High society: Sioux Center farmers co-op society ties future to NW Iowa livestock industry

Rural Cooperatives, Sept-Oct, 2002 by Dan Campbell

Sioux 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 hog-production 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 Manager 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 Sioux-land 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 $50 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."