $266,000 grant from USDA Rural Development to the Georgia Center for Agribusiness and Economic Development will give Georgia its first statewide farm coop development center. The new Georgia Cooperative Development Center (GCDC) will be one of 20 such centers in the United States. The GCDC will support fledgling co-ops and help farmers who want to form others, says CAED coordinator John McKissick. Before the grant, he said, there weren’t enough resources to meet all of the needs. The CAED is part of the University of Georgia College of Agricultural and Environmental Sciences.

“The grant will focus on cooperative development and providing more services to those in agriculture who think they have a future to develop as a co-op,” McKissick said. It will fund two business development specialists and other resources. The CAED has played a key role in successful co-ops such as Sunbelt Goat Producers in Washington County and Farm Fresh Tattnall, a co-op of roadside markets and pick-your-own farms in Tattnall County.

The new center’s steering committee has already approved new feasibility studies, board training, market analyses, business plans or other support for four co-ops: an ethanol production co-op of Georgia corn growers; the Sunbelt Organic Gold co-op of south Georgia poultry growers who want to make and market organic fertilizer from chicken litter; a community food network that would match organic produce growers with markets in suburban Atlanta, and a co-op that would match organic markets with grass-finished beef.

GROWMARK forms alliance
to offer grain-risk services

GROWMARK has formed an alliance with Decision Commodities to deliver and develop grain-risk management products and services. GROWMARK is a regional, federated cooperative system made up of local grain and farm supply cooperatives across the Midwest. Decision Commodities provides innovative forward contracts to grain producers. The company’s market- based pricing tool, Decision Contracts, provides farmers a means of protecting themselves from adverse price movements.

According to Davis Anderson, GROWMARK vice president/grain, GROWMARK member cooperatives were looking to find innovative grain/risk management products and services to help improve the profitability of their farmer-customers. “Decision Commodities has demonstrated the success of its business model working with local cooperative elevators. The partnership will accelerate the use of the company’s contracts and provide a foundation for competitive success among our member cooperatives in the area of producer risk management services,” Anderson says.

As part of the partnership, new services and products will be developed through shared work and resources of GROWMARK and Decision Commodities. GROWMARK will be making an investment in Decision Commodities and will have a seat on the board of directors.

Soybean association joins
crop insurance co-op

The Minnesota Soybean Growers Association (MSGA) is joining with 17 farm associations to sponsor Growers National Cooperative Insurance Agency Inc. GNC provides an alternative way for MSGA members to purchase federal crop insurance. Through GNC, sponsoring associations will have a voice in providing insurance tailored to the specific needs of members. “This win-win program will lead to increased membership in MSGA and will provide an innovative way to purchase federal crop risk management tools,’’ said Ron Jacobsen, MSGA president.

Co-ops have $6-billion
impact on North Dakota

Cooperatives provide full-time employment for more than 11,000 people in North Dakota and contribute more than $6 billion to the state’s economy, a North Dakota State University official says. Researcher and professor Larry Leistritz said the study is the most comprehensive yet of North Dakota co-ops, according to a report in the Bismark Tribune. It looked at the economic activity of all types of co-ops, taking into account factors such as retail trade, personal income, total business activity, employment and tax revenue. North Dakota has 405 co-op businesses, most of them relating to agriculture.

Iowa, Illinois get
new winery co-ops

Iowa and Illinois are not usually thought of as wine-producing states, but each has a growing number of small vineyards and new cooperatives are forming to serve the growers. Two Rivers Grape and Wine Cooperative is the first farmer-owned cooperative making wine and growing grapes in Iowa, according to the Des Moines Register. The new winery is one of about a dozen planning to open soon in Iowa. It is more evidence, say Iowa wine boosters, that the state is undergoing a rebirth of an industry that was all but wiped out by Prohibition and other factors.

“The wine industry is growing so fast, I’m having trouble keeping up,” White, of the Iowa State University Extension, told the Register. “It is going to happen in Iowa.” Iowa now has about 30 wineries that sold about 76,000 gallons of wine in 2003. More than half of Iowa-produced wines are made in the Amana Colonies.

Meanwhile, a new winery co-op has also been formed in Illinois, with 11 small vineyards as members. Shawnee Winery Co-op is producing eight wines for its members, whose vineyards range in size from half an acre to eight acres. About $300,000 in state and federal grants helped to launch the co-op. It has a 4,000-square-foot building that includes a production area and a wine tasting and retail area.

A 2003 study of Missouri’s wine industry shows that the state’s 47 wineries have a significant effect in stimulating rural economies.

Preliminary settlement
reached in MCP lawsuit

A preliminary settlement has been reached in a classaction lawsuit filed against five former executives of the Minnesota Corn Processors (MCP) for their role in convincing farmers to sell their ethanol and sweetener business to Archer Daniels Midland for $400 million in 2002. That amount was only a fraction of the true value of the business, according to farmers of the former co-op.

Although growers voted to approve the sale of MCP, which had converted into a producer-owned limited liability company by the time of the sale, many now feel they were misled by their own officers, who they allege were looking out primarily for themselves (see July/August 2004 issue of Rural Cooperatives, page 22, for detailed background on the MCP sale; past issues are on-line at www.rurdev.usda.gov/ rbs/pub/openmag.htm).

The lawsuit alleges that MCP CEO Dan Thompson and four other officers conspired in self-dealing to sell MCP for personal gain. A sixth individual is charged in the suit with alleged conspiracy and breach of financial duties. Under the settlement, the five executives would pay $5.75 million to the farmers.

The MCP executives’ defense was weakened by a note that Thompson wrote to ADM officer Marty Andreas, in which Thompson says: “my thoughts are that I am the only person who could get them to accept a lower number.” When read in context, it is clear that Thompson meant he would work to convince farmers to take a lower price than the true value of MCP, the plaintiffs say. An editorial in the Marshall (Minn.) Independent called that hand-written note a “smoking gun” of culpability.

“We are pleased this hard fought litigation has come to an end,” the class action committee says on its Web site. “We are particularly pleased that the facts behind this merger have been fully debated. A trial and appeal of this matter presented risks and costs to both sides. The parties were well served by a conscientious and hardworking judiciary which identified the respective strengths and weaknesses in the parties’ positions prior to trial. Based upon this meaningful settlement, it now seems time for the issues surrounding the ADM/MCP merger to come to an end.”

Notice of the settlement was sent out to about 5,000 shareholders in late February. A final hearing has been scheduled for April 12, at which time the court will approve or deny the settlement, according to attorney Robert Moilanen, of Zimmerman-Reed PLLP in Minneapolis, legal counsel for the growers. Some farmers elected last year to opt out of the class action, and will not share in any disbursement arising from the settlement. They could, however, still pursue litigation on their own. Otherwise, if approved, members would share in the settlement based on the number of shares they owned in MCP (after attorney fees and expenses are deducted).





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