N E W S L I N E
LOL buys Purina Mills, expands feed business
North America’s largest farmerowned animal feed business will grow substantially with the planned purchase by Minnesota-based Land O’ Lakes (LOL) of Purina Mills, based in St. Louis. The $230 million price represents $23 per share in cash for 10 million shares of common stock. LOL also agreed to assume the firm’s $130 million debt load. Manufacturing, transportation and purchasing functions will be combined.
Purina Mills, the nation’s third largest livestock feed manufacturer, had sales of $839.8 million last year. It will continue to operate as a separate company out of St. Louis with its own sales and marketing team, product lines, brand, nationwide dealer network and 2,300 employees. The firm also retains its nationwide red-and-white checkerboard logo which has appeared on the company’s feed sacks since the early 1900s. Included in the deal was Purina Mills’ research and development center at Gray Summit, Mo.
The cooperative’s portfolio of dairy cow, swine and poultry feeds will be expanded to include horse feed, for which Purina is a major distributor. LOL will blend Purina’s 42 mills with the 70 from its joint feed venture with Kansas City-based Farmland Industries. When it was formed last September, LOL Farmland, LLC, became the largest animal feed company in North America. It expects to post sales of $1.8 billion from its first year of operation. Last year, LOL achieved sales of nearly $6 billion and margins of $103 million.
Among the benefits of the purchase, said LOL President Jack Gherty, will be increased efficiency in production, distribution and purchasing. It brings together two well-recognized brands in different product categories. “We are building the economies of scale and critical mass necessary to compete nationally in the consolidating feed industry. The transaction has positive implications for the long-term success of our farmer-owned feed system,” he said. “It will unite two strong brands, as well as complimentary geography and product lines.”
Purina Mills includes Ralston Purina’s U.S. livestock feed business. The rest of Ralston Purina was purchased earlier this year by Geneva-based Nestle SA for $11 billion. Ralston Purina still distributes Purina Chow dog and cat foods.
Bekkers new Gold Kist CEO
The board of directors of Atlantabased Gold Kist, Inc., the nation’s largest farmer-owned chicken processor,
has
named John
Bekkers as its
new president
and chief
executive
officer following
the
retirement of
Gaylord
Coan, its previous
executive
and
chairman who had a 46-year career
with the cooperative.Bekkers’ Gold Kist career spans 16 years. He had been president and chief operating officer since 1995. He is the immediate past chairman of the National Chicken Council, a director of Farm Credit Leasing of Minneapolis, and member of the advisory board of Robobank in Holland. Gold Kist had been one of his clients while he earlier served as a management consultant.
Trio of dairy co-ops ends LOL merger study
The 1,600 members of Maryland & Virginia Milk Producers Cooperative at Laurel, Md., plus those of dairy cooperatives in Arkansas and Texas have decided to end merger talks with Land O’Lakes (LOL). Maryland and Virginia co-op general manager Robert Shore said “a significant level of member concern” has been expressed regarding the proposed merger. However, he said the cooperatives would explore other ways of working together.
“Member response to the merger proposal at 14 information meetings varied from “strong support to strong opposition,” Shore said. But the opposition was strong enough that the cooperatives decided to cancel the study. If approved, the three co-ops would have been placed in an Eastern fluid milk marketing division, along with LOL’s earlier holdings from a merger in the Philadelphia area.
The other co-ops involved are Arkansas Dairy Cooperatives Association at Damascus and Lone Star Milk Producers, Inc., at Windhorst, Texas.
“We are exploring other ways to strengthen marketing alliances with our Advantage partners,” Shore said. “Though this (merger) proposal will not continue to be developed, the board and management will do its best in maximizing income, market stability and service for all members.”
Catfish cooperative opens in Kentucky
Kentucky legislators were treated to fried catfish during a dedication of the state’s first cooperative catfish processing plant this summer. It will take two years for the plant to reach its production peak, employing 15 to 20 people to process a million pounds a year of the protein-fed channel catfish. Kentucky Agriculture Commissioner Billy Ray Smith has cited “value adding” specialty crops such as catfish as a way to breathe new life into the state’s farming economy. Kentucky farmers are seeking alternate enterprises to replace plummeting grain prices and the decline of tobacco. Smith said clay soil and ample groundwater available in the state were suited to catfish raised in farm ponds. Western Kentucky farmers have dominated applications for $4 million in state cost-sharing funds to help people get started in aquaculture.
Ohio State honors Ron Long
Ron Long, vice president for sire procurement for Select Sires Inc., Plain City, Ohio, has been inducted into Ohio State University’s Dairy Science Hall of Service. Long has been a dairy leader on state, national and international levels for more than 40 years. Dairy producers throughout the world have benefitted from Select Mating Service, a cattle mating program pioneered by Long that has grown to include more than 50 professionals who make more than 2 million matings annually. Long had also been president of the National Shrine Club.
Universal buys Triton Tire
Triton Tire and Battery at Eagan, Minn., has come under full ownership of Universal Cooperatives. It had been a joint venture since 1997 with CHS Cooperatives and Farmland Industries. Universal had been a managing partner of the venture since 1998 and had provided purchasing, warehousing and distribution services.
Online procurement pilot
saves money for Roanoke ECRoanoke Electric Cooperative at Rich Square, N.C., recently saved its members an estimated $200,000 by using a web-based application that facilitates online procurement of construction work plan contractors. The rural electric cooperative (REC) used the online bidding process to select a contractor to provide labor for this year’s construction under its four-year plan. The overall process, including the use of online web-based systems, is consistent with the Rural Utilities Service (RUS) regulation governing procurement. An exception is a feature that allows competitors to view the low bid and change bids during the solicitation period.
Bidders dropped their quotes by more than $206,000 ($620,152 to $413,829) during the process. The cooperative expects to save 30 percent over its anticipated cost for the project. “The process creates a truly competitive environment, while bringing about an extremely efficient process,” said Curtis Wynn, the cooperative’s chief executive officer. “We are extremely satisfied with the savings we are seeing by using the system.
Although its regulations do not specifically authorize online procurement, RUS gave Roanoke’s pilot project a waiver because RUS was satisfied with how the bidding process was handled.
The agency has indicated it will consider requests from other borrowers who wish to try this type of procedure. Roanoke REC found that most bids were posted in the last two hours.
Birds Eye launches branded retail fresh vegetable line
Agrilink Foods, the fully owned subsidiary of Pro Fac Cooperative at Rochester, N.Y., will soon debut across the country with a line of branded fresh vegetables under its popular Birds Eye brand. The product line is expected to add millions to the company’s bottom line.
Donna Rippin, Agrilink’s business director, business development, said it wanted to “make sure we had a consumer viable proposition in the test markets. Our plan was based on the Birds Eye brand being sold at a premium... The products (a 15-pound bag of russet potatoes) sold at a premium and actually outsold the competition in double-digit dollars.”
The competition, she said, includes key players in the fresh produce market. But transferring a brand’s equity into a new and different class of foods is not a simple task. “Commodities are price driven and brands haven’t successfully infiltrated the territory yet.” One of the biggest risks is the potential to affect other branded products, she said. “With fresh produce, for example, damaged or poor-quality product is readily visible. Consumers can see, feel, touch and smell the product. Any negative experience could affect their perception of other products carrying the brand name.”
Meanwhile, Agrilink has received a $500,000 grant from several sources including the State of New York for use on a $1.2 million project to move vegetable and frozen fruit lines from a recently closed Agri- Frozen facility in Washburn, Ore., to Fulton, N.Y., and add 50 new jobs at Fulton. The fruit line will added 600,000 cases to the facility’s incremental volume.
Supreme Court ruling clouds commodity marketing promotion
A U.S. Supreme Court decision in a case dealing with a nationwide generic advertising program promoting fresh mushrooms puts in question a dozen generic product marketing programs with a combined budget of about $500 million to promote fruits, vegetables, meats and dairy products.
In a 6-3 vote, the justices sided with those who opposed the mandatory checkoff programs supported by a majority of producers of particular commodities. The court said that growers can’t be forced to pay for these government- sponsored advertising programs. The court majority agreed with dissidents who have long complained that the forced funding of generic advertising violates their First Amendment free speech rights. The suit was pursued by a Tennessee company that grows fresh mushrooms. Under a 1990 law, Congress authorized an industry board to collect a one-cent-per-pound fee.
Attorney Kendall Manock, representing several farm industry boards that support the checkoffs, said the programs are involved in promoting trade and opening markets in China and Mexico, not just sponsoring advertisements. A purely voluntary program wouldn’t survive because of free riders, he said.
Aside from federal programs, California has 51 cooperative ad programs that will spend $140 million this fiscal year on marketing. The largest promotions are for cheese, milk and table grapes followed by those for raisins, beef, wheat, kiwi, citrus fruits, cut flowers and strawberries. These, too, are subject to a free-speech challenge from growers who object to the assessments.
Farmland cuts long-term debt, but still has quarterly loss
The nation’s largest agricultural cooperative made substantial strides in stemming the continuing flow of red ink and cut $200 million from its longterm debt, lowering it to $280 million by the end of the third quarter of its current fiscal year. Farmland Industries of Kansas City reported a $42.4 million quarterly loss despite sales of $3.2 billion, up from $3 billion for the same quarter last year. The loss figure included one-time costs, restructuring and tax considerations.
Bob Honse, Farmland’s chief executive officer, said the restructuring costs covered several transactions including closing two Farmland meat plants in Iowa and a wheat gluten plant at Russell, Kan. Excluding those, Farmland had a $27.1 million gain on $9.1 billion sales for the nine months vs. a $64 million loss on $8.8 billion sales for the same period last year. While some gains came from higher petroleum sales, $30 million was derived from reduced operating and administrative costs at Farmland, Honse said.
The cooperative recently leased its domestic grain handling business to Archer Daniels Midland, earlier shuffled its feed business into a joint venture with Land O’Lakes, and plans to sell its petroleum refinery at Coffeyville, Kan., and close its pork processing plant at Topeka, Kan., next year. Purchased in 1996, the pork facility fell victim to changing retail attitudes. The 190 employees and 40 million pounds of production will be absorbed elsewhere in the Farmland system.
Meanwhile, Farmland Beef, a joint venture between Farmland Industries and U.S. Premium Beef, has opened two case-ready plants (pre-packaged cuts of beef and pork sent directly from the processor to the retail shelf and eliminating the grocery store butcher). A third plant will open next spring in the Kansas City area and employ 200 workers. The cooperative said it was making the transitions in its pork processing plants to improve efficiencies, grow its market share and expand the Farmland brand. Sales for Farmland’s refrigerated foods group are up $175 million to $3.4 billion for the first three quarters from the same period last year.
In a subsequent move to reduce the number of enterprises in which it is involved, Farmland has announced plans to sell its entire 40+ percent share of stock in two Heartland Grain Fuels LP ethanol-producing plants in South Dakota to its partner. Bill Paulsen, Heartland manager, didn’t rule out the possibility of non-farmers buying shares, but South Dakota Wheat Growers will continue to have controlling interest in Heartland, which produces 22 million gallons of ethanol a year at plants in Huron and Aberdeen. Details on how to purchase shares will be available later this year. Earlier this year, Williams Bio-Energy, Tulsa, Okla., a unit of Williams Companies, purchased a 5-percent interest in the operations and agreed to market and distribute the ethanol. The joint venture began in 1993. The Huron plant opened in 2000.
Ottowa Co-op gains in sale of bankrupt FCA in Kansas
A U. S. bankruptcy court judge has approved the sale of properties owned by Farmers Cooperative Association (FCA) of Lawrence, Kan., to a group of investors headed by Overland Park attorney Robert Laing for nearly $3.2 million. The sale of grain elevators, fertilizer plants and other properties to Laing’s group had been recommended by the cooperative’s board of directors. The purchase did not include the grain inventory. FCA has liabilities of $20 million, including $10 million owed to CoBank. FCA sought Chapter 11 bankruptcy protection last September. It was the largest local cooperative in Kansas.
Laing has since sold seven elevators to Ottowa (Kan.) Co-op, which will triple its grain handling capacity, double its sales and require 10 more employees. The entire group of elevators will be connected by a computerized network which will track all transactions, scale weights and loads. Experienced branch managers will operate the elevators.
AGP sells CN Feed to ADM, buys Canadian operations
Omaha-based Ag Processing Inc. (AGP) has sold its U.S. half of Consolidated Nutrition (CN) feed venture to its partner, Archer Daniels Midland (ADM), and in turn acquired ADM’s half of CN’s Canadian operation and the “Master Feeds” brand. The joint venture had been operating since 1994.
The transaction will allow AGP to focus its resources on food and industrial products such as soy-based diesel fuel, solvents and additives that enhance chemical performance, according to spokesman Mike Maranell. AGP is the world’s largest cooperative soybean processor and a major processor of vegetable oils.
Calcot cotton farmers may face
repayment of earlier advancesCotton producer-members of Calcot Ltd., a cotton-marketing cooperative based at Bakersfield, Calif., may be forced to return some of the cash advances it received from Calcot. Growers have had to return advances to Calcot only once previously in its 45 years. Calcot will make a final settlement in September for last year’s harvest. Last fall, cotton farmers were advanced cash based on futures prices.
PCP buys $9 million plant to suit tomato growers
Seeing an opportunity to expand tomato operations, grower-owned cooperative Pacific Coast Producers (PCP), Lodi, Calif., is purchasing the Del Monte processing plant at Woodland, Calif., for $9 million. The 41-acre site includes the plant, three warehouses and a processing area. The plant had been closed after the 2000 season.
PCP will process 350,000 tons of tomatoes at its Lodi cannery and next year will process 525,00 tons at Woodland. Ninety-five percent of PCP’s tomato growers live within 20 miles of Woodland. The cooperative expects freight savings of about $3.5 million annually and will spend another $18 million for new equipment and updated facilities. The breakup of Tri Valley Growers and its tomato processing business left a vacancy in the state.
Sugar beet growers in four western states, who formed a Rocky Mountain
Sugar Growers Cooperative a year ago, have purchased Western Sugar Co. from Tate & Lyle, the giant British sugar processor, for $48 million. The cooperative gains processing plants at Billings and Lovell, Wyo.; Fort Morgan and Greeley, Colo., and Scottsbluff, Neb. Corporate offices were in Denver.
Last year, Tate & Lyle had offered to sell Western Sugar to its 1,100 sugar growers for $78 million, or about half its estimated liquidation value. Growers planted 130,000 acres this spring. Growers will receive a letter from the cooperative which outlines details of the purchase, includes a closing balance sheet and information on interest rates for loan financing. A mechanism provides for growers who did not commit acres this year to buy into the plant.
Dakota Beef Co-op buys Nebraska meatpacker
Dakota Beef Cooperative at Bismark, N.D., plans to buy a 60 percent interest in Elkhorn Valley Packing Company at Dodge, Neb., over the next five years but continue pursuing a goal of building a future plant in the Dakotas. Cooperative organizers will need a minimum of 40,000 cattle a year. A membership drive is planned. Elkhorn, which also has a slaughterhouse in Wellington, Kan., markets beef in the United States and other countries on both retail and wholesale levels. Most of the firm’s cattle come from Kansas and Nebraska. Dakota Beef grew out of the failed Northern Plains Premium Beef, which sought to build a slaughterhouse in western South Dakota but was caught in a poor ranch economy in the 1990s.
Ramey Co-op joins AMPI
The 150 members of Minnesotabased Ramey Farmers Cooperative Creamery have voted to merge and market their milk with Associated Milk Producers Inc. (AMPI) of New Ulm, Minn. Ramey members marketed 140 million pounds a year to Glencoe Butter and Produce Association, also now a part of AMPI. The Ramey cooperative, formed in 1913, will continue providing farm production supplies to its members.
Texans form rice co-op
About 27 Texas rice growers have voted to form a new cooperative. It hopes to handle members’ rice from the drier to the grocery shelf. The new board of directors has been canvassing other rice growers with an eye toward increasing membership. Minimum commitment was set at 1.2 million hundredweights of rice and a maximum of 2.5 million hundredweights. The cooperative will seek to gain valueadded profit for its currently lowpriced long-grain rice.
German co-op banks merge
Germany’s two rival cooperative banks have merged to become the largest cooperative bank and sixth largest bank in that nation in terms of assets. DG and DZ banks will each own 50 percent of the new firm operating under the DZ banner. It provides refinancing to agriculture which has been suffering from crises including outbreaks of mad cow disease. The company will serve as the central clearing bank for about 1,500 local cooperatives.
Illinois fund boosts co-ops
Illinois has allocated $3 million in its fiscal 2002 agricultural budget for use by producers developing valueadded cooperatives. The fund can pay for up to 75 percent of the cost of technical assistance, including feasibility studies. State Farm Bureau President Ron Warfield said AgriFIRST program funds for these projects “will greatly enhance the ability of Illinois farmers to capitalize on new ways to capture a bigger share of the consumer food dollar.”
Indiana’s Ag Plus Forms
Capping discussions for the past two years, two Indiana grain marketing and agronomy service cooperatives near Fort Wayne, Ind., have merged to form Ag Plus Inc. Being blended are Farmers Elevator Co. of South Whitley and Allen County Co-op at Woodburn. Jeff Mize, manager of Farmers Elevator, will manage the new entity, which combines more than 1,700 members and about 80 employees.
Undaunted by low prices, Ocean Spray eyes turnaround
Ocean Spray’s cranberry-grower members are sticking with their cooperative as it pursues new marketings despite low prices that management says could extend another 2 to 5 years. The cooperative, which had sales of $1.36 billion last year, represents about 900 growers, mostly in Massachusetts, New Jersey and Wisconsin.
Earlier this year, members voted by a 2-to-1 margin to back a turnaround plan and not sell the cooperative, the biggest player in the cranberry business. Any sale would require support from a 75 percent majority of the cooperative’s shares. Ocean Spray is pinning its hopes on effective marketing and is spending half of its $30 million advertising budget next year to promote a new white cranberry juice product. The cooperative also is pursuing its new market in China.
Sugar beet growers seek help buying Holly plant
The Washakie Beet Growers Association in Wyoming supplying the Holly Sugar Factory at Worland is planning to sign a one-year lease of the factory from its bankrupt owner, Imperial Sugar, to allow more time for purchase negotiations. President Dick McKamey said the factory needs about 20,000 acres of sugar beets to stay afloat. Holly also operates a refinery and seed research laboratory in Wyoming.
Tillamook opens cheese plant
Columbia River Processing Inc., a wholly owned subsidiary of Tillamook County Creamery Association (TCCA) at Boardman, Ore., has begun operating a new cheese plant capable of producing 58 million pounds of cheese a year using 1.6 million pounds of milk per day. Its cold storage facility can handle 30 days of cheese production. The cheese will be trucked to TCCA’s flagship plant in Tillamook for extended aging, storage, packaging and distribution. Whey will be condensed through a reverse osmosis system and shipped to a plant operated by a neighboring cooperative for further processing.
Pork America buys Iowa packing plant
Pork America Inc. has purchased the former Ace hog slaughter and processing plant at Estherville, Iowa. The cooperative facility was expected to begin operating this summer. It would initially process about 100 head per day and operate with 12 employees. In time, production is scheduled to increase to 600 head per day which would require about 40 employees.
CHS ends incentive program, returns $14 million invested
An innovative five-year experiment aimed at raising farm income from its processing business for members of CHS Cooperatives has been shelved by the Minnesota-based cooperative. CHS plans to return $14 million to the 855 farmers who invested. The program sold shares in the new businesses known as Equity Partnership Units. Investing farmers could expect greater returns from profits of those businesses that processed their grains or oilseed crops. However, CHS still believes there is merit in the idea that is fashioned after popular new-generation cooperatives operating in the Upper Midwest. President John Johnson said the program was doomed because a depressed flour milling market limited earnings. Meanwhile, the cooperative will continue to explore ways for members to invest directly in value-added businesses.
Golden Gem Growers Shuts Lake Garfield Packing House
Citing a flat market for its specialty oranges for the past several years plus competition from other tropical fruits, Golden Gem Growers has shut its packing house at Lake Garfield, Fla. This and its larger house at Umatilla have been operating below capacity. Fresh fruit activities will be concentrated at Umatilla which has a capacity for about 600,000 cartons. Golden Gem’s juice fruit will be processed at a plant at Lake Wales which has a long-term contract with a Brazilian citrus cooperative.
Energy prices spark interest in ethanol co-ops
Given continuing high energy prices and the search for alternate fuels, agricultural producers are continuing to form and operate cooperative ethanol plants that primarily use corn as their feedstock, although others are using government surplus sugar or studying use of agricultural waste products.With an eye toward increasing ethanol production, the U.S. Department of Agriculture will provide up to $150 million in subsidies in 2001 and another $150 million in incentive payments for 2002 for its bioenergy program. It provides higher payments to small processors and cooperatives to encourage expansion of domestic bioenergy production capacity. More than 5 percent of the nation's corn production (567 million bushels) is used for production of biofuels and more than 50 ethanol plants are operating in 20 states.
Last fall, USDA announced a two-year program to subsidize companies - including cooperatives - that buy crops, principally corn and soybeans, for use in production of bioenergy products such as ethanol or biodiesel. Payments are capped at $7.5 million per company and range from 29 percent to 40 percent of the cost of the crops, depending upon the size of the company. Ethanol production is currently subsidized by a 5.4-cent-per-gallon federal excise tax break and consumes about 600 million bushels of the annual U.S. crop of more than 9 billion bushels of corn.
Meanwhile, the Environmental Protection Agency (EPA) has denied California's request to waive the federal oxygen content for reformulated gasoline. This is expected to sharply expand the demand for ethanol in the state. While most Midwest ethanol plants use corn, Californians can also use orchard clippings, wood chips from lumber mills, whey from cheese factories and lawn clippings from urban areas. The state has the potential to produce 200 million gallons of ethanol.
Here is a sampling of pending cooperative ethanol projects:
-Patrick Duffey
