USDA

M

United States

Department of

Agriculture

Rural BusinessCooperative

Service

RBS Research

Report 153

Response of Cooperative

Elevators to Changes in

Government Policies
Abstract Response of Cooperative Elevators to Changes in Government Policies

Larry Stearns

Department of Agricultural Economics

North Dakota State University

David W. Cobia

Quintin N. Burdick Center for Cooperatives

North Dakota State University

Marc Warman

Rural Business-Cooperative Service

The reduction in Government storage payments had a great effect on cooperative elevator structure and operations during the late 1980s and early 1990s. Other

Government programs such as payment-in-kind (PIK), grain sales (Commodity Credit

Corporation (CCC) catalog and auction sales), and the Conservation Reserve

Pprogram (CRP) also affected cooperative elevators in terms of excess storage capacity and other factors. In 1988 and 1992, managers of 71 cooperatives in 7 States were

surveyed about their structure and operations. This report discusses the effect of

Government program changes and other factors between 1988 and 1992 on the structure and operations of the surveyed cooperatives.

Keywords: Farmer cooperatives, grain, marketing, structure, operations, Government

policy

RBS Research Report 153

June 1997
Executive

Summary

Highlights

In the late 1980s and early 1990s managers of cooperative country elevators saw

changes in management strategies as they adapted to excess capacity, the rise and

fall of Federal Government programs, and other factors. While the reduction of

Government storage payments had the greatest effect on elevators, the introduction of

and changes in other programs also affected elevator operations and management

strategies. These programs included payment-in-kind (PIK), Government grain sales

(Commodity Credit Corporation (CCC) catalog and auction sales), and the acreage

reduction from the Conservation Reserve Program (CRP).

In 1988, North Dakota State University (NDSU) surveyed 87 cooperative elevator managers (Gunn and Cobia) concerning the structure and operations of their cooperatives

and possible management strategies to offset income loss from changes in

Government programs.

A followup study, conducted in the fall of 1992, surveyed 71 of the initial 87 cooperative elevator managers. This report analyzes the responses from these 71 managers,

concentrating on the structural and operational changes that occurred between 1988

and 1992 and their effect on the financial condition of the participating cooperatives. A

companion report (Strategies for Survival by Cooperative Country Elevators Revisited,

RBS Research Report 158) analyzes managerial strategies implemented, their degree

of success, and their importance in keeping the cooperative elevator viable.

In the 1988 study, participating cooperatives were classified by production region, progressiveness, and size. In this study, all cooperatives were kept in the same classification grouping to allow comparison of the changes that have occurred since 1988. Only

cooperatives responding to both surveys are used in this analysis.

Between 1988 and 1992, participating cooperatives increased total storage capacity

by an average of 42,326 bushels, increased number of facilities by a third per cooperative, and decreased storage capacity per facility by 299,463 bushels. Each cooperative

increased rail loadout capacity by 13 cars/day with an average of nearly three cars/day

per facility.

Ten of the responding cooperatives (14 percent) were involved in mergers, 24 (34 percent) acquired additional facilities, while another 10 eliminated some of their storage

facilities.

Cooperatives added an average of three full-time and three part-time employees.

Participating cooperatives added an average 76 farmer patrons and 7 elevator patrons

(other elevators using the cooperative’s services).

Cooperatives decreased levels of cash purchases of grain and used more no-priceestablished/delayed-pricing contract (NPEIDPC) purchases. They marketed less grain

on the spot market and to-arrive, while basis trading increased.

Use of commission firms for short-term financing, Government program trading, and

accounting services declined, particularly in the spring wheat growing area.

Services to patrons such as storage, brokerage, feed grinding, and fertilizer application

remained important to the success of cooperative operations. During the 1988-l 992
period, the 71 cooperatives offered more brokerage and grain drying services while

feed grinding declined.

Competition dropped slightly in the cooperatives’ marketing area but competition intensified including that between other cooperatives. The financial picture of the cooperatives remained mixed. While total assets and net worth increased, the current ratio,

return on assets, and return on equity declined.
Contents Introduction .......................................................

.

Classification Scheme ............................................1

Structural Characteristics of Elevators ...................................2

Storage Capacity ................................................2

Facilities.. .....................................................

.

Rail Loadout Capacity ............................................2

Organizational Changes ..........................................

.

Employees .....................................................

.

Patrons .......................................................

.

Operations ........................................................

.

Grain Acquisition ................................................6

Grain Merchandising .............................................8

Contracting of Services ...........................................8

Grain Merchandising ..........................................8

Short-Term Financing ........................................lO

Accounting ..............................................

..10

Services to Patrons .............................................lO

Competition .................................................

..ll

Competitors’ Services ........................................12

GrainHandled ...............................................

..17

Financial Information ...............................................17

Financial Ratios ...................................................17

Summary and Implications ...........................................17

References.......................................................2 1

. . . 111
Response of Cooperative Elevators

to Changes in Government Policies

Larry Sterns

Research Assistant

North Dakota State University

David W. Cobia

Director, Quintin N. Burdick Center for Cooperatives

North Dakota State University

Marc Warman

Agricultural Economist

Rural Business-Cooperative Service

Introduction

Various events and structural changes in the U.S.

grain marketing system during the past 20 years had a

tremendous effect on farmer-owned cooperatives.

Mergers, acquisitions, and bankruptcies prompted

consolidation among cooperatives. Changes in

Government policies and in trading practices have

forced the entire grain industry, including cooperatives, to alter operating practices. Adjustments are still

occurring.

The reduction of Federal storage income had the

greatest effect on the grain marketing system and once

this activity was no longer an assured source of

income, the entire grain handling system faced severe

storage overcapacity. Competition intensified in the

merchandising end of the grain business (Warman

1993). To compete, cooperative elevator managers

implemented new management strategies, merged

with nearby elevators, and diversified services.

In 1988, North Dakota State University (NDSU)

surveyed 87 cooperative elevator managers (Gunn and

Cobia) for information about their structure and operations. Managers were also asked to discuss strategies

to compensate for Government income lost.

In a 1992 followup survey, 71 of the original 87

cooperatives provided new information on structure,

operations, and management strategies. Of the rest, 4

elevators were sold to another company, 2 went out of

business, and 10 managers chose not to participate in

this survey (table 1). (For a copy of the survey, contact

The Quintin N. Burdick Center for Cooperatives,

North Dakota State University, Fargo, ND 58105.)

This report analyzes the responses of the 71 managers who participated in both surveys. It concentrates

on the structural and operational changes that have

occurred since 1988. A companion report analyzes

what proposed managerial strategies have been tried,

their degree of success, and their importance in keeping the cooperative elevator viable. (See Strategies for

Survival by Cooperative Country Elevators, RBS

Research Report 158)

Classification Scheme

In the 1988 study, participating cooperatives were

classified by production region, progressiveness, and

size. Cooperatives were sorted into three production

regions based on the primary commodity produced in

the area-spring wheat (23 elevators), corn (26 elevators), and winter wheat (22 elevators). The cooperatives were located in Iowa (111, Kansas (131, Minnesota

(16), Nebraska (41, North Dakota (131, Oklahoma (B),

and South Dakota (6).

The progressiveness of a cooperative was judged

by its financial strength and innovative techniques.

Return on equity, return on assets, percent of noncash

grain purchases in 1991, and Government grain purchases from the cooperative by others were factors in

determining financial strength. Innovative techniques

included the use of a FAX machine, a computerized

accounting system, and maintaining the quality of

stored grain. There were 25 progressive, 29 intermediate, and 17 conservative elevators.

Cooperatives in each production region were further classified by size based on storage capacity of elevators-small (211, medium (24), and large (26)-to
Table l-Number of Respondents, Reasons for Nonpartlcipatlon In 1992 %‘Vey

Non-participation

Group

Number of Sold to another

respondents elevator Liquidated Refusal

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (Storage Capacity)

Small

Medium

Large

7 1 4 2 10

23 4 1 4

26 0 1 1

22 0 0 5

25 0 1 4

29 2 0 1

17 2 1 5

21 1 1 6

24 1 0 4

26 2 1 0

eliminate size-production intercorrelation. In this

study, all cooperatives were kept in the same classification grouping for sake of comparing with 1988.

Structural Characteristics of Elevators

of significance. When differences between 1988 and

1992 are presented, an asterisk (*) indicates that the

change is statistically significant at the 0.05 level. In

table 2, the change in the average storage capacity

between 1988 and 1992 in the winter wheat production

area was statistically significant.

The 71 participating cooperatives have made a

number of structural and operational changes since

1988. The specific elements analyzed were storage

capacity, facilities, rail loadout capacity, management,

employees, and patrons.

Average storage capacity declined for Corn Belt

cooperatives. Managers reported that a number of

temporary storage bunkers and permanent facilities

were dismantled during the 4-year period. Average

storage capacity also declined for conservative and

large-sized cooperatives.

Storage Capacity Facilities

The average storage capacity in 1992 for the participating cooperatives was slightly more than 3 million bushels, up 42,316 bushels per cooperative since

1988 (table 2). Average storage capacity increased significantly among cooperatives in the winter wheat production area. Progressive and medium- sized cooperatives also increased in their average storage capacities.

The average cooperative among the 71 surveyed

in 1992 had about three facilities (table 31, up slightly

since 1988. Progressive cooperatives added nearly one

elevator per cooperative while large cooperatives

increased facilities slightly, and conservative cooperatives remained unchange.

Using tables, readers can compare groups in

each classification category. In table 2, for example, the

average storage capacity in the spring wheat production area can be compared with capacity in the corn

production area. Any statistically significant difference

between two groups is denoted by the first letter of the

other group with which a specific group is compared.

Thus, in table 2, the storage capacity in the spring

wheat production area is statistically different from

that of the Corn Belt. This is measured at the 0.05 level

The average storage capacity per facility has

dropped 300,000 bushels since 1988. So any additional

capacity per cooperative came from acquisitions. The

largest drop in average capacity occurred among the

large cooperatives. Only small cooperatives and those

in the winter wheat production area increased their

average storage capacity.

Rail Loadout Capacity

Rail loadout capacity is the number of cars a

cooperative can load during a 24hour period. That

2
we Z-Average Storage Capacity of the 71 Cooperatives, and Changes from 1988 to 1992’

Group Number

Average storage

capacity

Average

change

All

Production region

Spring wheat

Corn

Winter wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

7 1 3,018,837 42,318

23 1,288,047 c 83,813

28 4,831,892 s -259,731

22 2,943,107 377,015”

25

29

17

5,279,938 ic 803,818

1,792,517 p 8,310

1,785,847 p -725,118

2 1 899,904 ml 133,048

24 1,994,875 s 244,583”

28 5,875,478 s -217,875

. Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

l For changes between 1988 and 1992, an asterisk (‘) represents a .05 level of statistical significance.

~abie &Average Number of Facilities per Cooperative, Storage Capacity per Facility,

and Changes from 1988 to 1992 ’

Group Number Change

Average

storage capacity Change

bushels bushels

All

Production Region

Spring wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

2.82 0.33” 1,073,417 -299,483*

2.58 0.17

2.73 0.42

3.18 0.41 l

589,838 c -187,823

1,512,841 s -852,489

1,080,102 801

3.44 0.84 1,521 ,019 ic -585,944

2.88 0.10 813,391 p -117,394

2.18 0.00 858,750 p -218,187

1.33 ml 0.10

2.50 sl 0.88

4.31 sm 0.50

737,079 I 85,859

934,490 -38,881

1,473,313 s -851.079*

* Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

* For changes between 1988 and 1992, an asterisk (*) represents a .05 level of statistical significance.

3
average capacity for the participating cooperatives

increased 13 cars per day from 1988 (table 4). There

were significant increases in nearly every classification.

On a facility basis, cooperatives increased their

average loadout capacity by nearly three cars.

Cooperatives serving the winter wheat production

area and conservative cooperatives had the largest

increases per facility. Only progressive cooperatives

showed a decrease.

Increased loadout capacity since 1988 indicates

that cooperatives are continuing to respond to the

lower unit-train freight rates offered by railroads on

shipments of 25,50,75, and 100 cars. This has encouraged elevators to expand loadout capacity to handle

unit trains. In some cases, excess capacity has developed such as in the spring wheat production area

(Cobia, Wilson, Gunn, and Coon, 1986) and, in turn,

has squeezed grain merchandising margins (Dahl,

1991).

Organizational Changes

Fifty-two of the 71 responding cooperatives (73

percent) had the same manager as in 1988 (table 5).

The largest management change was among cooperatives in the winter wheat production area. Nearly onehalf have new general managers. Nearly 90 percent of

the conservative and 85 percent of the small-sized

cooperatives were under the same management.

Ten of the responding cooperatives (14.3 percent)

were involved in mergers and another 24 (34.3 percent)

had acquired additional facilities since 1988. Some

managers said these activities were attempts to replace

lost income from reduced Government storage payments. Eight mergers were with other cooperative elevators, one with an oil company, and one with a noncooperative firm to increase railcar loadout capacity.

Acquisitions were more varied. Nine cooperatives purchased another elevator, two purchased two

elevators each, and three each purchased three elevators. Other acquisitions included a bulk fuel plant, a

fertilizer plant and spreading equipment, a propane

and plumbing company, a livestock buying station,

and a railcar’loading facility.

Ten cooperatives divested storage facilities

between 1988 and 1992, mostly larger cooperatives disposing of both temporary (bunkers) and permanent

storage facilities. Four cooperatives-mainly the larger

and progressive types-changed affiliation with

regional cooperatives.

Table4-Average Loadout Capacity per Cooperative and Facility and Changes from 1988 to 1992 ’

Cooperative Facility

Average Average

Group Number loadout capacity Change Number loadout capacity Change

cars/day carslday

All 7 1 63.6 13.3’ 200 25.6 2.9*

Production Region

Spring Wheat 23 51.9 13.7* 59 26.5 6.2*

Corn 26 63.6 12.6 71 32.6 w 0.1

Winter Wheat 22 52.0 13.5 70 16.0 c 2.7

Progressiveness

Progressive 25 67.6 i 21.6* 86 25.5 -1.6

Intermediate 29 47.3 p 8.6’ 77 24.7 3.4

Conservative 17 55.8 9.1” 37 27.0 8.7

Size (storage capacity)

Small 21 22.8 I 5.4’ 28 18.0 I 3.7*

Medium 24 50.2 I 10.2” 60 21.3 1.8

Large 26 109.0 sm 22.5* 112 22.0 s 3.2

a Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

l For changes between 1988 and 1992, an asterisk (‘) represents a .05 level of statistical significance.

4
Employees

In 1992, the 71 cooperatives averaged 23 full-time

employees (table 6). Large, progressive, and Corn Belt

cooperatives had the largest average number of fulltime employees with 38,34, and 30, respectively. The

71 cooperatives also averaged 7 part-time employees.

Most cooperatives employed a facility manager and a

general manager.

Cooperatives added an average of three full-time

and three part-time employees since 1988 (table 7).

Corn Belt elevators added five full-time and five parttime employees, while the progressive elevators added

six full-time employees. Increases were due mainly to

additional facilities.

Patrons

The cooperatives average 1,072 farmer patrons,

up 76 since 1988 (tables 8 and 9). Twenty percent were

non-members. Cooperatives averaged 7 elevator

patrons (other elevators using the cooperative’s services). By contrast, Corn Belt elevators added 91 new

farmer patrons, while reducing the number of nonfarmer patrons by 10. Cooperatives in the spring

wheat region added nearly 143, the highest number of

new farmer members. Small-sized cooperatives added

137 new patrons while conservative cooperatives

reported the lowest net increase in farmer patrons at

16. Total patronage (member and non-member) only

decreased in the winter wheat production area.

This phenomena appears to contradict the national trend of fewer cooperative patrons due to the exodus of producers from farming (Dahl). Managers

attributed the patron increase to additional facilities or

mergers expanding the trade territory. Managers also

noted that patrons increasingly shop for the best price

and services resulting in an increase in the number of

elevators each member patronizes.

Operations

The 71 participating cooperatives have made

operational and structural changes since 1988. When

the Federal Government reduced storage payments,

the success of local cooperatives depended on their

ability to merchandise grain (Warman). Managers were

asked about their grain acquisition and merchandising

(selling) methods.

Acquisition methods included cash purchases,

forward contracts, no-price-established/delayed-pricing contracts (NPE/DPC), minimum-price contracts

(MPC), basis contracts, and other. Merchandising

methods listed were spot market, sell-to-arrive, FOB

Table &Changes in OrganiZatiOnal StrUCtUre for 71 SdeCted Grain Marketing COOpWatiVeS, 1992 a

Same Participated in Change in co-op

manager mergers acquisitions affiliation Disposal

Group

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

N #

71 52

%

73.2

# %

10 14.3

# % # %

24 34.3 4 5.7

# %

10 14.3

23 18

28 22

22 12

78.3

84.8 w

54.8 c

3 13.0

4 16.0

3 13.6

5 21.7 1 4.4

1 1 44.0 1 4.0

8 38.7 2 9.1

3 13.0

5 20.0

2 9.1

25 17

28 20

17 15

68.0

69.0

88.2

5 7.1

2 2.7

3 4.3

13

4

7

18.6 i 3 4.3

5.7 p 1 1.4

10.0 0 0.0

4 5.7

4 5.7

2 2.9

21 18

24 17

28 17

85.7

70.8

85.4

2 9.5

2 8.7

8 23.1

7 33.3 1 4.8

8 26.1 0 0.0

1 1 42.3 3 11.5

2 9.5

1 4.8 I

7 28.9 m

. Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

5
Table &Average Number of Employees, 71 Selected Graln Marketing Cooperatives, 1992 a

Assistant Clerical Other Total PartGroup Managers managers staff full-time full-time time

All 2.21 0.98 3.58 18.40 23.15 7.19

Production Region

Spring Wheat 1.30 1.30 2.28 c 8.17 w 13.04 c 2.52 cw

Corn 3.38 1 .oo 3.72 s 22.00 30.08 s 9.04 s

Winter Wheat 1.88 0.83 4.73 18.84 s 25.88 9.98 s

Progressiveness

Progressive 2.88 1.80 4.84 i 24.44 ic 33.78 ic 10.08

Intermediate 1.88 0.64 2.46 p 11.68 p 16.46 p 5.29

Conservative 2.11 0.65 3.47 12.35 p 18.59 p 6.06

Size (storage capacity)

Small 1.52 0.48 1.86 I 6.57 I 10.43 I 4.71 I

Medium 1.52 0.96 3.04 I 12.09 I 17.81 I 4.78 I

Large 3.38 1.42 5.28 sm 28.15 sm 38.35 sm 11.30sm

. Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

country, and basis trading. Some changes made since

1988 reflect the national trends in grain acquisition and

merchandising, while others are contrary.

Grain Acquisition

Cash purchases (66 percent) and forward contracting (18.2 percent) were the primary methods used

in buying grain (table 10). However, cash purchases

declined 10.4 percentage points from 1988, most of it

offset by an increase in NPE/DPC of 6.4 percentage

points. Other acquisition alternatives also increased,

but to a lesser extent.

Conservative and small cooperatives and those

serving winter wheat producers were the biggest users

of cash purchases. Corn Belt cooperatives relied on

cash purchases the least. Progressive and large cooperatives and those serving the Corn Belt favored forward

contracts. Use of basis contracts was limited. It was not

an alternative in the 1988 survey.

The use of cash purchases to acquire grain has

declined in all categories of cooperatives since 1988.

Use of forward contracts also declined in a number of

categories. Corn Belt cooperatives were the only ones

to reduce their use of minimum-price contracts.

Table -r-Change In the Average Number of Employees

from 1999 to 1992,71 Selected Graln Marketlng

Cooperatives

Group Full-time Part-time

All 2.91 l 3.07*

Production Region

Spring Wheat 1.61 0.00

Corn 5.40’ 4.72*

Winter Wheat 1.45 4.41

Progressiveness

Progressive 6.24* 4.48

Intermediate 0.39 2.53.

Conservative 2.18 1.88

Size (storage capacity)

Small 1.62 1 .oo*

Medium 1.56 0.96

Large 5.15 6.61’

* For changes between 1988 and 1992, an asterfsk (‘) represents a

.05 level of statistical significance.
Table &Average Number of Patrons, 71 Selected Grain Marketing Cooperatives, 1992.

Group Member

Farmers

Non-member Total coops

Other elevators

IOF Total

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

868 209 1,072 4.0 3.4 7.4

702 131 833 6.0 5.2 11.2

934 192 1,126 2.5 1.9 4.4

971 267 1.238 3.7 3.3 7.0

1,025 210 1,235 6.8 4.3 11.1

760 188 948 1.2 3.0 4.2

828 241 1,069 4.3 0.7 7.0

547 174 721 0.5 0.0 0.5

676 203 879 6.0 4.1 10.1

1,313 242 1,555 4.1 5.1 9.2

. Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

Table *Change In the Average Number of Patrons from 1999 to 1992,71 Selected Grain Marketing

Cooperatives

Farmers Other elevators

Group Member Non-member Total coops IOF Total

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

50.0 25.8 75.8 0.9 1.8 2.7

79.7 63.1 142.8 0.6 3.1 3.7

90.9” -10.2 80.7 -0.1 0.6 0.5

-29.4 27.9 -1.5 2.6 1.9 4.5

109.8’ -26.2 83.6 2.4 2.1 4.5

40.8 61.4 102.2 -0.9 2.2 1.3

-22.2 38.6 16.4 1.8 0.6 2.4

68.7 68.4 137.1 -0.3 -0.2 -0.5

35.1 48.6 83.7 2.1 1.5 3.6

48.6 -31.7 16.9 0.4 3.6 4.0

* For changes between 1999 and 1992, an asterisk (‘) represents a .05 level of statistical significance.

7
Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size(storage capacity)

Small

Medium

Large

Table lo-Percent of 71 Selected Grab Marketing COOpSrStiVeS Employing Specific Graln Acquisition Methods

and the Change in Percent from 1999 to 1992 a b

Grain acquisition method, 1992 c Change in percentage from 1988

NPE/ NPE/

Group Cash Forward DPC MPC Basis Other Cash Forward DPC MPC Other

All 66.0 18.2 12.4 1.4 1.0 1.0 -10.4* 1.3 6.4* 0.7 1.0

63.3 w 18.2 15.8~ 1.1 1.6 0.0 -10.8 1.0 7.3 1.0 0.0

56.2 w 24.3~ 17.3~ 0.6 0.8 0.8 -10.8 -0.1 9.9* -0.5 0.8

60.5 SC 11.1 c 2.9 SC 2.7 0.5 2.3 -9.3 3.4 1.3 1.9 2.3

59.9 23.2 14.8 1.4 0.6 0.0 -6.9* -1.5 4.3 0.5 0.0

66.1 18.8 9.9 2.1 1.1 2.0 -31.1" 2.9 5.9' 1.2 2.1

75.0 9.9 12.9 0.3 1.3 0.6 -10.7" -1.5 10.2 0.2 0.6

73.9 15.4 7.2 1.7 1.8 0.0 -10.1* -2.3 5.4* 0.6 0.0

62.5 14.6 18.0 1.5 0.5 2.9 -11.0 -2.0 8.5' 1.0 2.9

62.9 24.0 11.3 1.1 0.7 0.0 -9.9' 3.6 5.1 0.5 0.0

. Statistical significance between groups in a particular category is indicated By the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

b The “Change in Percent” is not the percentage change; it is the change in percentage points.

c Cash - cash purchases; Forward - forward contracts; NPE/DPC = no price established or delayed price contract; MPC = minimum price

contract; Basis = basis contract.

l For changes between 1988 and 1992, an asterisk (‘) represents a .05 level of statistical significance.

Grain Merchandising

Basis trading and selling grain on the spot market

were the main methods of merchandising grain by the

71 participating cooperatives (table 11). Cooperatives

used basis trading or selling on the spot market about

a third of the time each. To-arrive and FOB-country

were used 28 and 12 percent, respectively.

The surveyed cooperatives have cut their use of

selling on the spot market and to-arrive and increased

use of FOB-country and basis-trading since 1988. The

percentage of grain sold on the spot market decreased

in all categories while basis trading was up.

Contracting of Services

As an operating option, all 71 participating cooperatives contracted for at least one service such as

grain merchandising, financing, or accounting. Some

cooperative increased their contracting activities while

others reduced them and began to perform that service

in-house.

Grain Merchandising

Nearly 82 percent of the cooperatives merchandised grain themselves, down 9.5 percentage points

since 1988 (tables 12 and 13). Use of commission firms

to merchandise grain has increased 5.3 percentage

points to 14.1 percent since 1988. Other firms handled

4.2 percent of grain merchandising in 1992, a category

not even mentioned in 1988.

Consignment marketing of grain has virtually

disappeared, so commission firms have either ceased

or changed their operation to become grain merchants

that assume title to the grain they handle (Dahl). The

definition of commission firms is now unclear (Olson

1993) because they are changing roles in other areas of

grain marketing, such as offering financing services for

grain purchases and arranging transportation for local

elevators (Wilson and Olson).

The largest changes from self-merchandising to

commission company marketing occurred with elevators in the spring wheat and corn production areas and

by large elevators. The change to commission firms, in

this case, may indicate that the country elevators are

marketing grain to the commission firms rather than

through them. The list of those firms includes several

regional grain marketing cooperatives.

One reason for changing merchandising practices

lies with the cooperative boards of directors, who have

8
Table I I-Percent of 71 Selected Graln Marketing Cooperatives Employing Specific Grain Selling Methods and

the Change In Percent from 1988 to 1992 rb

Group

Spot

market

Grain selling method

To- FOB

arrive country

Basis

trading

Change in percentage from 1987

spot TO- FOB

market arrive country

Basis

trading

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

29.3 27.8 12.0 30.9 -7.8” -4.9 2.2 10.3

38.4 c 48.0 cw 8.8

12.2 SW 23.7 s 9.5

41.9c 11.5s 20.8

9.0 c -11.7* 10.1 -2.3 3.9

54.8 S W -10.2* -5.3 -4.4 19.9*

28.0 c -0.1 -20.3” 14.8 5.8

27.2 31.2 10.1 31.5 -2.9 -8.0 8.3 4.8

35.0 23.5 13.7 27.8 -12.9” 2.0 2.8 8.2

22.4 30.0 12.1 35.5 -5.3 -12.2 -4.7 22.2*

38.7 31.7 11.7 17.9 -5.2 -1.2 -1.7 8.1

29.3 18.8 10.3 41.8 -11.9” -2.3 2.0 12.2

21.8 33.1 13.8 31.5 -5.5 -10.4 5.8 10.3

. Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

b The “Change in Percent” is not the percentage change; it is the change in percentage points.

* For changes between 1989 and 1992, an asterisk (‘) represents a .05 level of statistical significance.

Table rz+Percent of 71 Selected Grain Marketing Cooperatives Obtainlng Services

from Specified Sources, 1992 a

Group

Grain merchandising Short-term financing Govt. program trading

Self Comm. b Other Self Comm. Other Self Comm. Other

Accounting

Self Comm. Other

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

81.7 14.1 4.2 18.8 15.4 85.7 87.8 28.1 4.1 71.8 24.3 3.9

87.8 27.8 c 4.3 18.2 43.9 cw 38.0 cw 37.0 cw 59.0 cw 4.3 32.8 cw 59.8 cw 7.6

87.8 8.4 s 5.8 8.0~ 4.0s 90.0 S W 78.5 s 15.3 s 6.3 86.5 s 13.5 s 0.0

88.9 8.9 2.3 34.1 c 0.0 s 85.9 SC 100.0 s 0.0 s 0.0 95.5 s 0.0 s 4.5

88.4 7.6 4.0 22.9 5.0 i 72.1 70.5 29.5 0.0 c 79.0 17.0 4.0

77.0 21.3 1.7 12.5 28.4 p 59.1 69.3 30.7 0.0 c 69.0 31.0 0.0

79.7 11.4 8.8 23.5 8.8 67.6 60.7 21.4 17.9 pi 66.1 23.5 10.3

77.8 22.2 0.0 25.0 27.2 47.8 I 49.0 I 51.0 I 0.0 54.81 45.2 I 0.0

87.9 10.0 2.1 26.1 18.3 55.7 I 64.3 28.6 7.1 69.8 25.0 5.2

79.0 11.3 9.6 7.7 3.8 88.5sm 84.8s 10.9 s 4.3 87.5 s 6.7 s 5.7

8 Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

being compared. A .05 level of significance is used.

b Comm. - Commission companies.

9
we +-The Change in Percent of 71 Selected Grain Marketing Cooperatives Obtaining Services

from Specified Sources from 1999 to 1992 a

Grain merchandising Short-term financing Govt. program trading Accounting

Group Self Comm.b Other Self Comm. Other Self Comm. Other Self Comm. Other

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

-9.5* 5.3 4.2 5.4 -5.9

-3.0 9.2 4.3 13.6 -11.9

-12.2’ 6.4 5.8 -7.0 -5.7

-2.1 -0.2 2.3 11.2 0.0

-9.2 5.2 4.0 0.9 -10.7 9.8 33.3 -33.3 0.0 11.0 -11.0 0.0

-10.3 8.6 1.7 5.4 0.0 -5.4 0.0 0.0 0.0 6.9 -3.4 -3.5

-8.6 -0.2 8.8 11.8 -8.8 -2.9 0.0 0.0 0.0 1.5 -11.8 10.3

-9.5 9.5 0.0 13.3 -9.2 -4.2 0.0 0.0 0.0 9.5 -4.7 -4.8

-5.4 3.3 2.1 8.7 -4.9 -3.8 50.0 -50.0 0.0 3.1 -4.2 -4.8

-13.3 3.7 9.6 -3.7 -4.2 7.9 50.0 -50.0 0.0 8.6 -14.4 5.8

0.5 33.3 -33.3” 0.0 7.0 -8.1 1.0

-1.7 50.0 -50.0 0.0 17.4 -16.3 -1.1

12.7 25.0 -25.0 0.0 7.7 -7.7 0.0

-11.2 0.0 0.0 0.0 -4.5 0.0 4.5

l The “Change in Percent” is not the percentage change; it is the change in percentage points.

b Comm. = commission companies.

l For changes between 1988 and 1992, an asterisk (‘) represents a .05 percent level of statistical significance.

the power to do it. Since 1988,13 (18.8 percent) cooperative boards of directors have changed merchandising

policies (table 14). Twelve of them instituted or made

policy additions, while one modified its policy.

ShoH-Tern Fin8nclng

The responding cooperatives used three sources

for short-term financing: in-house (18.8 percent), commission companies (15.4 percent), and banks including

Banks for Cooperatives (65.7 percent). Financing inhouse was up 5.4 percentage points and up 0.5 points

through banks. Financing through commission companies declined 5.9 percentage points, indicating a minor

switch to local financing since 1988.

Accounting

The source for accounting services changed from

commission companies to in-house accounting, and in

some cases, contracting with other firms to provide

accounting services. In-house accounting services

increased 7 percentage points from 1988 to 1992 to 72

percent of the cooperatives. The figure reached 96 percent in 1992 in the winter wheat region.

Services to Patrons

Several managers indicated that service to

patrons was crucial and that increasing the level of services was necessary to attract new customers and

increase business volume. They also felt if a service

was missing, customers would go elsewhere to get it.

Although all 71 elevators offered storage services

to patrons, the volume of stored grain declined since

1988 (tables 15 and 161. Nearly 50 percent of the cooperatives offered brokerage services to patrons, up 23

percentage points. In most cases, the elevator served as

the middleman for a brokerage firm. Most brokerage

services offered were hedging (30 cooperatives) and

options trading (29 cooperatives). Three cooperatives

offered other brokerage services including hedge-toarrive contracts, minimum-price contracts (MPC), and

livestock contracts (table 17).

Nineteen percent of the cooperatives offered

pooling to patrons, although few pools are active.

Eight managers tried pools between 1988 and 1992, but

with little success. Seven cooperatives deducted pooling expenses from the final payment to patrons. Only

three cooperatives offered pools where an up-front fee

was charged. One cooperative is currently starting a

pool.

10
The number of cooperatives offering feed grinding services decreased. For all cooperatives, this was

the only service offered to patrons that showed a

decline. Producers may be feeding fewer livestock,

grinding their own feed, or buying prepared feeds.

Fertilizer application was offered by 73 percent of

the cooperatives, 91 percent in the winter wheat

region. Fertilizer application increased the most in

small-sized cooperatives. However, the number of

small cooperatives offering this service was still less

than that of medium or large cooperatives.

Soil testing services gained in popularity, mostly

in the winter wheat production area and by progressive and small cooperatives. In 1992,70 percent of all

cooperatives provided soil testing services.

Table w-Merchandising Policy Changes Mandated by

the Board of Directors for 71 Selected Grain

Marketing Cooperatlves, 1992

Group

Total

-

Added Deleted

-

Number Percent Number Number

All

Production region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

13 18.8 12 1

3 13.8 3 1

5 20.0 4 0

5 22.7 5 0

4 18.0 4 0

5 17.9 4 1

4 25.0 4 0 Competition

Managers reported that while the number of

competitors in their marketing area declined, competition among remaining elevators intensified (tables 18

and 19).

The number of cooperative elevator competitors

increased 11 percentage points to 56 percent of the

total competitors. In some cases, responding managers

3 14.3 3

7 30.4 7

3 12.0 2

0

0

1

Table r&Percent of 71 Selected Grain Marketing Cooperatives Providing Specific Services to Patrons, 1992 0

Group

Grain

storage

Seed

cleaning Drying Pooling b Brokerage

Financial Feed Fertilizer Soil

services grinding application testing

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

100 72.9 78.8 18.8 47.1 35.7 88.8 72.9 70.0

100 91.3c 82.8 w 0.0 w 52.2 47.8 47.8 cw 47.8 w 39.1 cw

100 58.0 s 98.0 w 20.0 48.0 38.0 80.0 s 80.0 w 80.0 s

100 72.8 54.5 SC 38.4 s 40.1 22.7 77.3 s 90.9 cs 90.9 s

100 80.0 88.0 24.0 84.0 40.0 80.0 78.0 80.0

100 75.0 75.0 25.0 39.3 32.1 84.3 75.0 80.7

100 88.2 70.8 0.0 35.3 35.3 88.2 84.7 70.8

100 80.9 81.9 I 14.3 42.9 28.6 57.1 61.9 52.4 I

100 65.2 78.3 8.7 52.2 34.8 69.6 69.6 69.6

100 73.1 92.3 s 30.8 46.2 42.3 76.9 84.6 84.6 s

. Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

b Grain pooling services are available, but not active.

11
Table w-The Change in Percent of 71 Selected Grain Marketing Cooperatives Providing Specific Services

to Patrons from 1999 to 1992 a

Grain Seed Financial Feed Fertilizer Soil

Group storage cleaning Drying Pooling bl Brokerage services grinding application testing

All 0.0 2.8 1.4* 1.4 22.9’ 10.0 -4.3 1.4 1.4

Production Region

Spring Wheat 0.0 0.0 0.0 -13.0 13.0 17.4 -4.3 4.3 0.0

Corn 0.0 0.0 0.0 8.0 32.0* 0.0 -4.0 -4.0 -4.0

Winter Wheat 0.0 9.1 4.5 9.1 22.7’ 13.8 -4.5 0.0 9.1

Progressiveness

Progressive 0.0 4.0 0.0 -4.0 32.0” 8.0 -4.0 -4.0 8.0

Intermediate 0.0 3.8 3.8 7.1 17.9 10.7 -3.6 10.7 3.6

Conservative 0.0 0.0 0.0 0.0 17.8 11.8 -5.9 -11.8 0.0

Size (storage capacity)

Small 0.0 0.0 0.0 4.8 19.0 14.3 0.0 9.5 4.8

Medium 0.0 4.3 0.0 4.3 26.1 -4.3 -4.3 -8.7 4.3

Large 0.0 3.8 3.8 3.8 23.1 l 19.2 -7.7 0.0 -3.8

0 The “Change in PercenP’ is not the percentage change; it is the change in percentage points.

b Grain pooling services are available, but not active.

+ For changes between 1988 and 1992, an asterisk (*) represents a .05 level of statistical significance.

indicated that IOF competitors soldout to cooperatives

or cooperatives became more competitive since the

earlier survey.

Average distance to competitors increased by 3.8

miles to 16.3 miles due to mergers and acquisitions.

Railcar loadout capacity for competitors increased significantly, especially in the winter wheat production

area and by progressive and medium-size elevators.

Competitors’ Sendces

Competitors are offering more services in nearly

every area (table 20). Some may be attributed to a

change in competitors and the increased level of competition. The percent of all competitors offering seed

cleaning, drying, brokerage, fertilizer application, feed

grinding, and soil testing has increased significantly

(table 21). Only grain storage service dropped, but not

significantly. Competitors in the winter wheat area

have the fewest drying facilities (42 percent), although

there was a 17 percentage point increase since 1988.

Managers commented,that with the changing weather

conditions during the 1992 sorghum harvest, they

would probably be adding drying facilities in the

future.

Table +-Number of Cooperatives Offering Brokerage

Services and Brokerage Services Offered by 71

Selected Grain Marketing Cooperatives, 1992

Otfering services Services offered

Group Number Percent Hedging Options Other

All 33 47.1 30 29 3

Production Region

Spring Wheat 12 36.4 12 9 0

Corn 12 36.4 10 12 1

Winter Wheat 9 27.3 8 8 2

Progressiveness

Progressive 16 48.5 15 16 2

Intermediate 1 1 33.3 10 10 0

Conservative 6 18.2 5 3 1

Size (storage

capacity)

Small 9 27.3 6 7 1

Medium 12 36.4 12 10 1

Large 12 36.4 12 12 1

12
Table is-Competitor!3 a of 71 Selected Grain Marketing Cooperatives, 1992 b

Competitors

Group

Avg

Number

Percent

coop

Avg

loadout

capacity

Avg

distance

Avg

maximum

distance

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

2.9 58.0 37.2 18.3 24.3

3.1 74.3 39.0 w 21 .o cw 31.4

2.8 51.3 48.4 w 14.0 s 20.4

2.7 41.7 24.1 SC 13.9 s 21.3

2.7 49.7 47.0 c 18.2 23.0

3.1 81.9 33.8 18.4 28.8

2.8 55.4 28.8 p 18.3 22.1

3.3 80.3 29.7 13.9 22.5

2.7 85.8 42.3 18.4 22.9

2.7 43.7 38.7 18.1 27.2

cars/day miles miles

a As judged by the manager.

b Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A.05 level of significance is used.

Table w-The Change in Percent in COfIIpetitOrSa of 71 Selected Grain Marketing Cooperatives

from 1999 to 1992 b

Competitors

Group

Avg

Number

Percent

coop

Avg

loadout

capacity

Avg

distance

Avg

maximum

distance

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

-1.3*

-0.9*

-1.5*

-1.8

-1.5

-1.3

-1.1”

-1.3*

-1.2*

-1.5”

11.1*

12.8”

10.1’

10.8

14.8

9.7

8.4’

5.2

18.0

9.9

cars/day miles miles

3.8 3.8 0.8

2.4 14.8” -0.8

3.8 -8.8 0.4

5.8 9.5* 3.1

5.8* 18.9” -0.1

3.5” -7.1 2.4

1.8 7.0* -0.5

2.3” 9.8’ 1.1

4.8 -7.4 0.5

4.2 14.2* 0.9

’ As judged by the manager.

b The “Change in Percent” is not the percentage change; it is the change in percentage points.

l For changes between 1988 and 1992, an asterisk (“) represents a .05 level of statistical significance.

13
Table no-Percent of Same Competitors and Percent of COI?IpetitOrS That Provide Specified Services, 1992 0

Group

Same

competitor

Grain

storage

Seed

cleaning Drying Brokerage

Fertilizer

application

Feed

grinding

Soil

testing

All 86.6 93.4 44.3 74.5 17.6 57.4 40.1 46.5

Production Region

Spring Wheat 84.5 97.6 70.3 cw 61.2 w 21.7 59.6 34.4 57.2

Corn 66.9 91 .o 25.0 s 93.6 w 17.7 53.5 51.1 44.4

Winter Wheat 91.5 91.7 37.3 s 42.1 SC 13.2 59.6 33.3 35.9

Progressiveness

Progressive 83.1 91.7 45.6 90.9 c 16.9 59.5 37.5 47.3

Intermediate 91.9 96.4 51.4 67.6 15.2 57.4 45.2 49.7

Conservative 83.0 91.2 29.7 64.1 p 20.8 54.7 35.4 39.6

Size (storage capacity)

Small 91.5 96.4 63.9 I 65.9 15.9 52.0 38.1 38.1

Medium 77.0 95.7 43.3 77.5 25.0 56.7 45.6 41.3

Large 88.2 89.0 28.7 s 79.3 13.7 62.7 37.5 57.7

a Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is

compared. A .05 level of significance is used.

Table u-The Change in Percent from 1988 to 1992 of Specified Services Competitors Provide Patrons of 71

Grain Marketing Cooperatives a

Grain

storage

Seed

cleaning Drying Brokerage

Fertilizer

application

Feed

grinding

Soil

testing

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

-0.7 14.4” 27.5” 12.1* 31.4’ 12.8 19.9’

18.1”

10.4’

14.9

25.7” 14.1”

37.5* 12.5

17.1* 9.2

36.2* 10.6 28.8

25.0 17.4” 16.3

33.8 9.6 16.2

-5.1

1.7

1.2

35.6* 14.8 20.1’

27.7* 13.5” 19.3

32.3* 8.9 20.8’

25.0” 6.0 13.1”

33.3” 16.7’ 13.8

35.3 15.6” 30.7*

-1.4

1.2

1.0

18.6* 31.8 9.8

19.3* 24.7” 8.9

0.0 26.6’ 20.8

-11.5 19.8 23.0* 7.5

8.7 18.3” 28.8” 16.3

-0.3 6.7 30.3 12.7*

. The “Change in Percent” is not the percentage change; it is the change in percentage points.

l For changes between 1988 and 1992, an asterisk (‘) represents a .05 percent level of statistical significance.

14
gable z-Average Percentage of Grain Handled by 71 Selected Grain Marketing Cooperatives, 1992 a

HRS HRW Durum

Group wheat wheat wheat Barley Corn Soybeans Sorghum Sunflower Oats Other

All 16.9 21.4 2.8 6.1 28.0 12.2 5.3 3.3 2.0 1.7

Production Region

Spring Wheat 45.2 cw 1.7 w 8.7 cw 17.9 cw 5.5 c 5.7 c 0.0 w 9.5 cw 1.7 3.5

Corn 6.2 s 1.2 w 0.0 s 0.7 s 60.4 S W 25.7 SW 2.1 w 0.0 s 3.6 0.0

Winter Wheat 0.0 s 66.0 SC 0.0 s 0.3 s 13.3 c 3.1 c 14.5 SC 0.7 s 0.3 1.7

Progressiveness

Progressive 15.9 19.3 3.1 5.8 31 .l 10.6 7.6 3.2 1.1 2.4

Intermediate 17.6 21.5 4.0 7.7 27.4 13.5 2.9 2.7 0.9 1.6

Conservative 17.2 24.5 0.4 3.9 24.6 12.4 5.8 4.6 5.0 0.7

Size (storage capacity)

Small 21.6 26.0 3.0 7.0 16.3 13.9 4.8 5.4 1.0 1 .o

Medium 14.9 19.6 0.3 6.8 32.4 14.8 2.3 2.8 3.6 2.0

Large 15.0 19.4 5.0 4.8 33.4 8.5 8.5 2.2 1.2 1.9

a Statistical significance between groups in a particular category is indicated by the first letter of the other group to which a specific group is compared. A .05 level of significance is used.
TMJ n&The Change in the Average Percent of Grain Handled from 1999 to 1992 by 71 Selected Grain Marketing Cooperatives a

Group

HRS

wheat

HRW

wheat

Durum

wheat Barley Corn Soybeans Sorghum Sunflower Oats Other

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

1.6 -0.6 -0.4’ -1.6’ -1 .o 0.2

3.9” -1 .o -1.2’ -4.6’ -1.3 1.6

0.9 -0.3 0.0 -0.4 -1.4 -1 .o

0.0 -1.2 0.0 -0.2 -0.3 -0.2

0.2

0.0

0.1

0.4

0.7 0.4 0.6

2.0

0.1

0.1

-1 .o

2.0

-0.1

1.2

-0.1

1.5

2.2 0.0 -0.3 -1 .o -0.5 -1.5 -0.1 0.4 -0.1 0.9

1.5* -2.4 -0.6 -1.9 -0.9 1.6 0.7 0.2 -0.2 1.5

0.9 0.9 -0.1 -2.7 -2.1 a.1 -0.6 2.1 1.9 -0.5

3.9* -1 .o -1.2’ 4.6’ -1.3 1.6 0.0 2.0 -1 .o 1.2

0.9 -0.3 0.0 -0.4 -1.4 -1 .o 0.1 0.1 2.0 -0.1

0.0 -1.2 0.0 -0.2 -0.3 -0.1 0.4 0.1 -0.1 1.5

’ The “Change in the Average Percenr is not the percentage change; it is the change in percentage points.

l For changes between 1968 and 1992, an asterisk (‘) represents a .05 level of statistiil significance.
Grain Handled

The percent of grain handled for all cooperatives

changed only slightly from 1988 to 1992 (tables 22 and

23). Increased hard red spring wheat handlings (1.6

percentage points) were more than offset by declines in

barley (-1.8 percentage points) and durum wheat (-0.4

percentage points). These changes were most evident

in the spring wheat production area and by smallsized elevators. Managers said they would handle new

crops if an appreciable amount was grown in their

area.

Financial Information

Financial information was obtained from 1991

annual stockholder reports from participating cooperative elevators. Fifty-five provided financial information for both the 1988 and 1992 surveys. Financial

information reflects changes from 1987 to 1991

(table 24).

Average total assets increased among all elevators that supplied financial information (table 25). The

largest increases were by cooperatives in the Corn Belt

and by progressive and large cooperatives. These same

categories also had the most merger and acquisition

activity.

Average net income declined in all cases, but

mostly among the winter wheat cooperatives

(-$168,820), progressive cooperatives (-$206,300), and

large cooperatives (-$214,922). The average net worth

of all cooperatives increased from 1987 to 1991,

although not significantly among winter wheat cooperatives.

Financial Ratios

The current ratio of current assets to current liabilities measures a firm’s liquidity. The average current

ratio for all 55 cooperatives declined slightly from 1.70

in 1987 to 1.59 in 1991 (table 26). However, this ratio

can be misleading because of the variability of grain

inventories reflected in current assets. The current

ratio for winter wheat elevators decreased 0.34, the

largest drop in any category. Only elevators in the

Corn Belt and medium elevators increased these ratios.

Two ratios indicate elevator solvency-debt-tonet-worth and the debt-to-total-assets. The debt-to-networth ratio, up 0.66 for the entire sample, describes the

ability of the cooperative to meet long-term obligations. Larger increases were reported by large (0.23)

and progressive (0.23) cooperatives, while decreases

were noted by spring wheat (0.011, intermediate (0.051,

and medium-sized (0.14) cooperative elevators. The

debt-to-total-assets ratio, up slightly, measures the percentage of total funds provided by creditors.

The return-on-equity ratio measures profitability

and is commonly used to measure return on investment (Clow and Wilson). This return was calculated by

dividing the net income (savings) by the net worth for

the cooperative (and converted to a percentage figure).

The return-on-equity for the entire group decreased

4.58 percentage points from 1987 (11.92 percent) to

1991 (7.34 percent). All changes were statistically significant except for conserative cooperatives.

In the production region category, changes

ranged from -4.02 to -5.51 percentage points. Although

the changes were nearly even across production area,

return-on-equity in 1991 for the spring wheat (8.69

percent) and corn (10.34 percent) regions was significantly more than the winter wheat region (2.41 percent). The 7.03 percentage point drop by progressive

cooperatives in return-on-equity was the largest of any

group. When separated by size, all cooperatives

reported similar returns-on-equity in 1987. Medium

cooperatives had the lowest drop in percentage points

(-3.66) while the large cooperatives had the greatest

(-5.44) from 1987 to 1991.

Return-on-assets also measures profitability. It is

calculated by dividing net income by total assets and

converting into a percentage figure. Both the returnon-assets and the return-on-equity dropped significantly for all cooperatives. Changes in the groups were

all significant except for the conservative cooperatives.

Summary and lmpllcatlons

The structure and operations of cooperative

country elevators changed considerably between 1987

and 1992 due to excess capacity, the rise and fall of

Federal Government programs, and other factors. The

large reduction in Government storage payments represented the loss of substantial and steady income. The

result has been fewer but larger cooperative country

elevators with more facilities, a larger workforce, and

greater rail loadout capacity.

Forty-six percent of the 87 grain marketing cooperatives interviewed in 1988 experienced considerable

structural change between 1988 and 1992. Of the original 87,2 cooperatives went out of business, 4 were

sold to another company, 10 participated in mergers,

and 24 acquired additional facilities.

To compensate for lost storage income, elevators

were forced to compete in the merchandising and ser17
gable w-Average Financial Data for 55 Grain Marketing Cooperatives, 1987 and 1991

Group Number

Total Assets Net Income Net Worth

1987 1991 1987 1991 1987 1991

All

Production Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

55 6,096,587 8,378,953 355,540 276,654 3,063,401 3,742,980

18 5,127,478 5,844,700 230,375 188,439 c 2,278,007 2,617,429 c

20 7,245,634 11,832,071 547,251 520,549 S W 3,724,082 5,167,534 s

17 5,770,880 6,999,786 272,317 103,496 c 3,117,725 3,258,794

19 8,481,236 i 13,569,734 i 613,908 ic 407,608 3,995,394 5,131,264

23 4,426,062 p 5,006,984 p 235,789 p 188,367 2,397,425 2,691,926

13 5,566,873 6,758,216 179,131 p 238,179 2,879,524 3,573,507

19 2,565,435 I 3,357,227 I 147,386 I 101,194 I 1,498,109 I 1,746,039 I

19 4,685,359 I 5,598,537 I 263,247 I 275,734 2,485,422 I 3,127,409 I

17 11,620,422 sm 17,098,993 sm 677,808 sm 462,886 s 5,458,822 sm 6,662,847 sm

* Statistical significance between groups in a particular category is represented by the first letter of the other group to which a specific group is compared. A .05 level of significance is used.
Table z-The Change in Average Financial Data from 1987 to 1991 for 55 Grain Marketing Cooperatives

Group Number Total Assets Net Income Net Worth

All 55 2,262,366* -76,666

Production Region

Spring Wheat 18 717,222 -41,936

Corn 20 4,586,437* -26,703

Winter Wheat 17 1,228,906 -168,820*

Progressiveness

Progressive 19 5,088,498’ -206,300

Intermediate 23 580,922 -47,422

Conservative 13 1,191,343 -59,048

Size (storage capacity)

Small 19 791,792’ -46,192

Medium 19 913,178 -12,487

Large 17 5,478,570” -214,922

l For changes between 1987 and 1991, an asterisk (“) represents a .05 level of statistical significance.

679,579”

339,422”

1,443,452*

218,963

1,208,346

329,086

795,844”

247,929*

641,986’

1,204,026’

vice areas. Elevators began using more refined cash

contracts to buy and sell grain. Less grain was purchased with cash or sold on cash spot markets.

Cooperatives also turned more merchandising services

over to other organizations. Internal handling of activities such as short-term financing and accounting was

also up. Cooperative elevators also increased services

to patrons such as brokerage, grain drying, and fertilizer application.

The changing structure of the cooperative country elevator system has two implications. The first is

that as consolidation continues, competition between

cooperative elevators will intensify. Competition in

services increased between 1988 and 1992, especially in

drying, seed cleaning, fertilizer application, and soil

testing. Competition in the merchandising functions of

cooperative elevators was reflected by more sophisticated grain acquisition and selling methods between

1988 and 1992. Thirteen of the cooperatives changed

their merchandising policies, 12 of which added a merchandising policy.

Competition will force out less efficient operations and increase mergers. Only the most efficient elevators will survive. In 1992, there were 1,243 grain and

oilseed cooperatives in the United States, compared

with only 1,104, by 1995. The consolidation pattern

continues.

The second implication is long-term operating

efficiency in the wake of continued consolidation. As

fewer and larger cooperatives evolve, the board, management, and members need to push for greater efficiency.

Comparing operations with similar cooperatives

is one way to assess cooperative elevator efficiency.

Regional cooperatives and USDA maintain financial

and operational data on cooperative country elevators.

By looking at various ratios and comparing those with

cooperatives of similar size and activity, local grain

cooperatives can identify both strengths and weaknesses.

A second measure of a local cooperative’s efficiency occurs at the edge of its market area. The

adding of new members and/or business in this area

would indicate an efficient operation. The opposite is

true if the cooperative is losing members and/or business.

Finally, cooperatives are controlled by boards of

directors composed of owner-members who monitor

the financial position of the company. Changes in margins and certain operating ratios can indicate possible

efficiency problems. These can be immediately

addressed.

19
0” ~ablent~Average Financial Indicators for 55 Grain Marketing Cooperatives and the Differences Between 1987 and 1991 a

Group

Current Ratio DeWNet Worth DebVfotai Assets Return-on-Equity Return-on-Assets

Number 1987 1991 Change 1967 1991 Change 1987 1991 Change 1987 1991 Change 1987 1991 Change

All

Production

Region

Spring Wheat

Corn

Winter Wheat

Progressiveness

Progressive

Intermediate

Conservative

Size (storage capacity)

Small

Medium

Large

55 1.70 1.59 -0.11 1.80 1.14 0.88 0.45 0.47 0.02 11.92 7.34 -4.58’ 6.09 3.53 -2.56*

18

20

17

0.55 w 0.54 w -0.01 12.71 8.69 w -4.02’ 5.30 c 3.40 S W -1.90*

0.45 0.47 0.02 4.61 w 10.34 w -4.27’ 7.87 SW 5.81 cw -2.06’

0.36 s 0.39s 0.03 7.92 c 2.41 SC -5.51’ 4.84 c 1.01 S C -3.83’

19

23

13

0.46 0.51 0.05 15.00 c 7.97 -7.03’ 7.61 c 3.83 -3.78’

0.45 0.44 0.01 12.53 c 7.96 -4.57’ 6.46 c 4.04 -2.41 l

0.45 0.44 -0.01 6.34 pi 5.35 -0.99 3.23 pi 2.21 -1.02

19

19

17

1.53 1.32 -0.21 1.55cw 1.54 -0.01

1.35 1.53 0.18 0.97 s 1.06 0.09

2.27 1.93 -0.34 0.71 s 0.81 0.10

1.56 1.44 -0.12 1.07 1.30 0.23

1.54 1.52 -0.02 1.14 1.09 -0.05

2.21 1.96 -0.25 0.99 1 .oo 0.01

2.05 1.82 -0.23 0.92 1.05 0.13

1.59 1.64 0.05 1.19 1.05 -0.14

1.49 1.29 -0.20 1.12 1.35 0.23

0.41 0.42 0.01 11.76 7.04 -4.72* 6.67 3.44 -3.23’

0.44 0.45 0.01 12.06 8.40 -3.66’ 5.99 4.02 -1.97*

0.50 0.53 0.03 11.96 8.52 -5.44’ 5.57 3.10 -2.47’

a Statistical significanoe between groups in a particular category is indicated by the first letter of the other group to which a speoific group is compared. A .05 level of signigoance is used.

’ For changes between 1987 and 1991, an asterisk (‘) represents a .05 level of statistical significance.
References

Warman, Marc, Cooperative Grain Marketing:

Changes, Issues, and Alternatives, ACS Research

Report 123, USDA, Agricultural Cooperative

Clow, Bradley B. and William W. Wilson, Financial and Service, April 1994.

Operating Performance of Cooperative Unit-Train

Shippers in North Dakota, Ag. Econ. Report 234, Wilson, William W., North Dakota State University,

Dept. of Ag. Econ., North Dakota State personal communications, 1993.

University, March 1988.

Cobia, David W. and Randal C. Coon, Pricing Systems

of Trainloading Country Elevator Cooperatives: A

Summary, Ag. Econ. Report 215, Dept. of Ag.

Econ., North Dakota State University, December

1986.

Dahl, Reynold P, “Structural Change and Performance

of Grain Marketing Cooperatives,” Journal of

Agricultural Cooperation, Volume 6,199l.

Gunn, Steven I? and David W. Cobia, Grain Marketing

Cooperatives’ Adjustment to Farm Programs, Ag.

Econ. Report 291, Dept of Ag. Econ., North

Dakota State University and USDA, Agricultural

Cooperative Service, September 1992.

Olson, Ron., Atwood-Larson Company, personal communications, March 1993.

Richardson Ralph, et al., Farmer Cooperative Statistics,

1992, USDA, ACS, Service Report 39, November

1993.

Richardson Ralph, et al., Farmer Cooperative Statistics,

1995, USDA, RBS-CS, Service Report 46,

November 1995.

Robert Morris Associates, Annual Statement Studies,

The National Association of Bank Loan and

Credit Officers, 1992.

Scherping, Daniel J. and others, Wheat Cleaning Costs

and Grain Merchandising, Ag. Econ. Report 282,

Dept. of Ag. Econ., North Dakota State

University, February 1992.

Seigel, Sidney. Nonparametric Statistics for the

Behavioral Sciences, The Maple Press, York,

Pennsylvania, 1956.

21
U.S. Department of Agriculture

Rural Business-Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business-Cooperative Service (RBS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of farmers and

other rural residents. It works directly with cooperative leaders and Federal and State

agencies to improve organization, leadership, and operation of cooperatives and to give

guidance to further development.

The cooperative segment of RBS (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their communities; and (5) encourages

international cooperative programs. RBS also publishes research and educational

materials and issues Rural Cooperatives magazine.

The United States Department of Agriculture (USDA) prohibits discrimination in its

programs on the basis of race, color, national origin, sex, religion, age, disability, political

beliefs and marital or familial status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for communication of program

information (braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at

(202) 720-2600 (voice and TDD).

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,

Washington, D.C. 20250, or call l-800-245-6340 (voice) or (202) 720-l 127 (TDD). USDA

is an equal employment opportunity employer.