Rail Transportation Continues to Roil Ag Industry

In March, the National Grain and Feed Association (NGFA) wrote the Surface Transportation Board (STB) to highlight “significant” service disruptions reported by their members.

Corn refiners also identified problems with ‘first mile’ and ‘last mile’ rail service – situations where product is not picked up to be shipped OR product has arrived in a nearby rail yard, but not delivered to its destination.

Roots of rail transportation problems are several. Beginning in 2003, Class I railroads (with the exception of BNSF) began adopting Precision Schedule Railroading (PSR) a operational method focused on maximum asset utilization and return on investment.

Critics (Shippers and Unions) insist that PSR puts investor interests ahead of customer service by slashing expenses for equipment and headcount. They say PSR leads to the loss of redundant capacity and service disruptions caused by severe weather and seasonal surges in shipping.

COVID also impacted the entire shipping industry. Supply chains were disrupted, shipments were dramatically decreased, and railroads parked assets and 12,500 employees were furloughed. When the economy began to improve, furloughed workers were not available making it difficult for railroads to re-deploy power and equipment.

Problems were further exacerbated by failed contract negotiations between Class I railroads and Unions. Salary increases aside, main sticking points focused on quality of life issues. This all came to a head when, with the intervention of the Biden Administration, an early morning tentative agreement averted a national rail strike.

Despite the apparent contract resolution, concerns persist. Customers wait for product to be delivered timely, processors wait for supplies to arrive and stranded cars to be returned, and shippers, in general, hope that we are not experiencing a ‘new normal’ for rail freight service.

2023 Incentives, & Fees Set, Pool Election Decision

2023 Incentive Payments & Agency Fees

Incentive Payments and Agency Fees for Method A and Method B Pool participation will remain the same for 2023. That means Golden Growers will pay $0.05 for Method A bushels delivered directly to the plant and will charge $0.02 for Method B bushels the Cooperative secures and delivers on a member’s behalf.

2023 Annual Delivery Agreement Pool Election

Each year, Members have the opportunity to change their method of delivery by submitting a revised Annual Delivery Agreement (ADA). This is your only opportunity to change your method of delivery for the coming year.

You should have already received your Annual Delivery Election letter with the ADA form on the back page. If you intend to change your delivery method, return the form no later than December 10th.

Only members intending to change their delivery method need to respond. Members who deliver directly to the plant through the Method A pool have a $0.07/bushel advantage over members participating in the Method B pool. In 2022, 27% of bushels were delivered by members directly to the plant.

Method A Delivery Options to Consider

Method A Pool participants are permitted to complete their annual delivery requirements through ‘affiliated persons’. In these circumstances, Cargill may write the check for corn directly to the affiliated person.

Affiliated persons include producers who: 1) have a familial relationship to the member; 2) Own or Control 50% or has management rights over the Member; 3) Shares farming resources with the Member; 4) Are an entity in which 50% ownership is by an immediate family member(s) of the Member; and 5) Rents land from the Member on which the crop is produced (Tenant).

GGC Board Approves $0.14/bushel October Distribution

On September 15th, the Golden Growers Board of Directors approved a distribution of $2,168,667 or $0.14/Unit to members of record as of October 1, 2022. This distribution retires remaining allocated income for 2021 and a portion of allocated income for 2022. In combination with the February and June distributions, a total of $6,041,286 has been issued to members in 2022.

As you are aware, as of March 1, 2022, Golden Growers Cooperative and Cargill are 50/50 owners of ProGold LLC and a new operating agreement was established. In addition, the lease agreement between ProGold and Cargill was amended to extend through calendar year 2026. The Board’s distribution determination is based on anticipated lease agreement revenue and potential capital investment requirements for Golden Growers should a long-term joint venture be established between Cargill and Golden Growers.GGC.)

With this payment, Golden Growers has issued payments to members totaling $138,479,196 or 238% of original investment in the ProGold plant.

Direct Deposit Participation Required in 2023

At their September meeting, the GGC Board reaffirmed their decision to require Direct Deposit participation starting in 2023. (Current Participation – 94.3%)

If a member is not enrolled, their payment will be considered an account payable that will be settled when a member enrolls. Therefore, to receive distribution payments in 2023, a member MUST be enrolled in Direct Deposit.

Questions and Answers about Direct Deposit (ACH)
Q. What happens when I change bank accounts?
A. If you change bank accounts, just write a note to Golden Growers to inform us of the change, attach a new void check or deposit slip, and sign the request. If it is a joint account, please have all members sign the request. You may also download a new Direct Deposit form the GGC website, complete it and mail it to our office. If you change banks and forget to notify GGC, your payment will be returned to GGC and we will issue you a paper check with a new form to complete and return to our office.
Q. How will I know when GGC issues a payment?
A. GGC mails a letter to our Direct Deposit participants at the time of payment to inform members that the deposit was issued. The letter requests members to check their account and report any concerns that might arise.
Q. Is Direct Deposit secure?
A. The ACH system (working closely with the Federal Reserve, U.S. Treasury) is one of the most secure payment systems anywhere. Every payment has a tracking history to identify EXACTLY where the payment originated and where it was deposited. Member data is entered on Agvance software residing on a highly secure private virtual server hosted by Amazon Web Services (AWS). Access to GGC’s information in Agvance is limited to one person at GGC two individuals at Eide Bailly through Remote Desktop Protocol (RDP) using multiple security features and passwords.

Natural Gas Expansion Project On Schedule

On May 27th WBI Energy (MDU Resources Group company) filed a NGA Section 7 application with the Federal Energy Regulatory Commission (FERC). WBI’s filing requests authorization to construct, modify, operate and maintain facilities for its proposed Wahpeton Expansion Project.

FERC is anticipated to issue a Draft Environmental Impact Statement (EIS) in September with a Final EIS anticipated in January. Late in 2021 WBI conducted public open houses in Wahpeton and Kindred to explain the project. The 60.5 mile 12-inch pipeline will originate at the Mapleton compressor station and deliver 20.6 million cubic feet of natural gas to the Kindred and Wahpeton communities.

This project, which is vital to ProGold’s future, remains on track with an anticipated completion date of November 2024. Additional information may be found at: https://www.wbienergy.com/projects/wahpeton/.

GGC Board Approves Distribution of $0.14/Unit

On June 16th, the Golden Growers Board of Directors approved a $0.14/Unit distribution of $2,013,762 to members of record as of June 1, 2022.

This distribution will retire a portion of remaining 2019 and 2020 allocated income. With this distribution, the remaining equity credit balance is $6,505,452 or $0.42/bushel. This balance is useful in determining per Unit basis levels and does not constitute an outstanding obligation for GGC.

The Golden Growers Board reviewed five-year revenue projections related to the current lease agreement and the potential investment requirements of an integrated joint venture with Cargill. The Board concluded that it would be wise to maintain the existing reserve in order to pay for a significant portion of potential capital costs of the JV while maintaining level distributions to members for the next few years.

GGC has issued payments to members totaling $126,310,529 or 234% of the original investment in the ProGold plant.

‘A Change of Partners’ – Harless discusses the ProGold partnership with Cargill

Chairman Mark Harless reviewed the change in ownership of ProGold LLC. “On March 1st, Cargill purchased 50% interest (in ProGold) from American Crystal Sugar Company and Golden Growers Cooperative purchased American Crystal’s remaining 1%. The next result is that Cargill and Golden Growers each own 50% interest in ProGold, LLC.”

Harless indicated that MDU’s August decision to build a natural gas pipeline to Wahpeton was a key issue for Cargill to consider exercising its option. Harless said that Cargill previously indicated that landing a co-located partner to utilize a significant portion of the corn plant’s grind was critical to exercising their option. “We found ourselves in a ‘catch-22’ situation. We needed natural gas to attract co-located partners, but natural gas providers wanted guaranteed purchase agreements” that neither ProGold or Cargill could sign. MDU’s new proposal involved “a commitment to purchase gas, but not guarantee repayment. In essence, it would prioritize stability and opportunity over the risk of repayment.” Harless thanked a ‘Team of Advocates’ who assisted in making the pipeline a reality. He recognized Wahpeton Mayor Steve Dale, City Auditor Darcie Huwe, Wahpeton’s gas consultant, the late David Yexley, and State Representative Alisa Mitskog. Harless also thanked Cargill for engaging in the effort.

“With natural gas uncertainty in the rear view mirror, Cargill had to make a decision on whether or not to exercise their option,” relayed Harless. “Cargill reached out to Golden Growers to discuss how we might structure an agreement to allow them to make an equity investment in ProGold.” The Board outlined GGC’s intention to have a long-term relationship with the plant. GGC also wanted to protect members’ investment and remove uncertainty for the future. Cargill was still interested in an integrated joint venture for the long term, but needed time to attract that elusive co-located partner. “After months of negotiations, Cargill and GGC reached final agreement,” said Harless.

Under terms of the agreement ProGold will lease the corn wet milling facility to Cargill through December 31, 2026. Lease payments for 2022 and 2023 will be $15.5 Million with a $750,000 ProGold contribution to infrastructure maintenance. For 2024 through 2026, the lease increases to $16 Million with $500,000 per year committed to infrastructure. “Under certain circumstances, Cargill and GGC may reach an integrated Joint Venture Agreement to fully share profits and losses of the facility.” GGC would be required to reimburse Cargill for 50% of undepreciated capital projects and costs associated with hosting a co-located partner. “If conditions do not occur OR Cargill and GGC are unable to agree on an integrated JV operating agreement, Cargill will purchase GGC’s interest in ProGold for $81 Million, plus half of any remaining lease payments,” stated Harless.

“Our agreement with Cargill assures that the ProGold plant will continue operations well into the future. This is important to Golden Growers members, the employees who work there, corn producers who deliver to the facility, and the surrounding community.” Harless offered his appreciation to American Crystal Sugar Company for their trusted partnership over the past 28 years. “As of March 1st, we are embarking on a new chapter for ProGold and Golden Growers as one partnershp ends and our new partnership with Cargill beings.”

Mike Wagner highlights ‘Stability’ and ‘Certainty’

Cargill’s Managing Director for Cargill’s Starches, Sweeteners, and Texturizers North American Business, emphasized the importance of stability and certainty for the Wahpeton corn wet milling plant. “I couldn’t imagine not having Wahpeton in our corn milling network,” stated Mike Wagner. “On February 24th, when we held a ‘virtual announcement’ about our agreement, Wahpeton employees offered a sustained ovation. I knew what the announcement meant to me, but it meant much more to them because uncertainty was replaced with stability for the future.”

Wagner stated that corn wet milling is at the core of Cargill’s operations. “To be profitable, corn wet mills need to run at capacity.” Wagner described their effort to divert an increasing percentage of the grind from HFCS which is slowly declining in consumption, to other products. The strategy to convert grind includes working with other companies that want to locate next to a Cargill site utilizing dextrose or starch to make a variety of products such as: zero-calorie fermented sweeteners; food bulking agents; bioplastics (PLA); butanediol (BDO) which is a renewable chemical used in the apparel (like spandex), automotive, and electronics industries; absorbent material for biodegradable diapers; and more.

“When we present our locations to a prospective company to co-locate at one of our facilities, we present a menu of possibilities so that they can match their needs to a specific location.” Low carbon sites are an important consideration for companies looking for a site, he said. Wagner stressed that Cargill also needs to determine if a potential co-located partner is right for the site and for Cargill. “We evaluate proposals very carefully. to make sure that the partnership is going to be a good fit for both parties.”

Stofferahn: Information available to determine value

Scott Stofferahn stressed that while the GGC Board believes that the recent agreement with Cargill is favorable to Unit values, GGC will not offer an opinion on the value of Units. “How units are valued is up to each one of you as members. But all of the information you need to make that judgement is available to you.” Stofferahn said. GGC’s balance sheet, future lease payments, the potential for a future JV and potential associated costs, the guaranteed buyout value should no agreement be achieved, and outstanding units of 15,490,480 are in SEC filings, on the GGC website, etc., he said.

Directors Elected – Directors Honored

Three New Directors Elected, Bylaws Amended
Golden Growers members elected: Brady Koehl, of Hancock, MN as At-Large Director for a 1-Year term; Chris Johnson of Great Bend, ND as Central District Director for a 1-Year term; and Blane Benedict of Sabin, MN as North District Director for a 2-Year term. In addition, Matthew Hasbargen was re-elected as an At-large Director for a 3-Year term and Brett Johnson was re-elected as a Central District Director for a 3-Year term.

Members also approved the proposed bylaw amendment.

At the 2023 Annual Meeting, there will be a vacancy in the North district for a 3-year term. Please contact Scott Stofferahn if you have an interest in serving on the Board.

Annual Meeting Honors Retiring Directors
David Benedict, Byron Koehl and Nick Pyle retired from the Golden Growers Board at the conclusion of the 2022 Annual Meeting. All three were first elected in 2010 and served on the Board a total of 12 years.

Most recently, Benedict and Koehl served on the Strategic Planning Committee. Pyle served as 1st Vice-Chair and as Chairman of the Finance & Audit Committee.

“David, Byron and Nick distinguished themselves as exceptional directors. We were fortunate to benefit from their broad agricultural, agribusiness, and financial expertise. On behalf of the Board, thank you for your time, talent and friendship,” stated Harless.