Sioux County, Iowa, is a fertile, wall-to-wall sea of corn and soybeans. It's hard to imagine that with all those bountiful acres--which produce nearly 30 million bushels of corn and 9 million bushels of soybeans annually--the county would need to import grain from surrounding counties to help fuel its livestock industry. Yet, as Iowa's No. 1 county for both hogs and cattle (and also high in the ranks for poultry production), Sioux County must go outside its own borders to find enough corn to feed all those hungry snouts and muzzles.
According to USDA statistics, Sioux County sold nearly 1.6 million hogs and pigs in 1997, up from 873,000 in 1987. It also sold 243,000 beef cattle and calves in 1997 and 2.4 million broilers. All livestock sectors in the county will likely show strong growth since `97, when USDA completes its 2002 agricultural census.
It comes as little surprise, then, that the primary strategic direction of the Sioux Center Farmers Cooperative Society has been to, aggressively pursue the livestock feed market, with the goal of being the region's major producer and supplier of feed. In the process, it has taken a leading role in the effort to modernize the area's hog-production facilities.
This effort has received both praise and some criticism, since many of the new hog-production facilities have switched over to contract growing. Yet few will debate that the co-op's efforts have fueled growth in Sioux County's hog industry at a time when Iowa's hog production has remained relatively stagnant. Statewide, hog numbers the past 5 years have been holding fairly steady, in the range of 15 million to 15.5 million head.
`Progressively conservative' co-op
Like the town of Sioux Center, this co-op has remained profitable and growing at a time when a number of similar co-ops are struggling. Sioux Center Farmers Cooperative Society is projecting sales of about $130 million this year, says co-op Manager Ken Ehrp. During the past 11 years, the co-op has averaged about $1.7 million in local earnings every year. "Currently, we have $8 million in working capital, which is virtually unheard for a company of our size," he says.
Roger Kempers, co-op president, says the philosophy of the co-op and its members is "progressively conservative. We are always looking for new opportunities that can be pursued without taking on undue risk."
The cooperative is owned by 2,750 producers, about 500 of whom joined in March 2002 as the result of a merger with Sioux-land Cooperative, based in Sanborn. That merger increased the number of elevators in the co-op's local network to nine, and increased storage capacity from 9 million to 19 million bushels.
Member equity is being revolved back to owners in just 10 years. "Whether we can maintain that 10-year period is questionable," Ehrp says. "We're coming up to some big (redemption) years, and will likely slip a bit. We pay 30 percent cash each year for patronage."
The success of the co-op and the town of Sioux Center go hand-in-hand, Ehrp says. "This is a wonderful place to live and a wonderful place to do business."
In addition to grain marketing (see sidebar, page 8), the co-op has a small galaxy of other businesses scattered about Sioux County. Across the parking lot from the Sioux Center elevator complex is the co-op's agronomy office and a fleet of modern, satellite-guided applicators. There's also a large repair shop where, on this day, two Terra-Gator applicator rigs are being tuned up. Also nearby is the co-op-owned hardware store, which is brimming with home appliances, paints, tools, lawn mowers and more.
The co-op has operated a lumberyard in Sioux Center since the late 1970s, when about 100 new homes were being built each year around town. Construction has currently slowed to 15-20 new homes per year, and Ehrp says it's becoming more of a challenge to maintain profits from the lumberyard.
Scattered throughout the Sioux County region are thousands of modern hog barns, which Farmers Co-op Society not only supplies with feed, but which it also helps to build and finance for members.
A few miles outside of town is the co-op's 12,000-head cattle confinement feedlot, which usually operates at full capacity. Members own the cattle, but the co-op charges for feed and its delivery. The co-op also offers brokerage service to sell cattle for members and even offers them financing at the feedlot. It has about $8.5 million currently loaned out to cattle producers.
"They pay $50 per head up front, and we loan them the balance," Ehrp says. "When the cattle are sold, our name is the only one on the check from the processor. We take out our money for feed, and the producer gets the balance--so we're always assured of getting paid." The primary cattle market is the packing plant in Sioux City, Iowa.
"It's very tough to make money on cattle these days," Ehrp says while driving past pens filled with fat steers nosing in the feed troughs. "Feeder costs are just too high compared to what they earn when they sell. You buy feeder cattle and hope prices (for fed cattle) go up so you can lock in a profit."
Near the cattle feedlot is a new ethanol plant, operated by a sister co-op--Siouxland Energy and Livestock--which Sioux Center Co-op Society helped launch. The 14-million-gallon ethanol plant had initial start-up difficulties with equipment, but plant manager Bernie Punt says most of those problems have been resolved, and the ethanol plant is now operating at about 85 percent capacity. It will consume about 5.3 million bushels of corn annually.
A closed, new-generation co-op, Siouxland Energy has 410 members, each of whom were required to purchase a minimum of two equity shares. Each equity share gives a member delivery rights to 2,500 bushels of corn. Total cost of the plant was about $18.5 million. Sioux Center Co-op Society is also a member and a major supplier of corn to the plant.
Feed mill retrofit increases efficiency
In support of the goal of being the primary feed supplier for the region's livestock industry, the Farmers Co-op Society 3 years ago spent $3.5 million to retrofit its feed mill. On any given day, Sioux Center moves 1,200 tons of feed. With $35 million in sales annually, feed is by far Sioux Center's largest farm supply sale item. By comparison, agronomy brings in $13 million and lumber $4 million.
Over a 12-month period, the co-op handles about 20 million bushels of corn and 7 million bushels of soybeans. It can load 54 railcars at a time on the Burlington Northern Railway
Farmers Co-op Society has maintained its high level of profitability through years of major investments on assets--including expanding grain storage, the feed mill retrofit, and greatly expanding its fleet of trucks and applicators. "We've spent a lot of money, but we've made a lot of money," Ehrp says. "We are currently about 84 percent (debt-to-equity) leveraged, which is about as high as we want to get." The debt ratio rose as a result of major expenditures on growth and renovation of facilities. "Our goal is to get that down to the mid-to-low 60s. That gives us opportunity so that if we see something come along that we want to write a check for, the bank will OK it."
The co-op adheres to a very strict policy on accounts receivable, and has had "a tremendously good record in that area over the years," Ehrp says. "We're seeing that change a little because of (low) livestock and grain prices, which will make accounts receivable a challenge in the near future." He credits his board for having "great insight 15 years ago when it set a very strict credit policy, which I have enforced." Some co-ops have a tendency to get lax on their collections, to the determent of the co-op, he notes.
Merger yields benefits
The possibility of Sioux Center merging with Siouxland first surfaced several years ago, Kempers says. "At that time there wasn't sufficient interest. But at least we opened some communications channels that were still there when the opportunity came."
As with any merger of cooperatives, it was a long process involving many producer meetings, most of them very well attended. "Financial statements showing how we looked separately vs. how we looked together were reviewed very carefully," he says.
Marv Wynia, another director, says overall efficiency of both cooperatives has been much improved by the merger. "Now we can share trucks, Terra-gators and other equipment and make sure they are used more efficiently."
"We went from one rail line to three, which gives us the opportunity to work for better bids. We also have a wider area to draw corn from--and with our feed business, we need a lot of corn," says Kempers.
Many farmers own trucks with enough capacity to make it worthwhile to haul it further for a better price. "It's nothing for some farmers to haul their grain 30 or 40 miles to get a better price. So we're pulling corn from quite a way now," he adds.
Following the merger, Sioux Center sold its petroleum division to Co-op Gas and Oil, the local fuel co-op in Sioux Center. Membership among the two co-ops overlapped quite heavily, and Ehrp says his board decided the competition was not beneficial. Not only is the merged fuel co-op more efficient, but the sale also reduced Sioux Center's long-term debt. "That gives us a chance to look for additional opportunities out there and helps them grow," Ehrp says.
Was there concern that Sioux Center could be taking on any liabilities of Siouxland?
"Even though the other co-op was faced with some financial challenges, we could see that its fixed assets were in good shape and had been well taken care of," Wynia says. "All of their elevators were in top shape. That was big part of the decision for us, and why we saw so much potential from the merger."
"We looked at it conservatively," Kempers adds. "Ken (Ehrp) helped us assess the opportunity and how it would fit financially into the total scope of the company. That is one of his real strengths, showing you clearly how all the pieces fit together and how we would look as one cooperative."
Ehrp knows the board well enough, Kempers says, "that if he comes to us with a recommendation, he has already anticipated many of the questions he knows we will ask. It helps that he has done the needed research in advance."
"If you have a manager who gives the board the kind of information it needs to make good decisions, it makes your job as a director very enjoyable, and I have enjoyed my seven years on this board," Wynia adds. "I recommend board service to any co-op member asked to jump in and who is willing to work hard, make tough decisions and not arrive with a personal agenda."
An example of one of those tough decisions, Wynia says, was when the Sioux Center board decided to close down its other lumberyard in the community of Ireton a few years ago.
"I live close by, and while nobody ever tore into me, when I would go into town people would ask why we closed it and would say how disappointed they were," Wynia recalls. "It was hard for some people because we took away their lumberyard, and it no doubt had benefitted people there. But the operation just wasn't profitable. We had to weigh that against keeping it open strictly as a service to the community." While keeping it open would have been popular among the people in Ireton, Wynia said it wouldn't have been best for the co-op.
With co-op trucks going back and forth to Ireton daily, the co-op is still able to make deliveries of lumber supplies from the Sioux Center store, Kempers notes, which has helped limit the inconvenience caused by the closure.
Wynia says it seems to be getting harder to get people to run for the board. "I think some may feel intimidated by the growing size of the co-op. We always find good candidates, but it seems to take more phone calls every year."
Is the co-op done merging?
"I think there will be further mergers in the future," Ehrp says. "This co-op has the type of balance sheet and resources that others, over time, will say `that's a company we would like to do business with and maybe be a part of.' Some of the other local co-ops are stretched a little thin. With a short crop, and margins becoming thinner while expenses go up, it means turning a net profit is becoming quite an issue out here."
Not only does he foresee more co-op consolidation, he also sees no end to consolidation of farms. "With margins being squeezed ever harder, it will force greater efficiencies from producers. It's the same for all businesses. So yes, it will continue to create larger farming operations--I don't see that stopping; it's just a matter of the pace at which it will occur."
Prospects dimming for grain-only family farms
There is broad agreement among farmers and lenders in this area that the long-term outlook for family farmers earning good margins from grain alone are rapidly diminishing. The best odds for a farmer's future success is to diversify with livestock, ethanol or to find some other way to add value to grain. Growing grain alone, in anything other than in ever-increasing volumes, is not going to pay the bills, they say.
Regarding the controversy over the return to more traditional (i.e., higher) crop subsidies in the new farm bill, many here see it as a "damned if you do, damned if you don't" scenario.
"Today's grain farmer cannot live without the program payments he gets from Uncle Sam," Ehrp says. "My biggest concern is how much longer urban people will allow the 2 percent on the nation's people who farm to continue to be subsidized as heavily as we are now." If grain subsidies are slashed at some point, it will have a "devastating impact on land prices," Ehrp continues.
"I look at government farm payments as essentially a pass through," says Jim Plagge, president of Northwestern State Bank in Orange City, another one of the area's thriving rural communities, about 10 miles southeast of Sioux Center. "Producers take in more money from the government subsidies, but they pass most of it on to their landlords or suppliers." That's because the costs of supplies and rents seem to move up in tandem with subsidies, he says.
Crop program payments seem to be accelerating the rate at which farms are consolidating, Plagge says. It works like this: "If a 160-acre parcel comes on the market for rent, a large producer--farming maybe 2,000 or 3,000 acres--may take it, figuring the high cost won't have much impact on his average," Plagge says. "But for a little guy farming 200 or 300 acres, it would be a huge relative risk. So it does seem to be making the big bigger, which is the opposite of what it is supposed to do.
"Corn prices never get any better because the supply keeps going up. Yet we can't be critical of the farm bill, because it's what is keeping many of our borrowers going," Plagge continues. "Without it, land prices would fall, and farmers who own land would suffer." On the other hand, a farmer who rents most of his land would likely see drops in his rent.
Plagge also sees it as a given that farm numbers will continue to shrink, which he says hurts the retail base of the communities, schools, etc. It is an ongoing war of attrition, and those communities that will win--or at least survive it--are those that best diversify their economic base with value-added agricultural businesses and non-ag businesses--as Orange City and Sioux Center are doing.
"As a bank, our total loans outstanding may not change that much, because someone will still be farming the land--although we'll have fewer, bigger accounts." The bank's portfolio is about 50 percent agricultural loans. Plagge says his bank is coping with a slow down in the expansion of hog barn construction, which peaked about five years ago, but has since dipped due to stricter environmental regulations.
Orange City, he says, will continue to look to agriculture as the engine that drives the region's economy, even while it hedges its bets by diversifying its economy. Likewise, farmers who will be in the best position for the long haul are those who diversify with livestock, Plagge says.
Hog industry changing
The hog industry around the Sioux County area has been going through a major transition as more producers replace traditional, outdoor hog-rearing facilities with enclosed hog barns. Many of these new facilities are growing hogs under contract for large livestock integrators. Farmers typically own these hog buildings, but the livestock integrator usually owns the hogs and calls the shots in how they are raised, including when they will be sent to market.
As in other parts of the country where this transition has occurred, this trend toward contract hog production has not been without controversy. However, Sioux Center co-op leaders saw the change in the hog industry as an on-rushing train that the co-op and its members would either have to board or get run over by. Given that choice, they decided to hop on board, and so far they feel it has been a success for both the co-op and its members.
Since Sioux Center Co-op launched the hog barn building program, Ehrp estimates it has put up as many as 70,000 hog spaces in one year, or about 7,000 buildings (averaging 1,000 head each). This year he expects the co-op will put up about 30,000 more hog spaces. But the construction rate is slowing, due both to tougher environmental regulations and the fact that many of the older outdoor facilities have now been converted to confinement barns.
Kempers says the co-op's building contractor provides farmers with a turn-key hog operation. The co-op supplies the feed and lines up the farmer with an integrator.
"The farmer and integrator get together, and, if things work out, they usually enter into a 10-year contract," Ehrp says. At the end of 10-years, the building is paid for. The farmer then has the option to produce hogs on his own or enter into a new contract with an integrator. "So far the hog buildings have retained their value very well," Ehrp says.
"It was controversial in the beginning," says board member Wynia. "We had a lot of individual, family producers raising hogs on their own farms, and they saw the co-op as going into direct competition with them. At the same time, we realized the swine industry was changing, and we couldn't stop it."
Packers and the public are demanding more uniform, lean pork, "which is harder to produce under the old production system, with so many different types of farrowing operations and genetic lines," says Kempers. "Under this system, there are fewer variables."
The new hog production system has also has helped the co-op increase its efficiency as a feed producer, Wynia says. "Now we have a nine-phase feeding program for hogs, and it's easier to mix only nine rations of feed as opposed to 100."
Some producers, including Kempers, did not wish to make the conversion to contract production, and phased out of hog production. Until a few years ago, he had a 160-head, far-row-to-finish operation on his farm. "But I had to make a decision to fix up my facility or get out, and I decided the return on labor was not what I wanted (from contract growing), so I got out."
He continues to grow crops and works part-time job as Christian education director for his church, which Kempers says works well with farming, since it allows him more free time in summer when the farm demands are greatest.
Wynia had a similar decision to make for his 100-head dairy. Faced with the need to modernize and expand the dairy, Wynia instead closed the dairy 4 years ago. He and his brother now focus on growing corn and soybeans, but still raise about 100 dairy replacement heifers each year.
Part of the reason the co-op started its new hog system was in response to requests from young farmers who were desperately seeking help to get into, or stay, in farming, Ehrp says. "We've had so many young producers come to us in the past 8-9 years and say, `can you help me stay on the farm?' We felt this was the most viable option for many."
But what about fears that hog producers are going down the same route as poultry producers, and will wind up as low-paid, piece-wage laborers working for integrators?
"Absolutely, those fears do exist. We are seeing the hog industry head in the same direction as the poultry industry," Ehrp says. "The big players are getting bigger, and the small producers are saying `I can't compete any more,' and are getting out. It's sad. We certainly don't promote it, but it is the trend and it's hard to buck it. Even the cattle industry is now beginning to head in the same direction."
In the past, it was those periodic $60-price spikes that made hogs the mortgage payers, Ehrp says. "But those days are probably gone. There's just too many hogs out there and the barns are always full," he says, noting that the tremendous growth in hog production recently in places such as Colorado and Oklahoma has also swelled the pipeline.
Making the change
Harlan Klassen and his four sons, ages 28 to 40, grow 5,000 acres of corn and soybeans near the town of Little Rock, in Lyon County, north of Sioux County. In addition to all that cropland, his sons earn supplemental income doing jobs such as driving a truck for the co-op and working as mechanics. But they also have diversified into livestock.
The two oldest brothers, Dan and Darwin, are partners in a 200-head herd of registered Angus/Limousine cattle. The younger brothers, Brad and Rick, have enrolled in Sioux Center's hog program, and are now raising 2,400 hogs in two enclosed barns. Their integrator delivers the pigs at 40 to 50 pounds, and the brothers feed them until they weigh 220 to 280 pounds.
Brad says the labor commitment is reasonable, leaving him plenty of time for his other farming and off-farm work. The big attraction of this system is that the farmer knows how much he will make at a time when so many producers are losing money on hogs. "This way, you are guaranteed a return for your labor," he says.
At one time, the Klassens raised their own hogs, but they saw little future in anything other than contract growing, "Raising hogs (independently) on family farms is dying around here," Harlan says.
Unlike Sioux Center and Orange City, you see plenty of shuttered storefronts in the nearby town of Little Rock. "Our town is slowly slipping away," Harlan says, ticking off the businesses that have closed in recent years. "We had a feed store, a butcher shop, another grocery store--they're all gone now. We had three or four cafes, but only one now. And we lost our high school 10 years ago in a sharing agreement with another community." As editor of the town's newspaper for 24 years, his wife, Virginia, has closely monitored the town's fortunes.
Despite the town's struggle and low grain and livestock prices, Harlan says he "feels blessed" to be doing something he loves as much as farming, and that all four of his sons have been able to go into the business with him. "And I've got the four best daughters-in-law on earth," he adds.
"I'll never leave here," he says while offering some hay to his Paint ponies. But Harlan does admit feeling a bit envious of Sioux Center's success. Informed that Sioux Center got a good rainfall the night before while his farm got just a trace, Harlan says "Gee, they even get all the rain. Sioux Center is just a garden spot--there's no other way to look at it."
Mark Van Roekel, another board member of Sioux Center Farmers Coop Society, farms near Orange City and is still operating as an independent hog producer. He has a highly diversified livestock and crops farm, and prizes his independence too much to contemplate the switch to contract growing.
"I'm too independent to be a contract grower--I'm just not ready for it yet," Van Roekel says.
He has a 1,200-pig nursery as well as two hog finishing barns with 1,200 head each. He also raises 300 fed cattle, 300 nanny goats and grows 350 acres of crops.
None of the markets--livestock or crops--look good these days, he says as he brushes away some hungry goats intent on nibbling his feet. "This is the worst year I've had--the hog market has been poor and the cattle market--which looked good until April--has also been going downhill."
Van Roekel has a hog marketing contract with Farmland Industries, which has a premium matrix that pays a lump sum based on a feed conversion tables and quality grading. Under the contract, Farmland must approve the feed source--which in his case is Sioux Center.
Despite the disappointing prices, Van Roekel, like Klassen, loves life in northwest Iowa. "Life can't be much better than it is here," he says. He moved away as a young man to farm near Fort Dodge, Iowa, but returned to Orange City about 14 years ago. "This is where I was born and raised; it's where our religious faith is based and it's where we decided we wanted to live and raise our kids," says Van Roekel, who is also a director on his rural water district board.
A local marketing outlet in Sioux Center for independent hog producers is the Tri-State Livestock Auction. Manager/owner Ronald Jordan says business volume has been building since he bought the auction about 6 years ago. Indeed, he says the 2,000-to-3,000 hogs he auctions each week is up sharply from when he bought the auction. A typical producer selling at the auction yard has "maybe 40 head to sell, but we get some larger ones too, with 200 to 300 head."
Not surprisingly, he takes a dim view of contract growing. "The trend toward contract growing is killing the market," Jordan says. "There is no substitute for competitive bidding" to maximize prices, he says.
Jordan says he's had success expanding the scope of bidders to include several packers in Mexico and states as far away as Louisiana, Texas and the West Coast. This increase in the yards' marketing sphere is helping sellers earn $3-$4 a head more than others are earning, Jordan says.
New laws slowing industry growth
Whether independent or contract growing, one thing all hog producers are concerned about is how the industry will be impacted by Iowa's new environmental laws, enacted primarily to limit smells associated with hog production.
"Last winter, I told my board I thought we would build 70 hog buildings this year," Ehrp says. "But because of changes in environmental laws, I think it will be closer to 30. More planning and time is required up front now before you can build, and distance buffers are greater. It will eliminate a lot of hog building construction."
Ehrp says many producers are now "gun shy" about putting up hog building because of fear of potential lawsuits that can pit neighbor vs. neighbor. Ironically, Ehrp says the new enclosed hog barns, which have waste lagoons under the barn, generate far less smell than outdoor lagoons.
"This community is supportive of ag--to a point," Ehrp says. "But when the wind is from the west, the town smells the odor from the co-op's cattle feedlot, and that can be an issue with the younger generation moving in. They are not as tolerant of the smells as the older generation.
"They need to remember that Sioux County is a livestock county--it is why we are so successful. We have to accept a certain amount of smell and live with it."
Ehrp recalls the complaints the city started getting after one new hog barn was erected. "Trouble is, no hogs had even been delivered to it yet. People were apparently smelling a nearby city water treatment plant," Ehrp says, shaking his head. "Sometimes the perception is far worse than the reality."
Could it drive more of the industry overseas? "If we don't change some legislation (environmental and anti-packer livestock ownership laws), it sure could. If they make it tough enough on our industry, South America and Mexico sure want our business--and there has already been much expansion of the hog industry there. Some day we may wake up and say, `what did we do here?'"
RELATED ARTICLE: The right stuff: ag-based, but diverse economy helps Sioux County thrive.
By Dan Campbell, Editor
Something right is going on in Sioux County, Iowa. While many rural Midwest communities are sliding into oblivion as their stores close and their schools and churches migrate away with their young people, this northwest Iowa county's two largest towns--Sioux Center and Orange City--have growing populations and are adding new businesses and services.
Signs of progress abound in Sioux Center, population 6,500. It is home to a fully developed, 120-acre industrial park, the new 100,000-square-foot Centre Mall and excellent public and private schools and a 4-year college. It even has a problem many rural towns would love to share: a tight housing market.
The most visible manifestation of its thriving business sector is a $15-million Pella window assembly plant, which opened about 2 years ago on the northern edge of town. The plant employs about 500 workers. It has been a boon not only to Sioux Center, but the entire region, with workers commuting from 90 different zip codes.
Among other ag-related employers here is Sioux Automation, which builds livestock feed wagons and other farm equipment, Sioux Preme Pack hog processing and Trans Ova Genetics, which performs beef and dairy cattle embryo transfers either in its clinic or on farms anywhere in the nation.
The town's ability to attract new businesses boils down to its people, a favorable business environment and amenities that offer a high quality of life, says Mayor Dale Den Herder, a fourth generation resident. His Dutch ancestors first homesteaded here in 1872, living in a sod hut even before Sioux Center was founded in 1891. He, like others, attributes much of Sioux Center's success to an old-fashioned work ethic, a willingness to try new things, nurturing families and a deep spiritual faith that, together, forge a strong sense of community.
Between 1990 and 2000, Sioux Center's population rose 18 percent. "That bucks the trend you will see in most rural areas," Den Herder notes. Jobs, of course, are the key to a stable or growing population. Thirty years ago the city had only 100 manufacturing jobs. Today, it has more than 2,300.
He also has high praise for the Farmers Co-op Society, not only for being "a strong friend of farmers that has helped to modernize the region's livestock industry, but for also being a leader in promoting our community."
Den Herder is also the president of American State Bank, which has a $250 million loan portfolio that reflects the diversification occurring in the economy here. A decade or so ago, ag accounted for about 70 percent of those loans, but that has since dipped to about 40 percent.
While Sioux Center, Orange City and some other area towns are thriving, some other rural towns in the region are struggling just to hold even, and others are seeing their vitality slowly slip away.
"You don't have to travel too far to find a lot of hurt going on," says Den Herder. "We could be looked upon as something of an island of prosperity."
The biggest factor in feeding that prosperity is a "motivated, educated workforce--people who take pride in what they do," says Paul Clousing, assistant city manager and director of the Sioux Center Economic Development Corporation. The available labor pool is larger than is readily apparent from the rural landscape. While there are no large cities--Sioux Center is the largest city in a six-county region--there are more people tucked away in all those little towns and farms than one might think. About 100,000 people live within a 30mile radius of the Sioux Center, Clousing notes.
"Bio technology is the newest wrinkle here," Clousing says, adding that the town now has three or four biotech businesses that employ about 200 workers.
Sioux Pharm Inc. is a bio-tech firm that extracts chondroitin sulfate from bovine tracheas, then purifies the product into pills, called Chondropure, which brings relief to arthritis sufferers. Dr. Allan Kramer, the company president, says Sioux Pharm is the nation's largest producer of this medicine.
He employs 25 workers, and says a business owner would be hard pressed to find a better labor pool than in northwest Iowa. He also gives Sioux Center strong marks for its "pro-business" orientation and its good highway and rail system. The state of Iowa was helpful to him in providing grants for value-added business development, Kramer says, and the local livestock industry naturally makes for a good source of raw product for the company.
A thriving college
Dordt College, a 1,400-student college affiliated with the Christian Reformed Church, attracts students from 36 states, six Canadian provinces and nine foreign countries. The most recent addition to the campus is a $12.5 million Campus Center building, slated to open this month, that will house student services offices, the business department, a bowling alley and a snack bar.
The college boasts two new dormitories and a fairly new recreation center, which features an indoor track. It also operates a research farm where students can get hands-on experience in crop and livestock science.
Sioux Center's motto, "progress through cooperation," is certainly true of the relationship of the town and college, says Clousing. The college, local schools and town have joined forces to put up much of the $9.1 million needed to replace the city's aging community swimming pool with a state-of-the-art pool complex, called the All-Seasons Center. The state of Iowa and local phone company also contributed needed funds.
The pool complex will feature both indoor and outdoor pools, including a "plunge pool" with tall slides, an "aquatic family fun park" with other water amusements and a six-lane lap pool. The development will also include an ice rink that will become the home of the Dordt College hockey team, the Blades. It is the type of recreational facility rarely found in a town of this size, and one which boosts the quality of life that helps attract families and young people to the area, Den Herder says.
The key to attracting the 263,000-square-foot Pella window plant was Sioux Center's "ability to put together an entire package," says Clousing. Pella needed not only a 50-acre parcel of land, but adequate access roads and a bypass route so that truck traffic from the plant would not impact downtown Sioux Center.
The development corporation and City of Sioux Center found a good site and were able to get grants from the Iowa Department of Transportation to help with the needed road work. Under Iowa's New Jobs and Income program, Sioux Center was also able to help Pella secure a partial income tax reduction for 10 years as another incentive to build within the state.
Of course, reliable, low-cost utility service is also a must for an industry of this size, and Sioux Center's municipal utility has a good reputation. It worked with the state to get grants that helped defray some of the costs of developing the plant site.
Once before, Sioux Center had been a finalist under consideration for a Pella plant, only to lose out on the final cut to another community. So when Pella began looking to expand again, Sioux Center was already on the list, says Clousing.
The Pella plant, which makes architectural-series windows, does not begin assembling them until it receives an order, but then builds and ships them within seven days of the order receipt, says Dale Zevenbergen, scheduling manager for the plant. The plant runs two shifts daily, but is perhaps somewhat unusual in that it runs a day and a graveyard shift, shutting down in the evening. That's a "family friendly" schedule the workers voted for so that parents could be home evenings with their children.
Orange City blooming
Like its annual Tulip Festival, which draws 100,000 people every spring, Orange City is also blooming. Located about 10 miles to the southeast of Sioux Center, the two towns have many similarities. They are about the same size, have a similar economic mix of industry--both ag and non-ag--and are home to emerging, high-tech businesses and thriving 4-year colleges. The people of both communities are primarily of Dutch ancestry
Major employers in Orange City include Diamond-Vogel Paints, Advanced Brands, a producer of boxed beef and pork products, American Identity, a maker of promotional products, and Northwestern College.
Med Tec is a local high-tech business that develops and manufactures radiation oncology equipment, used to position and stabilize cancer patients receiving radiation treatment. The company started in Dallas, Texas, in 1982, but relocated about 12 years ago to Orange City, the home town of founder Clayton Paul Korver. It has been expanding ever since, and today has a work force of 100 and growing.
Bryan Kooi, Med Tec's human resources manager, says the company attracts and keeps good workers with competitive wages and benefits and a comfortable, clean work environment where "having fun on the job is part of our corporate philosophy." The company also offers "family-friendly work schedules" that provide flexibility for employees to balance family and work commitments.
Its products are sold in 90 countries around the world. Foreign competition is stiff, so research and development is a big part of the work. Its special niche is oncology accessories, an example being a plastic mask that melts in warm water to the exact form of a patient's face, and is then used to stabilize the head during radiation treatments.
Even Med Tec's building and board room boast a high-tech look that has won plaudits for architect Larry Leslie, from nearby Alton.
Med Tec's owner decided to return to Orange City because of the good things about small-town America. "It's safe, with a very low crime rate, has good schools and affordable housing," Kooi notes. And the two colleges in close proximity offer wonderful cultural events not typically found in a rural area. Other recreational amenities include a nearby 18-hole golf course and top-notch boating and fishing about one hour away at Lake Okoboji.
Northwestern College, affiliated with the Reformed Church in America, is home to about 1,200 students, who also come from all over the nation. Construction crews have been busy on the campus, recently putting the finishing touches on a new, $6 million theater arts center. This will help bring more cultural attractions to the city.
James Plagge, president of Northwestern State Bank in Orange City, says both Northwestern College and Dordt College have remained true to their religious roots, while many other church-affiliated liberal arts colleges have severed their church connections. "As a result, a lot of those small colleges are now a dime a dozen, with little to differentiate themselves; many are suffering. But there are still a lot of students out there who want to attend a Christian college, and these two schools are thriving." He also noted that a sizable portion of the alumni are also pleased with the church's ongoing role with the colleges, and have been gracious with their support.
One thing Sioux County has been lacking is a movie theater, but that void was recently filled with a new, six-screen cinema in Orange City. Plagge's bank worked with USDA Rural Development on an $850,000 Business and Industry Guaranteed loan to finance the theater, which he says is doing very well. "USDA was great to work with--we couldn't have done that package without them," Plagge says.
RELATED ARTICLE: Co-op's grain marketer strives to reduce producer risk exposure.
The phone rings, and John Hansen answers it while leafing through pages of grain market data on his desk. More grain numbers flicker on his computer monitor. Grain prices have been gyrating more than normal lately because of heat and drought in many states, creating what Hansen calls "a weather scare."
"Hello John, is this a good time to sell?" asks the farmer on the other end. Minutes later, it rings again, but this time the farmer calling is seeking advice on when to buy grain for his hogs. No sooner does that conversation end than it rings again, and Hansen is working out the details for shipping dairy cattle feed from his employer--the Sioux Center Farmers Cooperative Society--all the way to Alaska, a trip which involves transport by hydro-train (putting railcars on ships in Seattle).
Tucked away though he may be in a small, cluttered office in northwest Iowa, Hansen sees the world of grain through his computer.
"I watch the market all day, and I study it," Hansen says. "I not only track grain on a cash basis, but the futures market as well. I try to put it all together and present it in a systematic way that the producer can understand."
Yes, it is complicated, he admits. "But the secret is it that doesn't have to be as complicated as some make it out to be." His modus operandi: study the market, follow the trends and patterns, then make an informed decision.
So how is the grain market looking, John?
"Depends," he says with a good-natured smile. "Are you buying or selling? We do a lot of both here, so it's all a matter of perspective." A spike in corn prices will bring joy to the heart of a grain farmer who is selling, but for a hog producer who is buying feed, it naturally has the opposite effect.
Most local grain co-ops do far more selling than buying, but Sioux Center does both in near-equal measure. The co-op also does pooled marketing for members who so desire.
"It takes a unique grain merchandiser to wear both hats like that, and John does a phenomenal job for us," says his boss, co-op Manager Ken Ehrp, who himself earns plaudits from his directors for helping the co-op thrive. "The producers trust John to give them good advice, and you can't put a price tag on that."
Hansen, a former grain merchandiser for ADM who has been with the Sioux Center Co-op Society for 5 years, says, "People think I like to see grain markets high. No, I don't. But I don't like to see them low either. I just need to be able to trade. I am set up to trade and make money by reducing my risk by hedging and trading the basis to make money off of it."
Risk Management 101
"I treat my job as a risk management service to our producers," says Hansen. "I strive to reduce their risk, not increase it. When markets go up, like this," he says, gesturing toward his computer, "I work with my feed customers to help them cover their costs in the most economical way."
Too many farmers don't want to sell grain before they harvest it, which is a mistake, he says. "You need to sit down and do some homework in advance of harvest. Figure out your 10-year production average, then take your worst and best years and throw them out. Come up with a good average. Then get a percentage of your crop to market on a favorable trend. If it's going up, market a percentage of your crop on it; if the market is going down, you need to market a higher percentage before it drops even more. It's an average-trend game that you play."
But it's a sad fact of farming life that 80 percent of producers sell their grain in the bottom half of the market, Hansen says. "My objective is to get them to sell more on the right side of the market."
Grain markets, he says, can be a bit like car with an engine in need of a tune-up. "They get of out of synch--they're too high or too low for a few days--and you need to take advantage of that. When they are too high, you need to get aggressive and sell into the market. When they are too low, you need to step up and get that grain bought for your livestock."
Marketing itself, Hansen says, is simple. "Gathering the information to make the right decision, that's the hard part. It's a lot like school work: you study a lot of information, then get tested. My test scores come in once a month, and I get graded on whether we lost or made money." In baseball terms, Hansen says it's those who hit for consistent average who do best, not the guys who swing for the fence every time up. "Those always looking for home runs tend to lose in this game."
Sioux Center's grain customers include the multinationals--Cargill, ADM, Bungee, and others--and regional grain buyers, such as Schoular Grain in Omaha and Agri-Grain Marketing in Des Moines. "But my biggest customers are local livestock people around here; about 80 to 85 percent of our grain stays local. That's the flip of most areas, where they probably ship out B5 percent of their grain."
That ability to keep grain at home is Sioux County's primary value-added ag system, he says. "Those dollars keeps turning over here."
The biggest mistake grain farmers make? "Lack of studying the market," Hansen says without even a pause. "I think all producers should take mandatory classes in grain marketing. You must study to make a better business decision, just like we have to do here. Don't spend all your time on your tractor--study the markets. Figure out a plan months ahead of harvest. The mind set of `I'm not going to sell until the banker tells me to' is a poor way of marketing."
--By Dan Campbell
RELATED ARTICLE: Midwest Farmers Co-op members benefitting from new rail terminal.
Until recently, it wasn't unusual to see 2-to-3 million bushels of grain piled up on the ground around the Midwest Farmers Cooperative railcar-loading terminal outside Alton, Iowa. But in April 2001, the tarp covering 2 million bushels of corn blew off in a storm, and then the skies opened up, dumping more than six inches of rain on the exposed grain.
Co-op Manager Ellis "Skip" Hein still recalls that nightmare vividly. "All you can do in a situation like that is ship it as fast as you can," he says. "We were fortunate that we handle enough grain volume at this location that we could blend the quality to No. 2 corn. We dodged a bullet, but it made us realize that we didn't want to be put in that position again."
So the 1.1-million bushel vertical elevator at the terminal, originally built in 1997-98, was expanded with an additional 4.1-million bushel, automated flat storage facility. The co-op's board agreed to invest $7.7 million for the original terminal and $2.8 million for the expansion, which were both completed on time and under budget. "Start-up was virtually flawless, which amazed everyone for a facility of this size. It only required some minor tweaking," Hein says.
Despite the mammoth size of the facility, the loading operation is so automated that it can be operated by a single worker on the outside. The diesel locomotive that pulls the hopper cars into place is operated by remote control, eliminating the need for at least one additional worker at the terminal. The terminal can load a 90-100 car train (with each jumbo hopper car holding 4,000 bushels)in just 10-12 hours. The co-op loads 35-to-40 unit trains annually, and trucks several million more bushels each year to area grain processors, including soybeans sent to AGP and corn shipped through Midwest's feed-manufacturing operations.
Need for new terminal fuels co-op merger
Midwest, with 9 branches and 13 locations, was formed in 1997 when Sheldon Farmers Co-op merged its three locations with Alton-Orange City Cooperative's five locations. The co-op expanded again in 1999 when Sutherland Farmers Cooperative joined it.
Today, Midwest has 2,300 class-A producer members within its 70-mile long, 50-mile wide trade territory. Last year, it had $78 million in sales. In addition to its grain and farm supply businesses, the co-op also provides agronomy services, petroleum products, and operates its own lumberyard, custom cattle feedlot and a dairy heifer replacement program. It also has an over-the-road trucking operation that hauls for Farmland Foods, Land O' Lakes, Sara Lee and others.
Prior to the 1997 merger, the Sheldon and Alton-Orange City co-ops were "truck houses that only had access to 25-railcar loadout terminals," says Hein, as he watches corn-laden trucks pull onto the scales of the Alton terminal, where a hydraulic sampling arm lowers into each hopper brimming with Iowa gold. But 25-car terminals no longer cut it. "They just aren't competitive in today's business environment," Hein says. The railways say they can't make a profit from short trains, "and it is the rail rates that are driving this type of expansion."
The need for a larger rail-loading terminal was the primary issue that drove the 1997 merger. "Neither coop had the resources to build something like this on its own, even though both were strong co-ops," Hein says. "Together, however, we were able to combine resources and meet a crucial need." Indeed, the co-ops were strong enough that they used working capital to finance about 25 percent of the terminal, with a loan from CoBank providing the rest.
"Many times in mergers, you see one strong company absorb a weaker one, which can ultimately weaken the stronger company. If companies recognize opportunities when both are strong, it works out much better," says Hein, who has been with the co-op since 1997, prior to which he managed a multi-branch grain and farm supply facility for Land O' Lakes in Minnesota. After mergers, Hein says, co-ops should "make adjustments in operations as well as with the balance sheets and valuation of assets so that the surviving company remains strong."
The new rail terminal gives co-op members much-improved access to a greater variety of markets, Hein says, which means better prices. The co-op now has the option of shipping to the Pacific Northwest or Southwest livestock feeding markets, as well as the Gulf ports and Mexico. This has helped add 6 to 10 cents per bushel for members, he estimates. "So this facility is very much adding value for our members, who also earn equity by doing business with their cooperative."
Another innovative way Midwest is providing service to members with dairies is through a heifer-replacement program. The co-op takes calves at just a few days old and raises them in "a strict bio-security environment," where they remain for eight weeks. The calves are then moved to two other places for an additional 8 weeks. After that, they go to a heifer finisher, where they are raised to a mature weight. Midwest then returns the heifers to members' farms. In less than 2 years, the business--owned by Midwest and its partners in a four-way limited liability corporation--has grown to about 6,000 cows and 4,100 calves.
Hein lives in Alton, less than a mile from the new terminal. Alton has seen some decline in its commercial sector over the past 20 years, but it is now taking important steps to encourage growth again, says Hein, who is a member of the city council and whose wife is the town's economic development director. There is a new campground that just opened on the north edge of town, a new 43-acre industrial park, and a new 25-acre housing development on the west end of town. Funds are also being raised for a new library and museum.
Midwest Co-op's board encourages all co-op employees to be active in the civic life of their communities. Co-op officers and staff are "active on fire and rescue teams, chambers, churches, you name it," says Hein. "Our philosophy is: if you are going to live in a community, be a part of it." And since Midwest is often the largest employer and tax payer in the communities where it operates, it has a vested interest in seeing the towns thrive, and vice versa.
Keeping current with technology
Keeping ahead of the technology curve is a big challenge for co-ops, and the new rail terminal with its computerized receiving and loading systems is only one way Midwest is doing so. All branches of the co-op are connected by fiber optic cable, "so accounting and internal communications are live at all times," Hein says. Midwest provides full brokerage service with licensed grain and livestock brokers on staff.
Midwest's agronomy division is also totally computerized, and it is developing a state-of-the-art manure-fertilizer spreading system. With northwest Iowa's huge hog and cattle population, there is plenty of manure, which makes excellent fertilizer and saves farmers big money on fertilizer bills.
But many producers don't have enough land to take all the manure generated by their livestock operations, and application is coming under increasingly strict environmental regulation to prevent problems with runoff and groundwater contamination. Hein says a manure management plan is required before most lenders will finance a new hog barn or dairy. This often involves getting an easement from neighboring farmers that agree to take the manure.
With so much manure readily available, it has cut into sales of commercial fertilizer, always a major source of income for local farm supply co-ops. Every 1,000-hog building provides enough manure to meet the phosphorous and potash fertilizer needs for 160 acres. Midwest Agronomy Manger Larry Den Hartog says just one of the huge new dairies moving into the area can take 2,500 acres of fertilizer sales away.
But Midwest is making the most of the situation by offering members variable-rate manure spreading service. The co-op has one computerized GPS manure unit, costing about $347,000, which is equipped with a grass/alfalfa applicator bar, and has ordered a second unit from the Netherlands. These are being used in combination with global positioning system technology maps that show exactly where and how much fertilizer can be applied to a field.
Den Hartog designed a mobile holding tank unit that supplies the manure applicators. "The driver never even has to get out of the cab--it keeps the flow going," he says, noting that the co-op charges by the gallon applied. "We're the first co-op dealing with variable-rate manure application here, but Europe is way ahead of us in this technology--especially Holland," he says, where much of the best land is below sea level and must be managed very carefully. Den Hartog is planning a trip to Holland to study their manure-management techniques more closely.
The new applicator bars inject the manure several inches deep into the earth, getting it down to the roots of the plants for quicker intake, and making it less likely that there will be any problems with runoff. The co-op expects to apply 25 million gallons this fall, and hopes to do 30 million gallons next year.
Den Hartog says the co-op's board is very supportive of staying on top of new technologies. "They know we don't come to them on a whim; when we request a major purchase of new equipment, we've already worked out the budget, the hours and the supplies we'll need to make it pencil out."
--By Dan Campbell…