ST. CLOUD, Minn. -- Volatility, contracts, credit terms and managing risk were topics front and center at the 102nd annual meeting of the Minnesota Grain and Feed Association.
Grain elevators faced several issues in 2008 -- from a grain scheme where someone wanted to use elevators to play the futures market without paying a licensed broker high margin calls, a run-up in fertilizer costs, declining exports because of the strengthening dollar and the high cost of fuel, said Bob Zelenka, executive director of the Minnesota Grain and Feed Association.
The association tackled those topics with sessions presented by attorneys, lenders and agribusiness leaders.
"We see tremendous opportunities..... agriculture has proven resilient," said John Rice, executive vice president of production for ADM.
Rice said demand is growing for agricultural products and gains in productivity allow agriculture to meet demands for food, feed and fuel in an environmentally sound way.
Innovation, investment and partnerships will be needed to continue to move agriculture forward, he said.
Elevators will have an essential role in the coming two to three years in keeping the agricultural infrastructure together, said Gary Koch of Gislason & Hunter of New Ulm.
Bank examiners aren't cutting banks much slack and it will be up to elevators to carefully and prudently offer credit to shepherd agriculture through the financial crisis.
Elevators must have a credit policy that attracts and retains good customers without negatively impacting cash flow. Some of the tools used during the 1980s may be helpful now, Koch said.
He advised grain elevators to revisit who they offer credit to and to brush up on the ramifications of bankruptcy with their local counsel.
Jon Miesen of Stoel Rives, LLP in Minneapolis said many of the events that occurred in 2008 will continue to impact agriculture into 2009. 2008 was the most volatile year he's ever seen in 20 years of ag-related litigation. Dramatic fluctuations occurred in grain prices and input costs, bankruptcies, changing government regulations and unscrupulous actors, Miesen said.
He predicted there would be 15 to 40 additional ethanol plant bankruptcies during 2009. A lot of producers who contracted with VeraSun already spent the money they are never going to receive, he said. There are going to be issues because producers were counting on the money from VeraSun to pay for input costs.
Miesen outlined the elements of a basic grain contract and offered tips for preventing problems. Be concerned about forward delivery contracts with unstable buyers, Miesen said. Don't spend proceeds prior to their receipt and include a termination provision in contracts.
He also outlined a list of options for grain elevators to deal with fraudulent sellers, including requiring delivery of grain and not allowing cancellation of a contract. Fraudulent sellers are typically set up as a corporation or LLC and have a post office box address, he said.
He's litigated more than a hundred different types of grain contracts and has reached one conclusion, he rarely litigates a good contract.
"I'll tell you that good contracts create good business partners," Miesen said.
In response to audience questions, he advised grain elevators to send confirmation letters to producers along with contracts when a producer sells grain over the phone.
If not returned, the confirmation becomes legally binding in 10 days, he said.
Fernando Palacios, executive vice president and CEO, Land O'Lakes Purina Feed, took everyone on a journey back through 2008, a year that refined volatility.
"2008 was a heckuva ride," he said.
Crude oil approached $150 a barrel and dropped below $35; corn pushed $8 a bushel and fell below $3; and milk prices swung more than $5 per hundredweight.
"I wouldn't be telling you to put any money in any animal right now," Palacios said. "It's going to be a tough six to eight months."
Competition is changing, Palacios said. Cooperatives continue to consolidate, merge and get larger.
The United States grows a lot more grain than it can use and he said he doesn't want to dream of what will happen if the ethanol business gets worse.
Not only are the poor and middle class suffering, but also the wealthy who are having to make choices, Palacios said. Luxury car sales are down. Super Bowl ticket sales were down.
The agricultural industry will face changes and challenges, but it is a good place to be, Palacios said.
More than 600 people attended the annual meeting, Zelenka said. It's an educational and informational event, but it also provides an opportunity for networking and camaraderie among members.
The meeting also highlights the importance of grain elevators.
Country elevators play a significant role in rural Minnesota, Zelenka said. They are often the major taxpayer and major employer in a small town. Their employees are community leaders.
"I think a lot of times grain elevators are taken for granted," Zelenka said.
Source: The Agri News
