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Honored Advisor

More Elevator Merger Talk

We went through this with 5 Star and Viafield wanting to consolidate and I mention them by name only after the fact.  Now 2 other different outfits want to merge, one has 49 locations and the other has 24 locations, the board of directors are in lock-step in Unanimous support of the merge.  You hear the same rhetoric of "We have our sprayers bypassing each other on the road"....well yah, Target, Shopko trucks also bypass each other on the road with Walmart trucks....it`s called "competition" if you`re in a community where it`s "just Walmart trucks" there will be no reason for the walmart stores to be price competitive.

 

You also hear directors saying, "with a merger we can buy inputs cheaper and pass on the savings to the members"...really?  You`re telling me that a co-op with 49 locations could sell fertilizer cheaper if they have the buying power of  73 locations?  Really?

 

I really don`t know, but these elevator sure like to push to get bigger.  The funny thing is the best run elevator with the best grain basis and the most reasonably priced fertilizer in the area has THREE locations.  It seems bigger isn`t always necessarily better in the farmer owned co-op structure.

 

General Patton once said "If everyone is thinking alike, then someone isn`t thinking" and to have these elevator boards with unanimous support for something, using the same regurgitated talking points from other past attempts of consolidations causes me to look at this with a hairy eyeball.

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13 Replies
Advisor

Re: More Elevator Merger Talk

When I was on the local coop board that's all we heard from the regional guy when he would come once a year=MERGE MERGE MERGE. Another guy and myself were against it and I dropped off the board 4 years ago and it hasn't happened yet.BUT, the ones we were supposed to consider merging with have had such bad balance sheets have had to merge again to stay solvent. 

 

Where I am we are on such a small scale compared to you guys you wouldn't believe it but our local coop always makes money and is competative to other outlets in the area.

 

P.S. I feel the reason why new pickups cost $50,000 is there is no competition.

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Senior Contributor

Re: More Elevator Merger Talk

Every time you vote for a cooperative merger, you are voting to have fewer marketing opportunities. Certainly there are advantages of scale but the farther you are removed from local control. However, there is little that will change astute businessmen to blooming idiots than an election to the board of directors of a cooperative. When the last objective of a farmer owned cooperative is to improve savings and profits for the owners, then it is a case of the tail wagging the dog.

 

My experience on the board contained a situation where we didn't have funds to close out personal estates. The coop recieved a windfall of unexpected cash payout from a regional coop. We had the cash but many did not want to cleanup our deficiency to the deceased members or their heirs. Thats pretty bad when you don't want to clean up the estates of loyal members.

 

Sometimes i think that coop managers and directors think that proceeds coming into a coop is merely a personal piggy bank to use as they see fit. Returning a buck to the owners of the company is the last option.

 

Obviously I was ill suited to be in that position.

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Honored Advisor

Re: More Elevator Merger Talk

Yes Rawhide, I`m a member of the "49 location" coop in this story, it`s so danged big the way it is now, I don`t know the directors that supposedly represent me, from Adam.  They`re nice people I`m sure, every year before annual meeting time I get a postcard to vote for "no more than 3" directors and 3 or maybe 4 are all that run.  They campaign with the ages of their kids, and the sports they`re in, the type of farmer that they are and the church they attend.  But they are all in different counties and I don`t know them.  It seems they tend to rubber stamp what the managers and CEO wants.  Then there`s a meeting with the results of the election that`s held 70 miles away, there`s coffee and cookies too as I understand.  Now this monstrosity wants to get half again bigger.....okay.

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Honored Advisor

Re: More Elevator Merger Talk

I sometimes wonder what good being a member is to a coop.  You get dividends, but you end up sending it right to the government in taxes.  If like you say they squawk about cashing them in, boy what kind of ponzi scheme is that?

 

There`s a coop in your neck of the woods Gold Eagle Coop that`s running ads on the radio to get business up here.  They say, if you do all your business with them, your dividend check will amount to $69/acre.  Well, some say dividends are a sign they charge to much, I don`t know about that, it`s probably more of a equaling mechanism for them, but that changes every year too.

 

Gold Eagle does do business around here, but it seems like it`s Big Shots that mainly have them.

 

http://goldeaglecoop.com/

 

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Veteran Advisor

Re: More Elevator Merger Talk

bless you for being the honest one there

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Highlighted
Honored Advisor

Re: More Elevator Merger Talk

Pickup trucks used to be work vehicles, pretty exclusively.  Once they came into popularity with the recreational user, they became "sexy", over-accessorized and too nice for manure-covered boots. 

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Advisor

Re: More Elevator Merger Talk

The best grain/supply coops are the ones that had a business reason to exist in the first place, not a political one (solidarity forever and all that).

 

That would be like a main location with a strategic advantage- typically good viable rail or such where real competive advantage can be passed on to the owners. If you have that you don't have to be huge (although size limits how much you can pay the manager).

 

The worst thing to do with one of those is to dilute them by merging with less strategically well placed assets but you can bet that the managers of other outfits loves to get their hands on them to justify their own existences.

 

BTW, how much cash are these outfits paying in their dividends?

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Veteran Contributor

Re: More Elevator Merger Talk

You are so right Kay about PUs. How many plain janes do you see farmers driving.

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Advisor

Re: More Elevator Merger Talk

The reason why PUs cost $50K is because you can write them off in a single year.

 

They're the modern equivalent of the SUV- the basis on which the US automakers are kept going. They make 10X per unit on a tricked out PU compared what they make off a basic subcompact and they're the main area where US companies still dominate.

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