Cashing in on the middle

A generation of farmers invests in the promise of processing cooperatives.

By Cindy Green

Today’s low commodity prices may be devastating farmers, but they’re boosting profits for processors. Meat packers and grain millers are seeing raw product costs drop while end market prices stay steady or increase.

If there’s a shred of silver lining here for farmers, it may lie in cashing in via processing cooperatives. Co-ops are a way of diversifying risk, says Steve Olson, manager of AURI’s Marshall office. “Rather than relying on what the commodity prices are, you take advantage of low prices that can be good for a processor."

“Co-ops also enable producers to participate further down the food chain,” Olson says. “I think it gives them a better understanding of what happens after a commodity leaves the farm. It brings them closer to what the consumer wants.”

Caution required

The 1970s saw the rise of “new generation” co-ops, run by farmers and intended to generate more dollars for a crop than farmers could get on the open market. Some have provided lucrative markets for their members, such as the Southern Minnesota Beet Sugar Cooperative based in Renville, Minn. Others have had ups and downs.

The Minnesota Corn Processors’ sweetener plant in Marshall, Minn. recently faced a few difficult years when corn prices went up and fructose prices down. However, it’s now on the upswing and is selling its high fructose corn syrup to Coors Brewery and other major companies.

Olson suggests a farmer considering co-op membership “approach with guarded optimism. Ask tough questions to see whether it’s something that’s got a shot, and look at it as an investment -- paying down the road, not immediately."

“Take a look at what’s happening in the industry. Everything is changing and it’s changing fast. Agriculture is not going to be immune from that.”

Expert management is often the difference between success and failure, Olson adds. “Marketing a processed product takes a different set of skills than producing a commodity.” To help identify managers, Olson suggests co-ops contact a Small Business Development Center, business consultant, professional headhunter or AURI.