Newsletter Archive

Navigating new directions

Heart to Heart, March 2010 Connections

by Jim Magnuson

In the next few weeks, your cooperative expects to introduce a new corporate identity. The Board of Directors will review finalists in early March with an announcement expected shortly thereafter.    At the time of the merger, we agreed to maintain both the Heart of Iowa and SCE identities for a period of time. Both HOIC and SCE have strong positive identities in each region. During the past few months, however, both members and employees encouraged adoption of a single new corporate name and identity. The common theme of their comments was to firmly establish “one company, one identity and one direction.” The development process for a new identification and logo has been ongoing for several months. Please watch for an announcement in the near future.

Markets for grain, crop inputs and energy continue to change very quickly. Well established strategies are challenged by emerging new markets, new supply relationships and increased attention to both supply and price risk management. The 2010 grain expansion projects described in this month’s newsletter are evidence of these changing conditions.  The Newton train loading project responds to growing corn demand for ethanol. ADM in Cedar Rapids expects to complete a new 250 million gallon ethanol facility by mid summer 2010. In total, the ADM Cedar Rapids location will become the largest corn processing site in the world, using between 700,000 and 800,000 bushels per day. This massive corn demand will change traditional grain flows throughout Iowa. It is important for our members to participate in this and other growing markets by establishing a train loading position on the Iowa Interstate Railroad in Newton.

Dryer projects at the S-14 and Story City locations are also partly a response to the ethanol market.  The new dryers will reduce duplicate handling costs, improve energy efficiency, maintain grain quality and insure availability of dry, shipment quality grain at each location. Most importantly, the projects will improve customer service during the critical harvest period.  Including this year’s projects, the NW Region will have added four new grain dryers since 2008 with combined capacity of nearly 9,000 bushels per hour.

We are very pleased to have the financial ability to respond to market changes and unexpected opportunities. Your continuing support provides a strong foundation and is greatly appreciated.

During the past several weeks I attended a number of meetings featuring excellent speakers with thought provoking information. Andrew Busch, Global Currency and Public Policy Strategist with BMO Capital addressed a recent meeting. “Although the U.S tax code contains nearly 1.4 million pages, simplification is unlikely.  Interest rates are ‘too low now’ and will increase by the third quarter of 2010. Oil prices should remain in the $70 to $80 range. Higher oil prices are seen as depressing demand and economic activity. China is experiencing a more robust recovery than the U.S. because the Chinese government forced banks to lend. U.S. banks continue to be extremely cautious. The potential for increased income taxes has added great uncertainty for small businesses who account for most of the jobs and economic activity in the U.S. Repaying one trillion dollars of debt at $1 per second, without interest, would take 31,000 years.”

Other speakers said, “Sixty-five percent of agricultural fertilizer is now imported into the U.S. The U.S. is now third behind China and India in fertilizer consumption with the U.S. at approximately half of the Chinese market. U.S. fertilizer consumption 10 years ago was double that of China. The U.S. has one operating urea (dry nitrogen) plant while China has 23. Absence of Chinese environmental policies allows uncontrolled growth of many industries including both fertilizer and Ag chemicals.” 
Other comments from industry leaders included, “Both retailer and farmer attitudes toward pre-season fertilizer purchases are very cautious after the volatility of the past two years. As a result, YTD purchases are well below the eight year average. This could result in supply difficulties this spring and continued upward price pressure. U.S. fertilizer supplies are adequate at this point but could easily be disrupted by unexpected world events. Brazil is now the second largest consumer of agricultural pesticides behind the U.S. There are 950 ag pesticide manufactures in China, 75 percent of which lost money in 2009. Herbicide resistance is expected to triple between 2010 and 2013 with Iowa getting the first taste in 2010.”

Managing change and changing the way we manage appear to have become the “new normal.”