High Society
Sioux Center Farmers Co-op Society
ties future to NW Iowa livestock industry
By Dan Campbell, editor
dacampbe@rdmail.rural.usda.gov
ioux 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 hogproduction
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 Manger 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 Siouxland
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 $150 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 coop
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, Terragators
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 ninephase
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, farrow-
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.”
Still independent
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?’”
