University of Wisconsin Center for Wisconsin
Rural Cooperatives, September/October 1996, pp. 22-24.
Published by the Rural Business and Cooperative Development Service
Traditional Principles Still Work for New-Generation Cooperative
To create new profit opportunities for its grower-members, South Dakota Soybean Processors dedicated a new plant in Volga, S.D., on Sept. 8. Like many other new- generation co-ops, this soybean association is putting a spin on the co-op principle calling for voluntary and open membership.
With more traditional co-ops, anyone can join at anytime for a fee as low as $5. As a limited-membership cooperative, the new soybean association was originally open to anyone, but the co-op put a deadline on when members could join and required members to purchase a minimum of $5,000 in shares. In return, members will benefit from a greater opportunity to share in co-op profits, based on the amount of business they do with the co-op.
By the time Rodney Christianson joined the co-op as manager and CEO last January, Board President Paul Casper and other soybean growers had spent more than three years organizing the co-op. In total, 2,100 farmers put up $21 million in membership equity toward a plant that cost $32 million to build. While the co-op operates on a democratic, one-person, one-vote basis, patronage returns are based on each owner's equity investment and corresponding delivery obligations.
"The new limited-membership cooperatives can raise the equity needed to attract capital to build a processing plant," says Steve Moore, assistant vice president for CoBank in Omaha, Neb., an account officer for the association.
Casper and other area farmers first tried to attract a processor to build a plant in their area, without success. One night, Casper asked the others, "Why don't we do it ourselves?" It is usually difficult to get farmers to put up that much cash, but not this time. Casper and other organizers did their homework. The South Dakota Soybean Promotion and Research Council, and to a lesser degree the state, funded an economic feasibility study that projected positive returns for the plant. Then organizers began working on co-op structure, developing the limited membership plan and a uniform marketing agreement that requires members to deliver a certain amount of their crop to the plant.
"When organizers set up meetings with farmers and went on the road, they talked about the history of new-generation coops," says Christianson, who was with Cargill for 20 years before taking the association's helm. "Members of the nearby Minnesota Corn Processors found that their co-op was a good investment for them. Their success made raising funds a lot easier."
Still, Casper admits he had no idea how much work it would be. He and other organizers traveled to almost 200 meetings— sometimes three a day—and met with a total of 6,000 farmers. He often started out at 6 a.m. and returned home at 2 a.m. In one day-and-a-half period, he received 120 messages on his answering machine. During harvest last fall, he operated from his combine, with the cellular phone bill hitting $435 one month. "I have no guess as to the miles I've traveled," he says, "but I've had a lot of fun."
Among the organizers' proudest accomplishments: putting together a winning team, including top co-op and securities attorneys such as Bill Janklow, who is now governor of the state. "We've been lucky with our political connections," Casper says. In addition to landing Christianson as manager, the team of farmers hired Larry Malam, a top-notch operator who had retired early after 23 years of running a seed manufacturing facility; Dave Thompson, a world oil seeds manager for Bunge who is now the co-op's chief merchandiser; and Connie Kelley, formerly an accountant with Consolidated Nutrition, who brought her own system to track plant earnings minute by minute.
Beyond organizational and management skills, the location is what helps make this deal work, reports Moore. This will be the western most soybean plant in the United States, in an area where the supply of soybeans is increasing. Since the farmers are so far from a plant, their prices are the lowest in the U.S." With bean prices already drawing $7.60 to $7.70 per bushel on the market, the limited co-op approach will most likely be a better deal than if farmers had succeeded in their quest to attract a private plant. In addition to higher local prices, members can now look forward to a return on their co-op investment. "We're buying the opportunity to make the middleman's profits," Christianson says.
"Soybean growers know that good margins have been generated by crushing facilities over the past several years," Capser says. "The crushing industry is dominated by four players." They include Archer Daniels Midland, Cargill, Bunge and Ag Processing Inc., an Omaha-based soybean cooperative also financed by CoBank.
South Dakota farmers increase soybean plantings by about 74,000 acres per year.
"New strains have been developed which can thrive in the state's shorter growing season," Christianson explains. "Plus, soybeans are a good cash crop for farmers, and demand is growing."
As the world's population grows and incomes rise, people can afford to eat more meat. Soybean meal is an important livestock feed. The new association stands ready to help meet demand. Half the beans processed will come from South Dakota, and the other half from Minnesota, all from a range of several hundred miles. The plant will operate from 330 to 350 days a year, processing soy meal and oil. The facility can store soybeans for up to 20 days, meal for four days and oil for 60 days.
I could visualize the plant from the beginning," Casper says, "but never in my wildest dreams did I see anything this big." The plant, resting on 40 acres, presents an imposing sight. In fact, the speed limit nearby was reduced after gawkers were involved in five or six accidents. Casper and his 13-year-old son recently climbed to the top of the elevator, from where they could see for miles. From the top, Casper could visualize his next dream—producing edible oil and flour, and even particle board using soy flour as a glue to bind it together.
When Capser, Christianson and politicians wound up their pitches at the plant dedication on Sept. 8, the 4,000 people who attended heard more about economics than co-op philosophy. Economics drive the formation of cooperatives, and South Dakota Soybean Processors is no exception. In this case, the economics benefit the community as well as the farmer-members. The plant will bring 50 new jobs to Volga, which means a lot in a town with just 1,400 residents.