Newsline

Co-op developments, coast to coast

AGP marks 25th year
with record cash returns
Despite extraordinary economic volatility in 2008, AGP posted record earnings of almost $144 million on sales of about $4.3 billion. The co-op returned a record $75.8 million in cash to members, bringing total cash returns for the past five years to more than $213 million.

AGP CEO and General Manager Marty Reagan announced the record earnings and returns as part of his remarks at the 2008 AGP annual meeting in Omaha, Neb., in January, which marked the 25th anniversary of the soybean-processing cooperative. “All of us at AGP continue to recognize the importance of these dollars and the value they bring to local communities that have been so supportive of AGP throughout our 25-year history,” Reagan said.

Chief Financial Officer Keith Spackler reported that the co-op’s $143.9 million in earnings represented an increase of more than 63 percent from fiscal 2007. The AGP board approved record patronage of $88.9 million, of which 30 percent, or $26.7 million, was paid in cash. Fiscal 2008 patronage refund rates were: 39.6 cents per bushel on soybeans; $16.82 per ton on soybean meal; and $8.41 per ton for soy hulls.

Equity redemption of $45 million was also approved by the board. Combined with the $26.7 million cash patronage and value-based premiums of $4.1 million (which are not included in the company’s earnings), the equity redemption resulted in total cash returned to members of $75.8 million, up from the $45.2 million returned in 2007.

Capital expenditures totaled $94.1 million, the majority of which was invested in AGP’s core businesses of soy processing and refining.

Member-stockholder equity in AGP has grown substantially in the past 25 years. Equity was about $54 million when the cooperative was formed, but by the end of fiscal 2008, it had grown to nearly $578 million.

In addition to strong local demand for soybean meal, the co-op was highly successful in marketing its meal internationally in Mexico, Canada, the Pacific Rim and other areas. AGP exported a record volume of soybean meal, equivalent to more than 25 million bushels of soybeans.

Results were mixed for AGP’s renewable fuels businesses. While soy biodiesel achieved record volume and earnings, the ethanol market sagged. Biodiesel and ethanol are as much political fuels as they are renewable ones, said John Campbell, AGP senior vice president of government relations and industrial products. “Looking forward, both the politics and the economics have moved against us,” he said. “… AGP’s position remains the same — we believe in renewable energy, these markets are good for agriculture, and we are in the business for the longterm.”

Although grain markets were wildly volatile in 2008, AGP Grain was successful in leveraging trading opportunities to post record earnings. Masterfeeds, AGP’s animal nutrition company in Canada, was challenged by tough market conditions. Nevertheless, it acquired two feed businesses to reinforce its position in the Canadian industry.

Maine fishing co-op opens
certified processing facility
After months of hard work and preparation, the Midcoast Fishermen’s Cooperative received final approval in March from the Maine Department of Agriculture to begin operating a new, certified seafood processing facility in Port Clyde, Maine. The co-op began picking Maine shrimp at the facility on March 16 and selling the meat to local consumers and restaurants.

The co-op fishermen work from the last fleet of small, groundfishing boats east of Portland. The village of Port Clyde is among the last true fishing communities left from the industry’s heyday. The co-op reports that Port Clyde Fresh Catch customers have been enthusiastically snapping up the frozen, Maine shrimp meat in 1-pound containers through special sales that the cooperative has been running since the facility began operating.

With the arrival of spring, the Maine shrimp season draws to a close; the coop fishermen make the annual switchover for groundfish season, and the processing facility transitions to filleting fish in late May.

The cooperative has launched one of the nation’s first Community Supported Fishery efforts (or CSF), with subscribers getting regular deliveries of fresh fish and shrimp, as determined by the number of shares they buy.

The CSF sales and restaurant sales are critical strategies for the future of both the fishermen and the Port Clyde community. The seafood-processing facility adds another chapter to this strategy by providing new, value-added marketing opportunities for members and new jobs for members of the community. The cooperative is working to expand sales to retailers and distributors in Maine and elsewhere.

AgStar buys six VeraSun
plants; hopes to re-sell to
farmer co-ops
AgStar, a Farm Credit System bank based in Mankato, Minn., in March purchased six ethanol plants formerly belonging to bankrupt VeraSun. The bank’s credit bid was for $324 million.

The six plants were to remain in idle mode for about 60 days while buyers are found.

According to press reports, a number of farm groups were interested in acquiring some of the plants, but did not have the financial clout to win them during the auction conducted by the bankruptcy court. But the bank, itself a cooperative, hopes to give them a chance to do so.

“Part of this is to give farmers and farmer cooperatives the opportunity to buy these plants,” Paul DeBriyn, president and CEO of the bank, was quoted in the St. Paul Pioneer-Press. “We think that would be the best outcome.” He told the newspaper that he thought two to six of the plants would wind up owned by farmer cooperatives.

VeraSun’s other seven ethanol plants and one plant site under development were purchased for $477 million by San Antonio-based Valero Energy Corporation, North America’s largest petroleum refining and marketing company. These plants have an annual production capacity of 780 million gallons.

The six plants purchased by AgStar, located in five Upper Midwest states, are described by the bank as being state-of-the-art facilities with annual production capacity of 470 million gallons of ethanol. “This purchase will protect the interests of AgStar stockholders and our fellow creditors in the lending group,” said Paul DeBriyn, president and CEO of AgStar. “Basically, we’ve taken the necessary steps to ensure these plants will be sold for fair market value.”

The AgStar-led lending group, comprised of 16 financial institutions, has received ample interest in the plants from potential buyers, DeBriyn said. “Even during the auction process, we were fielding inquiries from companies interested in purchasing one or more of these six plants. Ethanol has experienced recent volatility but remains a viable industry.”

DeBriyn said he hopes to sell the plants as quickly as possible. “This is vital so that corn will again be purchased from local sources, jobs will be brought back to rural America, and the renewable fuels industry as a whole will be reinvigorated.” AgStar has contracted with ICM Inc. to oversee plant operations during the transition period.

Record revenue at DFA in ’08;
plunging milk price sparks
effort
Dairy Farmers of America had record revenue of $11.7 billion and net income of $61.7 million in 2008. The cooperative marketed 61.2 billion pounds of milk and directed more than $7 billion dollars in milk payments to 18,000 farmer-members.

“Although 2008 was a record year for the cooperative, our results are delivered with mixed feelings,” Camerlo said at the co-op’s annual meeting in Kansas City in March. “We are proud of the cooperative’s progress and achievements — and the individuals who contributed to these successes. At the same time, we are deeply concerned about our members and the economic influences shaping 2009.”

Record operating profits were helped by the strong performance of DFA’s commercial division, Dairy Food Products Group, which represented 17 percent of consolidated net sales. Sales of milk comprised 77 percent of consolidated net sales. Revenue and cost of sales were significantly affected by fluctuations in milk prices, which were, on average, at record high levels during 2007, but declined in 2008.

DFA says it is taking numerous measures to assist members during the current low-price cycle. “Although we expect to have to manage through volatility in this industry, this down cycle is an especially bad one,” Camerlo said. “We are seeing drastically lower milk prices at a time when on-farm costs are at historically high levels.

Compounding this is the fact that we are in a global economic crisis.” DFA has several initiatives underway designed to ease the burden on members. Among these initiatives are: Record milk volume,
sales growth at AMPI
Associated Milk Producers Inc.
(AMPI) reported record milk volume and sales growth for 2008. “A record 5.8 billion pounds of milk [up 6 percent], combined with strong dairy product markets and AMPI sales, resulted in $1.7 billion of revenue,” AMPI President and CEO Ed Welch told 400 annual meeting delegates in Bloomington, Minn. Welch, a 25-year AMPI employee, was selected last year to lead the co-op.

AMPI exceeded annual budget expectations with $11 million in earnings from operations, before inventory adjustment. Earnings were bolstered by strong domestic sales of bulk natural cheese, as well as consumer-packaged cheese and butter. AMPI members shared $12.3 million of equity payments.

Welch said the co-op recognized a $14.9 million loss due to the devaluation of dairy product inventory by year’s end. “Global demand, which buoyed dairy product prices and sales throughout the first half of 2008, nearly disappeared in the fourth quarter,” he said. The markets also affected on-farm milk prices. Prices plummeted in early 2009, following two years of nearrecord milk prices.

AMPI Chairman Paul Toft, a dairy farmer from Rice Lake, Wis., said the ultimate measure of cooperative performance is long-term growth. “We continue to focus on growing our membership and consumer-packaged dairy product business to ready this cooperative for the next generation of member-owners.”

AMPI highlights for 2008 include: CHS notches fifth year
of record returns
Record earnings in 2008 are enabling CHS Inc. to disburse up to $343 million to its owners in 48 states. This marks the fifth consecutive year of record returns to owners by CHS and is the largest ever made by a U.S. cooperative.

Of that amount, $231 million is being distributed in cash patronage, equity redemption and CHS preferred stock issued as equity redemption. Distributions of equity and preferred stock dividends later this year are expected to bring the fiscal 2009 total to $343 million.

“Once again, CHS has demonstrated one of the most important ways we can deliver on our mission of adding value for all of our stakeholders,” says Michael Toelle, CHS board chairman. “The strong performance the company achieved during fiscal 2008 has enabled CHS to continue to grow, to be financially sound and to provide a return on our owners’ investment in diverse businesses, ranging from energy to grain marketing to food processing.”

CHS net income for its fiscal year ending Aug. 31, 2008, was $803 million. During 2009, distributions are being made to about 1,200 member companies and more than 35,000 individuals. Patronage is based on business done with CHS during fiscal 2008, while equity redemptions and preferred stock distributions represent retirement of ownership in CHS earned in past years.

A Fortune 200 company, CHS is owned by farmers, ranchers and cooperatives, along with thousands of preferred stockholders across the United States.

Agri-Mark earns $11.8 million
Agri-Mark, Methuen, Mass., earned
an after-tax profit of $11.8 million for 2008, the second best year ever for the cooperative’s 1,300 Northeast dairy farm families. Agri-Mark sales of member-farm milk and manufactured dairy products for 2008 generated $881 million in revenue.

Agri-Mark farmers also shared in a record, extra $17.1 million in their bimonthly milk checks throughout the year for overall milk quality and other incentives that the co-op was able to negotiate with its customers and return to members. Profit allocation to the coop’s dairy farmers will be 25 cents per hundredweight for all milk that each farm family shipped to the co-op during the 2008. This represents allocated earnings of roughly $4,500 for the average Agri-Mark member milking 100 cows.

Despite “a very difficult marketing environment,” during which milk prices nationwide have plunged, “Agri-Mark continues to generate substantial profits for dairy farmers,” said Neal Rea, a dairy farmer from Cambridge, N.Y., who was elected to his third term as the co-op’s chairman.

The continued strength of the coop’s Cabot and McCadam branded cheeses exceeded expectations in 2008. Both cheese brands maintained market share or grew in sales at a time when many other brands saw sales decline. This brand demand, combined with steady sales of butter and whey proteins produced by the co-op, all worked to boost returns to farmers.

Rea said that although the cooperative business has done well, dairy farmers are still facing severe challenges. The past two years have seen record-high production costs both on the farm and within the cooperative’s plant operations. Farmers have been struggling with high energy and feed costs in particular. Compounding problems, 2009 farm prices are expected to be the lowest in decades, and the financial crisis has made loans and credit more difficult for farmers to attain.

The benefits of farmers owning added-value businesses were apparent in 2008, Rea says. By being part of Agri- Mark, members assure themselves of secure markets with their investment in owning facilities to process their milk and support their branded products.

NCFC meeting explores impact
of climate change laws on ag
The National Council of Farmer Cooperatives (NCFC) hosted a meeting in Washington, D.C., in April that attracted a broad range of agricultural organizations to discuss the real-world costs that climate legislation will impose on farms, cooperatives and rural households across America. Bob Looney, vice president of government affairs for CHS Inc., discussed the impact the legislation will have on petroleum refiners, while Kirk Johnson, vice president of environmental policy at the National Rural Electric Cooperative Association, looked at how the law would likely raise consumers’ utility bills.

Bill Herz, vice president of scientific programs at The Fertilizer Institute, provided an overview of how fertilizer prices are likely to rise under any climate change proposal. Presentations are available on NCFC’s website: www.ncfc.org/ncfc-climate-changeinitiative. html.

“Agriculture needs to become a much more active participant in the process as climate change legislation begins to move through Congress,” says NCFC President Charles Conner. “As we do this, it is especially important that we look at the impact that this legislation will have on farm and household budgets across rural America.”

Among the consequences of climate change legislation discussed were: The session was the first in a series of topical meetings that NCFC plans to hold; future sessions will look at commodity-specific impacts of climate legislation, opportunities provided in a cap-and-trade system, and how legislation might affect the transportation infrastructure and agricultural trade.

Record sales, member
payments for LO’L
Land O’Lakes, a Minneapolis, Minn.-based dairy foods and farm supply co-op, had record net sales of $12 billion in 2008, up 35 percent from $8.9 billion in 2007. The co-op also returned a record $98 million to its members. Net earnings of $159.6 million were just slightly off from 2007’s record $160.9 million. About two-thirds of the sales increase was the result of the company’s acquisition in late 2007 of a crop protection products business.

President and CEO Chris Policinski said that these results — coupled with strategic progress in becoming a more focused, more disciplined and financially stronger organization — put Land O’Lakes in a solid position moving into 2009. “No matter what business you are in, you can expect a bumpy ride in 2009,” Policinski said. “At Land O’Lakes, we’re confident we have the financial foundation, resources, strategies and people in place to weather the storm and continue to generate value for member-owners and customers.”

He said the company has felt the impact of the current economic recession, particularly in the fourthquarter, when results were negatively affected by a steep decline in commodity prices. This narrowed margins, required inventory writedowns and resulted in significant unrealized hedging losses.

The company improved its longterm, debt-to-capital ratio, which was at 34.8 percent as of Dec. 31, 2008, compared to 36.5 percent as of Dec. 31, 2007. During the fourth quarter, the company’s corporate debt rating was upgraded to “BB+” by Standard and Poor’s, following an upgrade to “Ba1” by Moody’s Investors Service.

Performance by business unit shows: Two-thirds of milk supply
enrolled in CWT program
Cooperatives Working Together (CWT) has reached its goal of signing up a “super-majority” of the nation’s milk supply for two years, which will enable the self-help program to “focus on reducing the current devastating imbalance in milk supply and demand,” according to CWT officials. About 67 percent of the nation’s milk supply has now committed to pay the 10 cent per hundredweight membership assessment for a full two years (through December 2010). More memberships are still being received, that will further boost the enrollment.

“March is shaping up to be one of the toughest months ever for America’s dairy farmers, given the painfully low milk price, combined with elevated input costs,” Jerry Kozak, president and CEO of NMPF, which manages CWT, said in late March. “But the good news is that CWT will continue to be engaged in efforts to improve the difficult economic situation that dairy producers are facing.”

Hog co-op files for bankruptcy
Meadowbrook Farms, an Illinois hog cooperative that opened in 2002, announced plans in March to file for Chapter 7 Bankruptcy. It said its assets will be liquidated, including a processing plant in Rantoul, Ill.

The co-op once had 200 members, but was down to less than half that number, according to press reports. Its 600 employees were laid off in December. It had for many months been paying below-market rates for hog deliveries, leading to steady erosion in member business.

Co-op members are unsecured creditors who will only collect the $5 million the co-op owes them if funds remain after payments are made to secured creditors (typically lenders and suppliers).

According to press reports, Meadowbrook Farms officials have blamed a major customer for defaulting on a key contract, leading to $5 million in losses. It has filed a complaint against the customer in Champaign County Court. The customer has denied the allegations, saying it was the co-op that violated the contract.

N.Y. Times includes special
co-op section
The April 6 issue of the New York Times included a special advertorial (paid editorial and advertising content) section that focused on the advantages of cooperative businesses. The advertorial on cooperatives featured a four-page section of ads and editorial copy.

The purpose of the advertorial was to educate consumers and policymakers on the value of cooperatives, according to the National Cooperatives Business Association (NCBA), which spearheaded the effort. “It tells a truly compelling story about cooperatives,” says NCBA President Paul Hazen.

The advertorial section focused on a variety of different types of co-op businesses, including: Cabot Creamery, Organic Valley, Wakefern Food Corporation (ShopRite), RaboBank, NYU Credit Union, NCBA, BizUnite, CCA Global and Carpet One. In January, The Times also ran an advertorial featuring credit unions covering three pages of ads and text.

NCBA originated the idea for the cooperative advertorial last fall, when The Times contacted it for a list of national and regional credit unions to participate in the January advertorial. Beginning last fall, the NCBA marketing/communications team collaborated with The Times to ensure that the advertorial “tells the most robust story on why cooperatives are the better business model when it comes to economic and social change,” Hazen adds.

The Times interviewed John Dunn, NCBA vice president of international development (and formerly with USDA Cooperative Programs) and Jim Jenkins, NCBA communications director, for background used in the editorial portions of the spread.

A copy of the advertorial can be downloaded from the NCBA website at: www.thebetterchoice.coop.

USDA accepting applications
for co-op development grants
USDA is accepting applications for grants to fund cooperative development centers that work to improve economic conditions in rural areas. Applications are due by the close of business on June 29, 2009.

“These cooperative development centers provide rural Americans with stronger technical and managerial skills, helping small businesses become more profitable and creating jobs in rural communities,” says Agriculture Secretary Tom Vilsack. Grants of up to $200,000 may be awarded to colleges, universities and nonprofit groups to create and operate centers that help individuals or groups establish, expand or operate rural businesses, especially cooperatives.

The grants are being provided through USDA Rural Development’s Rural Cooperative Development Grant program. The centers promote President Obama’s goal to bring increased economic opportunities to rural residents by giving them tools to help their businesses grow.

Cooperative program grants can be used, among other things, to conduct feasibility studies, create and implement business plans and help businesses develop new markets for their products and services. USDA may award up to $4.4 million in grants, which may finance up to 75 percent of the cost of establishing and operating the cooperative centers. Recipients must match 25 percent of the total project cost.

The application guide for this grant program can be found at http://www. rurdev.usda.gov/rbs/coops.htm. Also see the April 29, 2009, Federal Register, page 19485.



Humboldt Creamery
files Chapter 11

Humboldt Creamery filed for Chapter 11 bankruptcy protection April 21 in U.S. Bankruptcy Court in Santa Rosa, Calif. By filing for Chapter 11, the co-op has indicated its desire to continue to operate. The co-op is looking for possible partners or buyers.

Len Mayer, appointed as interim CEO, has concluded that the core, on-going operations of Humboldt are profitable and will be preserved.

The bankruptcy filing was necessitated by the co-op’s “impaired financial condition, which was discovered after the resignation of former CEO Richard Ghilarducci,” the company said in a press release. Humboldt Creamery’s bankruptcy filing lists assets of $50 million to $100 million, with liabilities of a like amount.

Humboldt Creamery is the oldest independent dairy cooperative in California and specializes in pasturebased and organic dairy farming. It is owned and operated by about 50 family farmers and produces high-quality fluid milk products, ice cream and milk powder shipped nationally and internationally. Based in Fernbridge in Humboldt County, it has additional facilities in Stockton, Calif., and Los Angeles.

Ghilarducci, who had been the co-op president and CEO since 1997, unexpectedly resigned Feb. 20. The news that the co-op was in trouble was even more surprising, coming just a month or so after it had announced a record sales year in 2008. The co-op has issued a statement accusing its former CEO of manipulating the accounting books to hide the true condition of the company. The co-op says the Securities and Exchange Commission, the FBI and U.S. Department of Justice are going over the financial records.

Ghilarducci’s attorney, Elliot Peters, has countered in the press that it is “cynical and false” to blame his client for the current financial problems of the co-op.

Humboldt’s major secured creditors are its lenders: CoBank and American AgCredit. These lenders “have cooperated with Humboldt in negotiating the terms of a debtor-in-possession loan agreement providing an additional $3 million for Humboldt, allowing it to reorganize its business in Chapter 11,” the co-op press release says.

A new financing arrangement with lenders “will allow us to pay on a current basis all of our suppliers for goods, supplies and services delivered to us after the filing of the bankruptcy case, and to at the same time find a strategic buyer who can continue the operations of this business that was started in 1929,” Mayer said.

Humboldt has hired investment bankers Duff & Phelps to help it find a partner or buyer. “With the support of its existing lenders, Humboldt expects to find a new partner who will work with it to continue the business and solve the problems caused by the former lack of financial reporting,” Mayer said.

More than 60 percent of dairy farmers in the Humboldt County area ship milk to the co-op, and its loss would be a severe blow to agriculture in the state’s north coastal area. “It would be devastating — this is the most devastating news in agriculture during my lifetime,” County Farm Bureau Executive Director Katherine Ziemer told the Times-Standard newspaper. “If the creamery doesn't make it, it will have lasting effects for generations to come — so many people in Ferndale are tied to what has happened at Humboldt Creamery.”


Organic Valley sales top $528 million

Organic Valley, the nation’s largest cooperative of organic family farmers and one of the nation’s leading organic brands, had record sales of $528 million in 2008, a 22-percent increase over 2007. This follows a 29-percent rise in sales from 2006 to 2007. The co-op’s sales have grown nearly 153 percent in the past five years.

The cooperative, with 1,332 farmer-members in 32 states and one Canadian province, expects 2009 sales to reach $549 million, a 4-percent increase.

“In light of the difficult economic environment and a softening in consumer spending, our farmers are very happy to once again experience double-digit sales growth in 2008 and to forecast continued growth for 2009,” says George Siemon, one of the founding farmers and CEO of Organic Valley. “Economic crises are not new to family farmers. Our mission to save family farms and strengthen rural communities was born in the 1980s, when farmers faced yet another economic crisis. We learned then that good things can come from hard times when we work cooperatively.”

To determine the total amount of synthetic chemicals and performanceenhancing drugs its organic farming practices have avoided using, Organic Valley compared its member-farm data to 20 years of USDA data on conventional farm use. As a result, Organic Valley estimates that co-op members avoided using 58 million pounds of synthetic nitrogen and 605,747 doses of performance-enhancing drugs administered to animals.

The co-op sold more than $9 million in Class E preferred stock last year, almost double the amount in previous years. New products introduced last year include Pasture Butter (a sweet, lightly salted cultured butter); Whipped Butter and Vermont Cheddar Cheese, a premium organic cheese.







May/June Table of Contents