South Dakota turn around
Farmers who once couldn’t give away their co-op
find success through service and slow, steady growth
Dan Campbell, editor
ow low can you go? How about offering to sell
your cooperative lock stock and barrel to a
neighboring co-op for one lousy dollar, but
then getting turned down!
That was the situation in the early 1960s
facing Valley Springs Farmers Cooperative, a local farm
supply/grain co-op near the Minnesota-South Dakota state
line east of Sioux Falls, S.D. However, that rejection
proved to be a blessing in disguise. The co-op “went back,
re-focused” and pulled itself up by the bootstraps, says
board President David Kolsrud. “They weren’t about to
throw in the towel they were willing to do whatever it
took to make it work. The members stayed loyal to the coop
and turned it around.”
Today it is a highly successful operation with a growing
membership and strong balance sheet. Indeed, an analyst
for a major chemical supplier that deals with hundreds of
Midwest co-ops recently told Valley Springs it has the
strongest balance sheet of any local co-op the company
works with. The co-op’s 2002 annual report shows patrons’
equity of $1.9 million and total assets of $2.5 million, a .75
ratio of equity-to-assets. It owes only $79,000 in long-term
debt (for a lease).
“That is about as strong (a balance sheet) as you’ll see,”
confirms Randall Torgerson, deputy administrator for USDA
Rural Business-Cooperative Service.
Valley Springs had just under $4.3 million in total sales for
2002, up from $3.9 million in 2001. Net pre-tax proceeds in
2002 were $186,000, up from $165,000 in 2001. The co-op
sold more than 653,700 bushels of grain (mostly corn and
soybeans) in 2002, up from 633,000 bushels in 2001. Other
major sale centers for Valley Springs are fertilizer, petroleum,
agronomy services and feed.
Reversal of fortune
The picture was not so rosy when a young man named
Paul Edmundson, a farm boy from nearby Rock County,
Minn., arrived at Valley springs in the early 1970s. He started
as a laborer but quickly worked his way up to co-op manager,
a job he’s held since 1974.
The key to the co-op’s reversal of fortune, Edmundson says,
was a combination of providing individual service to members,
a policy of slow, steady growth (rather than growth through
merger), and a conservative business approach that involved
carrying a minimal debt load. “With maybe a little good luck
thrown in,” Edmundson adds.
Some recent co-op failures have been attributed to overly
aggressive merger philosophies, in which the buyer took on
too many liabilities of the co-ops it acquired. Valley Springs
has instead preferred to expand its member base without
merging. “Our philosophy has always been, if you take care of members, new members will come in
through the door. And that’s what has
happened,” says Kolsrud.
“We owed $54,000 back when I took
over which I thought seemed like an
unreal amount of money to owe back
then,” Edmundson continues. “Today, of
course, people would look at that as a
drop in the bucket. But the first thing I
did was pay off the debt. My goal was then
to get to $1 million in working capital;
we’ve passed that mark now. We may borrow
a little during peak season, but usually
only for a month or so.”
Kolsrud says Edmundson’s skills as a
manager have played a big part in the coop’s
climb back up the hill. “Paul is a master
at managing inventory and money,”
says Kolsrud, who knows something
about management, since he wears that
hat for the nearby Corner Stone Farmers
Co-op in Luverne, Minn. “And he knows
how to delegate authority. He hires an
agronomist, then lets him make the agronomy decisions
without second-guessing him.”
Yes, employees do make mistakes. “But I don’t climb down
their throat,” Edmundson says. “If they don’t ever make mistakes,
they probably aren’t trying hard enough.”
Grain philosophy: move it or lose it
The co-op is known for its ability to move corn and soybeans
rapidly. It can store about 300,000 bushels in its elevator
and three grain bins in the small town of Valley
Springs, S.D., population about 900.
“We often buy grain in the morning, sell it and truck it out
the same afternoon,” says Kolsrud. “We would rather make a
nickle (a bushel) than to gamble by piling it on the ground.”
With a harvest that can last until Thanksgiving, there is
always a real danger of snow or rain damaging crops stored
outside, hence the co-op’s desire to move it or lose it. “We
put wheels under it as fast as we can,” confirms Edmundson.
The cooperative, which faced another crisis in 1979
when its major facilities burned down, today needs
increased storage, Edmundson says. “We rebuilt quickly
after the fire, and we were probably too conservative. We
went smaller than we should have, or would have, had we
known how steady our growth would be.” The co-op will
likely be adding another 50,000 to 75,000 bushels to its
storage capacity in the future.
There is no rail service to the elevator, so the truck scales
are a busy place come harvest season. At the peak, it’s not
unusual for 40 to 50 semi-trucks to roll through the co-op
elevator in a day, moving 42,000 bushels in and out.
The biggest shift in the business in recent years has been
in the amount of corn going to ethanol. The ethanol market,
which now gets about 90 percent of the co-op’s corn, has
helped offset the drop in sales to the livestock industry, which
has been in decline in the area. But now, with ethanol providing
feed as a byproduct, there’s been a resurgence in livestock
feeding near the ethanol plants, Edmundson says. Most of the
co-op’s corn is sold to Corn-er Stone (see sidebar), of which
Valley Springs is a member.
“Ethanol is definitely the new thing around here,” says
Valley Springs member Dave Willers, who farms about
2,000 acres with his brother near Beaver Creek, Minn. But
having seen the ethanol market rise and fall in the past, he is
still somewhat cautious, even though this time he thinks the
industry has real legs under it. “I hope we’re not hanging our
hat too much on ethanol. But I think ethanol is going to be
an important piece of the pie for us in the future.”
Agronomy service growing
As livestock numbers dropped in the area, the parallel
trend has been for the co-op to devote more of its resources
to agronomy services. Despite its conservative business philosophy,
Valley Springs does not skimp when it comes to
equipment. Its inventory includes state-of-the-art machinery,
including applicators with global positioning gear for precise,
cost-efficient coverage.
“We’ve been putting our money into agronomy, because
that’s where the profits are,” says Edmundson. In the past
year alone, the cooperative has purchased an air-flow dry fertilizer
spreader, a field sprayer, a fork lift, a skid loader and
two pickup trucks all new. In the office, things are a little
less high-tech, as evidenced by the rotary-dial telephones.
During the spring, when the fertilizer rigs are flying,
Edmundson and the other employees often work from
about 4 a.m. until 9:30 at night. The
co-op has five full-time employees,
who are supplemented with five seasonal
workers during peak business
periods.
Inventory control is done the “oldfashioned,
hands-on way,” says
Edmundson. “I don’t use a computer
much.” The rule for scheduling
agronomy service to members is to do
whatever it takes to meet a commitment
to a member.
Commandment No. 1:
know thy members
By remaining small the co-op has
about 400 members, of which perhaps
150 are very active the co-op has
maintained a close working relationship
with members.
“It still has a farmer identity they
know us and we know them,” says
Willers.
“If there’s one thing I can’t stress
enough, it’s that our co-op has succeeded
by anticipating and meeting the needs of
our members,” says Kolsrud. “And we
never overlooked the smaller, loyal
members in order to go down the road
and sign up a mega-farm.”
As a result, the co-op membership
today represents a good cross section of
the farm community it serves. “Our
members range from weekend farmers
to producers with 3,000 acres or
more,” says Edmundson. In addition to
corn/soybean farmers, the membership
also includes cow-calf operators and
some dairy farmers.
The board and overall membership
of Valley Springs tend to be
younger than average for a Midwest
farmers’ co-op, which Willers says
bodes well for the future. “We’ve
been fortunate to have very intelligent,
committed board members,” he
notes. And they don’t do it for the
pay. Kolsrud, who has just pocketed
his annual paycheck for serving on
the board, says: “$100 for all those
meetings. But that’s OK that’s what
makes a co-op a co-op!”
Quarterly reports “invaluable”
The co-op leaders also subscribe to
the business philosophy that if you can
measure it, you can manage it. A key
management tool which Kolsrud and
Edmundson say has helped keep the coop
“operating on an even keel” is the
use of quarterly financial statements,
which are reviewed very carefully by
management and directors.
“The quarterly report has been a
great yardstick. It enables us to compare
our business to each of the past
two years,” says Kolsrud. “Every
three months, we use it to sit down
and get a very close look at the financial
condition of all aspects of the coop’s
operations. You can look at
everything from your insurance costs
to sales trends.
“Many managers do not like quarterly
audits, but we’ve done it for years
and Paul and the board like the system,”
Kolsrud continues. “The really
amazing thing is how consistent things
have been from year to year.”
While the board keeps close tabs
on operations with the reports, it
strives hard not to micro-manage the
operation. “We leave the day-to-day
operations up to Paul, as it should
be,” Kolsrud says.
Annual meeting guest
poses critical questions
When Valley Springs held its
annual meeting last year, the guest
speaker was well known to many of
the members. They remembered
CHS Chief Executive Officer John
Johnson from his days in the mid-
1970s as their GTA (now CHS) feed
salesman.
“And he still remembers most of
us,” Willers recalls.
“John credited Valley Springs for
being a traditional co-op that has succeeded
by being member-focused, and
for going against the tide of mergers,”
Kolsrud said. “But he questioned how
long we would be able to that in a
global marketplace.”
The question of growth is a major
topic facing the co-op. “We’re not ruling
out a merger,” says Kolsrud. “But
we’re getting new members all the
time, and our volume keeps going up.”
“Mergers have certainly diluted
loyalty in a lot of co-ops,” adds
Willers.
“I’m not saying it won’t happen,”
adds Kolsrud. “But right now, we like
the way things are going.”
