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(mellow music) - [voiceover] the following program is a production of pioneer public television. (calm music) (upbeat music) - hello, and welcome to compass, a new production of pioneer public television. i'm les heen, your host for compass. this week we're going to have a weekly discussion,

as we do every week. in this case it's going to be about public issues facing our viewing area. this week we'll look at how one facet of agriculture is changing, and that's the facet of agriculture known as the grain trade. there are lots of changes you can see in the grain trade just by crossing the railroad track in a small town,

and that is that grain elevators are being forced by the market to do larger and larger facilities all the time to simply load grain onto trains. here with the story is pioneer's laura k. prosser. - [laura] west-con consolidated co-op underwent construction and expansion at their appleton, minnesota, location earlier this year in efforts to meet the needs of their farming partners. the business had a few main reasons for these changes,

the first being market conditions. - market conditions have changed. iowa used to feed a lot of domestic corn to the south and the southwest. with iowa over-building in the ethanol business, they are a corn deficit state, which makes the up, which we can load cars in appleton much more advantage to run through the up down through iowa.

corn that used to be sold domestic market down there is now coming out of minnesota. that's what's supporting this project. - in 2013 and '14, the rail car demand was very high and there was a large discrepancy between car availability and prices on multiple railroads. we just began to investigate what it would take to add additional rail service to this area. first we had to work with our partner,

the tcw out of glenco. we asked if it was possible to bring bigger trains in and work with union pacific railroad. - [laura] after studying corn acres and local production, wes-con worked to figure out where all the corn was going and what was left for them to handle. they mapped out similar facilities in their trade area and made their project plan from there. - it's all about options, and right now as a company,

western consolidated had access to two railroads, and by doing the expansion in appleton we have access to three. that just multiplies the cars that we have access to. - we are directly tied to the burlington northern railroad right now, which is a very good railroad. we've hung our hat on them. they are the backbone of our company and have kept us very competitive.

the last couple years with the burlington northern with the freight premiums, we have run a lot of grain east, that normally we don't. we've run a lot of grain over to chicago and down into the southeast markets. so yeah, we have run a lot of grain out, and probably the last couple years, probably a little more to the ethanol plants than normal. that's simply a lack of reasonable railroad freight.

with the change in market conditions, hooking up to the up and the burlington northern, we get into every domestic market in the united states. - our market's become more domestic and ethanol driven. the up railroad and the tcw bring us access to more domestic and ethanol-type markets in the south. what it does for our trade is it increases access, which leads to higher prices and more options for our producers.

over the long term, it reduces wes-con's exposure to one railroad. - it also opens up 36 destinations in mexico. on the average, we feel, it'll be worth 2 to 3 cents on every bushel that runs through the company on an annual basis. - [laura] wes-con expansion project is a two-year process from start to finish. it is a substantial investment at $19.5 million.

the last two years wes-con has paid off more than $6 million worth of debt. the project added 40,000 bushels of dumping capacity, 7,000 bushels per hour of drying capacity, and additional storage. - appleton is frankly too close to the holloway facility, but it does give us the opportunity of a whole other market and a whole other railroad. it just takes pressure off of holloway.

that's the reason we built that over there. - it opens up a lot of trade area to the south and west of appleton that we're currently not accessing, and we fully expect to participate more in that market now than we have in the past. because of appleton's access to other rail lines, there are certain times of the year where we can access markets that other people

or other businesses in this area can't. that helps us grow our member base. it helps us grow our volume. it should only continue in the future. - south of appleton, we do expect our membership to increase this first year. in fact, we've seen it already. everything we've done in the past, we've been, i think, way ahead of everybody.

but the farmers keep expanding. i think our next expansion is to make sure we keep up with them, and that we keep a competitive advantage. - [laura] for local farmers like gary nygard, this expansion doesn't impact his income as much as it does his harvest. - the elevator's role is, of course, to be here and be open.

they accommodate us during harvest with longer hours and enough personnel that everything goes smoothly. it's not just the grain handling thing. once the crops are off we go to the agronomy department. we need soil testing, and we need fertilizer. then in the spring, of course, you need seed. it's kind of a complete package. the new technology with weighing in and weighing out and the new storage is really going to be good for the area.

it's going to help us through harvest because of expanded storage. this new facility at terminal a is state-of-the-art technology. it gets you in and out quickly. the sooner we can get back to the field and get the next load, it's better for us. - [laura] for smaller elevators, farmers with their own drying system

stand as competition to their business. wes-con works hand in hand with these farmers, nygard included. - corn, of course, most of the time, is going to require some drying. i do have a drying system on my farm. but then, if i'm north of appleton harvesting, there's just a few points of moisture to take out, and i've got it forward contracted,

i will more than likely not drive by their facility to haul it home to store it. i'll haul it here and let them dry it for me. there's no down side for us. when the elevator does well, the patrons get to share in it, whereas a private owned elevator you don't get that. - with us now to talk about these changes are two guests that we have

that know the grain trade very well. we have from wes-con cooperativein western minnestoa, we have dean isaacson, who's the general manager for wes-con, and wes-con operates in western minnesota, eastern south dakota. also with us is bob zelenka. bob is the executive director for the minnesota grain and feed association. gentlemen, thanks for joining us on compass.

- thank you. - thank you. - dean, i'd like to start with you. i know we've talked in the past, just informally, about the grain trade and all the changes. what does it really mean for you and for wes-con having to do all these changes? this seems like an awful lot to do. - the producers have advanced. they've gotten so efficient, large machinery.

the markets have changed. the railroads have changed. the river has changed. we're trying to keep up with the domestic market, the export market, trying to keep up with the producer, and still build quick, fast, efficient facilities. the other issue we have is hiring really good employees to come out and run these facilities. it's just a huge change in the last 15 years.

- when you talk about - i want to pick up when you talk about the idea of hiring more people all the time, and obviously we've seen a lot of automation, a lot of other things. but is the people part of this still really, really critical that you need a lot of really skilled people to run these facilities? - actually, today more than ever.

our equipment today, everything's automated. everything's run by computers. it takes an awful - not only working hard, it's really working smart today. our people need a whole lot more training, and even we look for a lot more education instead of just hiring a normal person. jobs are more specific. when i first started, you'd probably work fertilizer.

you'd probably work grain. you probably drove truck. nowadays we have an agronomy manager. we have a feed manager. we have grain merchandisers. we have grain origination people. so, yeah, it's much more job specific. we need very, very talented people, once again, to keep up to very, very talented producers.

- because there's a sophistication throughout all of it. now i know bob, from your perspective with the grain and feed association, you've seen these kinds of things all over the state of minnesota, and working with colleagues throughout the country. put some sort of context in. is this something you're seeing all over, or is it in pockets?

how is this really going on in the business? - well, it's happening nationwide. in minnesota we've seen over the last probably 20 years a real growth in the large facilities like dean runs. there's probably 150 rail users in the state, and 50 of those now are those large unit train loading facilities, where you can load 110-112 cars in less than 15 hours, going from one origin to one destination.

it's all about efficiency. i think railroads came across that idea back in 1979-1980. it's really taken hold, for various reasons. railroads are interested in efficiency. economics has led to some mergers, consolidations. but i think that just getting the best rates and best service is probably the biggest incentive that i think a lot of these guys have taken advantage of.

- what i'm wondering about is if you could quantify sort of the changes. i know you talked about the fact that years ago it was very different, just with the employees. of course, you talked about how it's changed over the years. one hundred and ten unit trains now. if we were to go back to when a lot of our viewers maybe grew up on the farm, or went to the local elevator,

if you went back 30 or 40 years, compare then to now. - well, back then you were looking at single car rail car, single car rates, or trucking your grain to various markets. there was a lot more livestock locally. so a lot of grain was consumed locally. today, again, you're seeing markets are international, domestic as well as international, overseas, mexico, canada.

to get at those markets we really need high efficiency. that's kind of where i think things have gone. but looking back in time, things have changed quite a bit. used to have a grain elevator every 7 to 9 miles, just primarily because that's where the railroad stopped every 9 miles. there was an elevator. you needed that just with moving things to town by horse, if you will, oxen, then by truck.

farmers have gotten more - their ability to move grain longer distances has really improved. most of them have semis. the whole industry has changed quite a bit, a lot of on-farm storage, and so on. anyway, just really to find our niche, we've had to go with the times and expand and provide that efficiency everybody needs.

- i'd like to pick up on what you said about the international trade a minute, because of course we all see grain trucks, and we see the trains, and we see them moving. but the idea of where does all of this grain go after it leaves where we are can be a mystery, because you don't see that part of it. how has that part changed over the years? - i think the international market has really grown.

you have the soviet union being a big market back in the '70s and so on. it's just continued to grow since then. the market development has been into asia, i think more so than anything. we used to have markets in europe, and so on. but those markets have changed. you've got new players in the game as well with brazil, argentina competing with us

on the international markets. but a lot of our grain, a lot of dean's grain will go west coast by rail, internationally, some going to mexico i suspect as well, and into canada as well. then we have feed markets in southwest, southeast part of the united states. grain will be moving down there as well. but we need efficient system up here.

we're as far away as you can be from any market, so it's important for us to be as efficient as we can, so that's been the challenge. - what about, why don't we talk about transportation. we talked about rail, but what about intermodal sorts of things. when you see national or local stories about the grain trade you may hear about barges and ships and all of the other pieces.

what about the broader infrastructure for grain? how does that affect what you do? - water is probably the cheapest way to move grain out of this region if you're close to the twin cities and to the river. barge traffic going through louisiana to new orleans is the best way to move grain, and the cheapest way to move grain. by having water access, it actually keeps pressure

on the railroads to be reasonable with their rates, because they have that competition. where you don't have that in north dakota, for example. you don't have water, just rail, sort of captive shipper, if you will. that's really an advantage for us. not to overlook the role the truck plays in all of this, in terms of moving for the short hauls, whether it's to the elevator, to the river,

to processing facilities and so on, the truck plays a key role in this as well. - of course, then market forces also playing a role. i'm thinking about the fact that in the last few years there was a lot of attention paid to the changes in the oil, with the oil boom, and now we've got declining oil prices. what happens with that, i'm sure, can affect what you do as well,

in terms of just competition for what's on the rails themselves. - we're seeing right now with our trains, we had one coming off the pnw here, normally it would take 5, 6 days. it's back in 2-1/2 days. the oil trains are off the track, so they're sitting in storage. the unit trains, hooking up oil ones

that go back and forth, there is no stopping them. they've just got a straight line. it's made it much, much more efficient, for the railroads, and the service is almost unbelievable. now they're showing up quicker than we want them. a year ago we'd have never said that. - that's another thing that for people who are inside the business,

i've talked to some people who've been working on these. they talk the fact that you would get a call, if you were working for an elevator, and you get up in the middle of the night, and then you'd have to go sit somewhere and wait and hope the train would come in. then when it did come in, it was sort of like, a wait and hurry up situation. now you're saying they're actually starting to show up

on time, or even a little earlier in some cases. - it's still, you know, we've got one supposed to be scheduled in today, and it's coming at 10:00 tonight, so we'll come in and load it all night. but normally that train wouldn't have been here for 2, 2-1/2 days yet. a year ago, maybe even 5 days later than what it's supposed to be. there's a lot less traffic on the railroads.

that's pretty much the bnsf, i think pretty much all of them right now with the oil being shut down. - i expect this would have really affected your planning, too, in the business. because if you think about something like the wes-con expansion here, what many other elevators do. you start planning that in one economic environment,

or one period of time, and by the time you actually get it built, things could be very, very different. have you seen that in the trade? - right now is a really good example. last year, cars were trading at probably $4,000 or $5,000 per car over tariff. now, what the producer's selling has slowed up a little bit with the grain prices down. the cars have speeded up.

so today we're seeing cars trade at, here a while ago they were $400 under tariff, and now you've got trains bought at $100-$150 over tariff and they're showing up at $400 under tariff, simply because of the speed. and there's some lack of farmers selling. every plan that you had six months ago, you can throw it out the window today and start all over, pretty much.

- but i know in the case of these facilities, when you walk by them, they're huge, they're well lit, they're impressive when people go by. i'm sure the reaction you get from people going by is, "wow, isn't it great that there's this great facility here," even though at times it may mean some changes in local roads and things. - railroads through the western part of minnesota, south dakota, north dakota,

we are the food line to the rest of the world. we are the main line to the pnw. we're fortunate here in appleton with our facility, we can go to mexico, we can get to the gulf, we can get through chicago over to the eastern markets. we can get into the lewisville. we're real fortunate we can get anyplace. - i want to talk about the investments that it takes to make that happen.

particularly when you're in a member-owned cooperative, those kinds of things, there are a lot of things to manage. you've got members, and people, and farmers who are bringing in grain, who are involved. what's the reaction from members, generally, in local elevators or even larger ones, about the investments that it takes to make this happen? - well, from my position, since 2000, we've spent $120 million in our region out here.

we take it to the - we have nine board of directors that are all producers. of course, we've go to work with coal banks are where we do all our financing. but generally you put it together, and it's all about market share. service is another thing. we need storage.

we've got to be able to load trains when we want, not when we have to. it's a number of things. we can get better service. we can get carry in to market. we're going to be more competitive in the market. so it does a number of things. my experience is the producers have been very, very accepting of what we're doing,

and very supportive. our producers have been very, very supportive. that's needed. even in 2000 a pretty good sized planter was probably a 12 row. today we've got 36 row. so we've had to go from a 12 row fertilizer plant to a 36 row fertilizer plant, to keep up with them. and the grain facilities are the same thing.

- because it's not just, in your case as a cooperative, it's not just the elevator part where the grain's coming in and going out. it's also the other services that farmer's are asking for. - it's fertilizer, it's grain, it's grain drying, it's storage, it's the whole - it's the big picture you've got to look at. it isn't really, as a local co-op, what we want. it's what our producers need.

so if we want to service them and keep their business, we have to continuously reinvest. but investment is huge. - bob, getting back to you for a minute, on some of the larger investments. we talk about wes-con as an example of what many elevators are doing. but there are other sorts of investments in rural areas that often have to happen as well.

for example, transportation. tell me about the transportation piece of this, because obviously it's one thing to get a train loaded and moving down the tracks. it's another thing to have the infrastructure in place before the grain even gets into the elevator, right? - right. a good road network is obviously very important. on the rail side, the railroads have put in a lot of money,

particularly the bnsf, since a couple years ago we had the perfect storm with oil moving and a lot of issues with weather and so on. but they've spent a lot of money in putting in infrastructure that's really helped with the efficiency and moving on rail. it really starts back to the country, having good access to the farm. there's a lot of grain stored on the farm.

in fact, in minnesota, over 75% of the total storage in minnesota is actually located on the farm. there's a lot of grain that is stored on the farm, has to move from the farm. a good farm-to-market system is something that's been discussed. we've been involved in that issue in the legislature for the last many years. it's very important to have a good total infrastructure

to really move this grain from the farm to the elevator. it's been coming along. back in the day we didn't have 10-ton road access to all communities. that kind of thing. that was a good starting point. but now we're on our way, hopefully we can look at some other things.

in the legislature, for example, as i mentioned, truck weights is something that we're looking at, trying to be on par with canada and our north dakota neighbors, in terms of being able to haul higher weights. we do have an exemption for our raw, nonprocessed commodities. but we'd like to see that expanded even further. - earlier we talked about technology a little bit,

and dean, you talked about the fact that you have people who really need to be well trained. there's a sophistication there. i'm sure you've seen that all over. let's talk about technology a little bit. how is technology really changing the grain trade? obviously, you said there's a lot more automation. are there other things that people really might not be aware of when they think of

the elevator of years ago, that they're watching it now, and say, "oh, wow, look at that." - as far as the marketing, it's instant. a producer calls us up. it used to be, we had the market tvs in our office. we were 5 minute, 10 minutes, maybe even 15 minutes at one time. today we have instant quotes. so when it changes in the chicago board of trade

it changes in our office. we can quote an exact price. if a producer would sell 10,000 bushels to us, we don't even call a broker anymore. we just punch it in our computer and put the hedge on the rates. there's so much eliminated. everything is instant access nowadays. it's just a start.

the farmers can, every co-op, every elevator, you can go on the gulf, you get the gulf bid. they can really find any bid they want. they can get the same pnw bid i get. there really are no secrets in the grain anymore. you've got your bid. you've just got to figure out how you're going to be competitive, and how you'll buy it. but the technology is there.

- it's a far cry from having to call up the local elevator and find out what's going on. now people will check it on their smart phone. they'll have it right there at their fingertips all the time, right? - our markets, every afternoon, we text them out to our producers, so they know what our mark - they don't have to call us at 3 o'clock

if they're sitting in the tractor. we text it to them. a lot of them have their ipads, of course. they can go on our web page and get them. the technology's really changed. - another thing, when people deliver grain to his facility or one of these other shuttle loading facilities, or unit train loading facilities, they don't even have to get out of their trucks anymore.

it's all done by, with a card. they get weighed in, they dump, they leave. again, you don't even have to get out of your truck anymore. so it's kind of worked out, again, part of that efficiency thing with these elevators. but they've really come a long way since the old horse and wagon days, that's for sure.

- or even for that, as i recall, the days of bringing in the truck. if the truck didn't have the hoist, the whole front of the truck would be lifted up. it was a very different world. i think for so many people who were growing up on a farm, or farming in those days, the changes now would just be staggering. as you said, not even getting out of your truck.

- it's really come a long ways. - in the few minutes we have left, i'd like to talk about, just glance into the future a little bit, about the future of the grain trade. we said there are so many changes from the time you start to invest in a facility until the facility's built, or so many changes in market forces,

i'm going to ask you to just look ahead a little bit, 2016 and beyond. what are the next things you see in the grain trade? - one of the big things that they're going to keep pushing, we're dealing with all the gmo issues. that's going to take a while to get resolved. food security, bob brought that up a little earlier. but food security's going to be a big thing. right now, we're not doing any identification

if we're preserving it. but it'll be the markets, $7 corn. we've taught south america how to grow corn, and that shows on our exports right now, on the pnw and the gulf. we're really, really down on corn. beans it's going to be a much shorter season. we've got some real world issues. the us dollar, of course, is affecting our market right now.

there's a number of things in '16 we've got to work through. we've got an awful lot of corn in the united states, but the rest of the world, actually, the inventory's dropped a little bit. we're going to have some issues this fall, where it's going to go, how we're going to handle it. we have to get competitive in the world market right now. as a producer, and us in our world, we've got a lot to deal with in the next 16 months

trying to make all of our budgets balance. - from your facilities, whether it's in - your facilities are in holloway, minnesota, and in twin brook, south dakota, and many other places. whether you're there, or wherever you are, you're going to have those facilities. bob, sort of a wrap up here on where we're going? - well, i think you're going to see,

and what we've already seen, is a continuation of mergers and consolidations within our industry. when i started 34 years ago, we had 225 local co-ops. now we're down to 79 local co-op firms. i think that's going to continue. it's primarily due to - a lot of it is regulatory. some of these older elevators just can't keep up

with the regulations that are coming on us now with food security and other things, osha regs and so on. it's going to be a real challenge, i think, too. but again, we're going to get smaller, but larger facilities. farmers have more mobility, so you don't need, i mentioned earlier, don't need an elevator every 7 miles.

problem is going to be employment, and finding good employees. that's a challenge right now, and i think that's going to continue to be a challenge for us into the future. - great. good note to end on. bob zelenka, dean isaacson, thank you both for joining us.

- as we leave you this week, we're going to show you a little bit of another local music production. it's called grassland jam. it's a show that we started a couple years ago here on pioneer public television, with a look at bluegrass music. as we leave you now, be sure to join us next week on compass, and enjoy the music. (bluegrass music)

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