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Jim Meade / Iowa City
Senior Advisor

Degeneration Of A Cooperative

A small COOP is throwing in the towel and trying to get merged into a big cooperative.  The big cooperative is kind of like one of those galaxies that swallows up all the stars it runs into.  It's based in central Iowa.

 

The small cooperative has had a fairly long run of not so good or even bad years with a few profitable ones in the meantime to keep hope alive.  Now, the rumor is the bank has said there will not be enough borrowing power to pay for the grain they need to bring in this fall.  How did it get to that pass?  There were stockholder meetings where some but apparently not all the problems were discussed.

 

Who is being talked about as having a role?

Board of Directors

Manager(s)

Workers

Poor agronomy sales 

High overhead

Increased NH3 fees

Low LP demand

Years of "getting by" or losing money

Big equipment purchases

 

 

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20 Replies
Jim Meade / Iowa City
Senior Advisor

Board Of Directors

The Board of Directors was obviously strongly divided as evidenced by testimony at the membership meetings and in other discussion in recent months.

Some wanted to merge with Big Coop.

Others wanted to merge with local COOPs

Some may have been willing to let the COOP break up into different parts and see what would survive.

 

There were many rumors in the last 4-6 months, but no communication from the Board as to what the problem was or what solutions were being considered.

 

Some observors feel a portion of the Board decided early on for the merger and rammed the solution down the other's throats.  Who is to say?

 

Managers say the Board refused to allow othem to discuss issues with members.

 

One might ask why the Board waited so long to make a decision that change was needed.  Was it the bank that forced their hand?  Did waiting so long make the COOP unattractive to other merger partners?  Was the COOP allowed to deteriorate to the point that only a merger would save it?

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Jim Meade / Iowa City
Senior Advisor

Managers And Workers

There seems to be a differencei in perspective about the responsibility of the dat-to-day managers for the problems of the COOP.

One of them is said to be kept on by the Big COOP.  The other will be kept on but in what capacity?

Big COOP said all employees will be offered jobs for the next year, but Big COOP was careful to point out that the jobs might not be local.

There has been growsing for years by members about some of the workers.  Some are great, some not so much, thought some members.  Some members have reportedly refused to do business with some aspects of the COOP out of unwillingness to deal with certain workers.

Now, the workforce is being kept by Big COOP.  Or is it?  Offering a worker a job 6 counties away fulfils what Big COOP said, but might be a way to make the job unpalatable to the worker in question.  Big COOP seemed to say that some people would be brought in, perhaps to bring certain expertise.

It is said that some workers have been jumping ship to other jobs in the area in recent months.

It might be thought that Big COOP is unlikely to feel any great need to keep workers who may have been parft of little COOP's problem.  Who knows?

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Jim Meade / Iowa City
Senior Advisor

High Overhead

Urban encroachment is bringing problems of property tax increases.  NH3 fees were raised.  Equipment is getting older but it's hard to know if it is viable to upgrade it in place.

Relocation was considered but is reported to be not attractive.

Interest rates are alleged to be twice what a better financed business would have to pay.  

Labor rates near a metropolitan area would not be cheap.

This begs the quetion of whether Big COOP will keep all little COOP sites open.  It's likely the NH3 area will be moved away from town, for example.

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Jim Meade / Iowa City
Senior Advisor

Big Equipment Purchases

It's not just the newer semi's and sprayers, it's also that reduced usage means the costs are spread over fewer loads or acres.  Less than half the sprayer acres from a few years ago.

Jim Meade / Iowa City
Senior Advisor

How Do You Vote?

There has been a noticeable amount of anquish by members over the events of the past few months.  When all the agony is internatlized, what is left?

It is reported that one or two potential smaller local partners are no longer interested.

The threat of bank strings means something has to happen or all will be lost.

The main issue seems to be that Big COOP has said it intends (they did not say GUARANTEE) payment of retained patronage.  It was made plain that otherwise the money would be absorbed and lost to the member.

Do you suppose that in spite of any feelings, the patronage check will be a big factor?

We'll have to see how it all turns out.

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Jim Meade / Iowa City
Senior Advisor

What Is The Purported Upside?

Members are being told there are benefits to merging with Big COOP

 

Patronage

Better grain prices because Big COOP has a bigger marketing stick.

Better margins and thus lower prices on chemicals, fertilizer, crop protection and seed.

Specialized support of new technologies can be afforded by the bigger business.

New product and technologies are more likely with a Big COOP

Stronger position to recruit, train and retain high quality employees

 

 

 

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Jim Meade / Iowa City
Senior Advisor

What's In It For Big COOP?

Little COOP has a good energy branch, is so-so on marketing andn is weak on agronomic sales.  What is Big COOP going to get?

The energy market is well positioned and should be an immediate benefit to Big COOP.  There are good people in that division and a strong and growing customer base.

The agronomy division has been slowly going downhill for years.  In the past, there may have been some unfortuanate staffing choices.  Several smaller agronomy services locally have been growing while little COOP was shrinking.  What is Big COOP going to get out of this?  They will have to try to woo back customers who have left, many of them reportedly disgruntled.

Marketing has been break-even, but as more and more farmers have their own grain storage more and more members have been marketing directly.  If Big COOP moves any grain handling facilities they may lose old faithful members who routinelly haul to little COOP now.  Big COOP may have a challenge rebuilding the customer base because they will have to outcompete the competition that has the members business now.

It's been said that Big COOP expects to have tough sledding for up to three years before turning a profit.  Energy should do well now, agronomy is going to have a hard time and marketing is going to be iffy.  Any changes by Big COOP will have to be carefully considered lest they lose loyal members and don't bring back the fallen-away.

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hardnox
Advisor

Re: Degeneration Of A Cooperative

Sorta like a farm that fails and the precise point of failure was actually several years ago, it just took a long time to play out.

 

A very well connected guy told me that a large superlocal co-op lost more money in the fertilizer price collapse in 2008 than their combined net margins in that space in the previous 10.

 

This neolib ag world that we unleashed is pretty brutal and I expect the carnage to continue for awhile. Famers are better supported than those sorts of institutions because we're the cows that give milk to the whole system.

 

 

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hardnox
Advisor

Re: Board Of Directors

With all due respect, my experience has been that about 1 in 10 farmer co-op directors is up to the task.

 

A lot of the "sharpest" guys aren't going to serve as directors because they want the option to do business with whomever they can get the best deal. Fair enough, just the nature of where farming is.