October 21, 2019

Archives for January 2014

Energy Update

Last week’s energy market news was centered upon the rapid increase in LP gas prices, rising over $3 per gallon in less than 10 days.

Read what MaxYield’s energy team leader, Chad Besch, has to say about the supply and demand situation in the LP gas marketplace, at his weekly commentary page.

For information on energy markets, to place an order or inquire about risk management options, contact MaxYield’s energy central.

Klemme: the Transformation of a Grain Hub

MaxYield KlemmeDec. 9, 2003, started as a typical, snowy winter day at the elevator in Klemme. By 4:45 p.m., however, everything blew up—literally.

“I didn’t know what happened at first,” said Adam Suntken, a MaxYield grain solutions specialist who was working in the office. “All I knew is that when you call 911 three times and the line is always busy, you’ve got a big problem.”

An explosion had blasted the top off the grain elevator, pulverizing some of the 800,000 bushels of corn in the structure into golden-orange dust that coated nearby buildings. While four people were taken to the hospital, everyone survived the accident.

“People felt the explosion up to two miles away,” said Pat White, MaxYield’s East Area team leader, who was transported to the hospital. “Some folks thought it was thunder.”

No one ever pinpointed the cause of the explosion, which destroyed Klemme’s 1.2-million bushels of grain storage. It was an inglorious end for the state-of-the-art concrete elevator built in 1979 that was said to be explosion-proof. The damaged elevator continued to smolder for months, and crews couldn’t finish cleaning up the site until July of 2004.

While the co-op was able to salvage some of the grain, the losses were staggering. “Klemme had been a grain hub until this time, but all that changed in one afternoon,” said White.

MaxYield KlemmeKlemme endures turbulent times

While the Klemme elevator went out with a bang, major changes had been reshaping the business for a number of years. During the 1970s, Klemme Coop Grain had been in a growth mode, adding the new elevator and a feed mill around 1979. Timing didn’t work in the company’s favor, however, and neither did the cooperative’s plan to lease its fleet of railroad hopper cars.

“The embargo that banned the export of U.S. grain to Russia occurred around this time,” recalled Kerry Hiscocks, MaxYield’s Klemme location leader. “The embargo hurt a lot of country elevators, including Klemme.”

Things weren’t any easier for area farmers as the 1980s Farm Crisis intensified in the Midwest, Hiscocks added. Like many Iowa farmers, he was paying 19% interest on his operating loan. As the farmers struggled, so did local cooperatives, including Klemme.

To stay afloat financially, the Klemme elevator sold its feed mill business to Land O’Lakes in the early 1990s. After Farmers Coop Society of Garner bought out the elevators in Klemme and Meservey in 1994, the fertilizer plant was phased out at Klemme around 1996.

“Through those tough times, we strived to maintain the liquidity people had invested in the co-op,” said Luverne Schmidt of Klemme, a former Klemme Coop Grain board president who also served on the Klemme-Garner board. “It was hard to lose Klemme Coop Grain, but we wanted to make sure the stock still had value.”

After Klemme became part of AGP Grain on April 1, 1999, new opportunities began to emerge. The Klemme location was strong in the grain sector, and the team could load a 75-car train in eight hours, said Suntken, who started with Farmers Coop Society in 1997. “They were upgrading Klemme to a 100-car shuttle-loading facility when the elevator blew up in 2003. Then we went from being a grain hub on the rail to a country elevator and truck shipper.”

MaxYield KlemmeLocal ties remain strong at Klemme

The Klemme location received a new lease on life when it became part of the MaxYield family in 2005. “Local control was a plus when MaxYield came in, because it brought a positive change in the company’s culture,” said White, who has worked in the cooperative system for 34 years. “It was good to

return to our cooperative roots.”

Today, the Klemme location includes seven full-time team members and one part-time team member. Providing grain solutions is a key role at Klemme, which takes in more than 75% of its grain in the fall. The location can hold 1.5 million bushels of corn and 500,000 bushels of soybeans. When MaxYield’s Klemme team members aren’t busy with grain duties, they assist other MaxYield locations by driving tender trucks and handling other duties.

In the wake of the tumultuous 1980s and 1990s, Klemme has worked hard to rebuild client loyalty. “We’ve got really good clients,” said Teresa Mosiman, who has served as Klemme’s client care leader since March of 2010.

Luverne Schmidt and his family purchase their fertilizer from MaxYield and also sell some of their grain to the Klemme location. “I appreciate the convenience and dependable service we receive at Klemme,” said Schmidt, who farms with his sons, Lonnie and Jamie, along with some of his grandchildren. “I’ve never felt like I needed to go elsewhere.”

The Klemme location also remains a favorite meeting place for the dozen or so retired local farmers who gather in the break room to visit each weekday morning from about 8 a.m. to 10 a.m. “If someone doesn’t show up for coffee for a day or so, people start to worry,” Mosiman said. These local connections remain strong at Klemme, said Suntken, who serves MaxYield’s East Region, including Klemme, Belmond, Meservey, Klemme, Garner, Britt, and the Hawkeye Pride feed mill near Corwith. “Both our clients and many of MaxYield’s team members have lived and worked in this area for years. You know everyone and look out for each other.”

 

Stay with long-term plans: Analyst

By Gene Lucht, Iowa Farmer Today

Uncertainty continues to dog the grain markets in the first days of 2014.

The year began with many farmers waiting for the Jan. 10 USDA Supply and Demand Report. Also, some independent analysts have raised their estimates of the size of the 2013 U.S. corn and soybean crops.

“The short-term fundamentals for corn are very poor,” concedes Karl Setzer, a market analyst with MaxYield Cooperative.

The rest of this Iowa Farmer Today Story, can be found here

MaxYield Supports Ag in the Classroom

Ag in the classroom 2013MaxYield Cooperative recently presented a check to North Central Iowa Ag in the Classroom in the amount of $500.

North Central Iowa Ag in the Classroom educates children in seven Iowa counties about the importance of agriculture.

MaxYield’s Adam Suntken presented the contribution to Leah Reinert, Brenda Adams and Linda Anderegg.

More information about MaxYield Cooperative is available at www.MaxYield Coop.com and www.FromTheField.com.

 

Land Grab

Clients with farmland income may have to adjust expectations as rents and valuations have reached a top, some observers say.

This article first appeared on WealthManagement.com. MaxYield Grain analyst Karl Setzer weighs in the topic of possible farmland income adjustments…

by Debbie Carlson

The dynamics that have supported record-high farmland prices and rents are changing, and that may mean clients holding farmland for income may want to consider selling.

A primary growth engine for agriculture, biofuels, is beginning to stall out as domestic use for ethanol may have peaked, some observers say. Investor interest in alternative and hard assets has become fallow in the face of strong equity markets. Crop harvests are plentiful. All of these factors make the run up in farmland prices look overripe.

But that doesn’t mean a repeat of the 1980s farm crisis is coming. Farmers are generally better capitalized now, agricultural experts said, and while interest rates are likely to rise, they’re not likely to revisit their 1980s highs, either.

Here’s what could happen: as farmland valuations top out, the rents landlords collect from leasing the ground to farmers will eventually fall as crop prices retreat. Land owners who regard the lease payments as a form of income may have to readjust their expectations if current subdued crop values persist for several years.

Strong Gains Likely To Slow

Farmland has been a great investment. National farmland values rose to $4,000 in 2013, from just over $1,500 an acre in 2004, with prime Midwestern farms valued at nearly double that, on average, Agriculture Department data show. The National Council of Real Estate Investment Fiduciaries’ Farmland Index shows values are up 10.35% through the third quarter.

But a slowdown is coming. The Chicago Federal Reserve’s Agricultural Newsletter said third quarter prices are up 14% year-over-year, but only 1% over the second quarter. Bankers surveyed expect fourth quarter values to be stable to weaker. Creighton University’s Rural Mainstream Index November banker survey showed nearly half forecast lower farmland prices over the next 12 months.

Brent Gloy, director of the Center for Commercial Agriculture at Purdue, said agricultural dynamics are shifting and that will change farmer income. Farmer income greatly influences farmland values.

Southeast Asian economic growth will mean higher food demand long-term, but the big biofuel demand driver is stabilizing at best, Gloy said, as domestic use has likely reached its limits. A big grain harvest this year quickly replenished recent supply shortfalls. Given advances in agricultural technology – everything from seed genetics to machinery – bountiful U.S. harvests are generally more common than not.

“The question (is), will demand growth continue to outpace supply growth? Right now it looks like not. So that means we have to get back into equilibrium and probably at a little lower price for commodities,” he said, adding that lower commodity prices mean less revenue produced by the same acre of farmland.

Last year, benchmark Chicago Board of Trade corn futures prices traded around $7.45 a bushel, lifted partially by 2012’s drought. At the beginning of December 2013, corn’s price was $4.24. Corn is the largest and most valuable crop grown in the U.S. and its price can guide farm income.

Given current supply and demand projections, where might corn prices go longer-term? Gloy said $4 a bushel is “probable.” That makes record farmland prices, some which sold as high as $15,000 an acre, “very hard to justify,” he added.

Karl Setzer, market analyst at MaxYield Cooperative in Iowa, said if $4 corn prices stay, the high cash rents farmers currently pay landlords aren’t sustainable. Cash rents are a fixed amount per acre farmers pay landlords to produce crops. Some of the highest cash rents in the Midwest go for $400 to $500 an acre.

Those rents are usually on top of the loans farmers take out to pay for inputs like fertilizer, seeds and diesel for machinery. Setzer said if interest rates rise and crop prices fall, farmers will be in a tight squeeze.

Farmers won’t be able to “offer the high rents, so landlords will have to rethink their position,” Setzer said. He noted that in Iowa at $430 an acre cash rent, a farmer would need to harvest an average-sized crop of 160 bushels an acre of corn on a 640-acre section of land and receive $5.50 a bushel to just break even.

Now What?

Landlords may need to rethink their income expectations and land prices may no longer set records, but don’t hang up a “for sale” sign just yet. Farmland is still a worthwhile long-term investment, agriculture experts said. Just don’t bank on the recent run of double-digit price gains anymore.

“I think it’s a great asset class, one that provides a nice stable return over a long period of time, but it’s not going to give you a consistent 20% return… You want to recalibrate the returns to the 6% to 7% appreciation and income region, I think,” Gloy said.

It can be a challenge to own farmland because price information isn’t readily available and it can be an illiquid market, said Jose Minaya, managing director and head of natural resources and infrastructure investments for asset-management company TIAA-CREF, which has a $4.4 billion global farmland portfolio.

But he says it’s a great diversifier because it’s not correlated to other markets. However, he adds: “I can’t say enough that farmland is a long-term holding.”

Mike Zuzolo, owner of agricultural consulting firm Global Commodity Analytics & Consulting, said although crop prices are soft and banker expectations for 2014 are down, farmland makes an excellent inflation hedge. Inflation isn’t an issue currently, but the low inflationary environment won’t last.

Minaya also points out that unlike gold, a favorite hedge for those fearing inflation, farmland is one of the few hard assets that produce a yield because of crop production.

For investors who bought farmland in the recent rush into hard assets for safety and are concerned about the potential for weakening prices, Minaya again stresses the long-term view.

“If you own farmland, these are long-term asset fixtures in your portfolio. (They are there) to the point that you need them for your retirement or your estate planning,” he said.

It’s Payback Time: MaxYield Pays Off Fostoria, Britt Equity

20131010_maxyield_465 compWhile poet Robert Service said a promise made is a debt unpaid, that’s not so at MaxYield Cooperative.

MaxYield was pleased to retire nearly $60,000 of Farmers Cooperative of Britt preferred stock this year from regional cooperatives, and more than $205,000 of Fostoria Cooperative Elevator Company preferred stock, per previous merger agreements with those organizations. These payments pay off the remaining applicable Fostoria equity and Britt regional equity held by members when the cooperatives merged with MaxYield (then known as West Bend Elevator Company [WBEC]) in 2003.

The original agreements called for 15 years to retire the equity paid out by the regional cooperatives where the Fostoria and Britt cooperatives were members. If this money had not been paid off in 15 years, MaxYield was obligated to pay it back at a discounted amount.

“The most exciting piece of these Fostoria and Britt arrangements is that MaxYield retired the equity at full-face value, and we fulfilled these obligations early,” said Keith Heim, MaxYield’s CEO.

What a difference a decade makes

The Fostoria location has come a long way with MaxYield’s help, noted Todd Meyer, who serves on MaxYield’s board. In 2003, the Fostoria Cooperative Elevator Company had two choices: sell out and close the business or merge with another cooperative.

“While some on the board wanted to sell out, most of us wanted the elevator to stay open,” Meyer said.

Fostoria board members explored mergers with two cooperatives. One cooperative wanted to work with Fostoria but only planned to operate the elevator seasonally. MaxYield wanted to keep the facility open, and viewed Fostoria as a growth area.

Fostoria voted to unify with WBEC in 2003. “I was a little skeptical at first, but boy, this was a good decision for everyone,” Meyer said. “This has been hands-down our best choice. MaxYield’s business personality meshes well with farmers in this area. Also, our facilities are safer, cleaner, and much better than before, and we continue to be a viable member of this community.”

Building new beginnings in Britt

Like Fostoria, the Farmers Cooperative of Britt needed to make a major change in 2003 and unified with WBEC. There was a slight twist compared to Fostoria, though.

“Britt had their member equity split into two categories—regional and local,” noted Bob Burkhardt, MaxYield’s chief financial officer. “Whenever we got money back from the regional cooperatives that Britt was part of, we refunded it. A portion of Britt’s local equity is still owed to the members, and there is a process in place to refund it to members, per the merger agreement.”

The agreement has worked out well, said Mark “Skip” Miller, a Britt-area farmer who served on the Farmers Cooperative of Britt board when the unification occurred. “Britt’s board of directors wanted a strong partner that would fulfill its commitments to the members of Farmers Cooperative Company. I’m glad that the integrity of the deal that was made then still holds true today.”

Miller isn’t alone. “The feedback I’ve received from members around Britt is that they appreciate that the regional equity is being paid back, and they are glad MaxYield has fulfilled that requirement,” added Miller, a former MaxYield board member.

20120927_farmers_023 compResults create a ripple effect

Not only has MaxYield lived up to its agreements and met them ahead of schedule, but MaxYield has kept the Fostoria and Britt locations competitive, too. “This is due to the backing we’ve received from members in these areas,” Burkhardt said. “Their support has allowed us to make a number of investments in the Fostoria and Britt facilities in recent years, and we’ll continue to do so.”

Meyer has been amazed by the results. “When we were evaluating options for the Fostoria Cooperative Elevator in 2003, we were just hoping to find a way to keep the doors open. We never dreamed it would look like it does now. MaxYield has done everything they said they would do and more. Our facilities are better, the service is very good, and the equity Fostoria members were owed has been paid in full years sooner than we expected.”

This reflects well on MaxYield in more ways than one, Miller added. “In many towns across north Iowa, MaxYield is often the largest employer. I feel it’s necessary for them to not only live up to the merger agreement, but also to reinvest in our communities. Their employees serve on fire departments, ambulance crews, school boards, and more. MaxYield has also financially supported our towns, and I’m glad they continue to do this.”

MaxYield enjoys working with members throughout its trade territory, including those in the Fostoria and Britt areas, Heim said. “The equity retirement process at these two locations is a real success story. We are happy with how things have worked out, and we hope our members are pleased, too.”

Ag in the Classroom Receives Support from MaxYield

PA County Farm Bureau 2013 compMaxYield Cooperative recently presented a check to the Palo Alto County Farm Bureau in the amount of $500. The contribution was in support of the “Ag in the Classroom” curriculum for the Emmetsburg Community School system.

North Central Iowa Ag in the Classroom educates children in seven Iowa counties about the importance of agriculture. Kipp Fehr, Palo Alto County Farm Bureau president, accepted the contribution.

More information about MaxYield Cooperative is available at www.MaxYield Coop.com.