In 1997, Alceco, a small animal feed cooperative based in Albert City, Iowa, and Cargill AgHorizons U.S., a division of the global agriculture company Cargill, created a joint venture. Together, the two formed Ag Partners LLC to offer local producers the best mix of resources from both companies. As part of the deal, each company kept its facilities in exchange for annual lease payments from the LLC. Both parent companies invested capital in the new company.
The naysayers were many. Competing facilities were quick to say that the relationship would not work. There was speculation that Cargill would end up absorbing the new company or, at the very least, the new company would not generate the returns needed by the parent companies.
The naysayers were wrong. Fourteen years later, Alceco and Cargill are still partners. Cargill is happy. And for those that thought Alceco would lose its identity in the process, they were wrong; it’s still a scrappy, progressive co-op. However, there is at least one thing about the Ag Partners venture that has changed life at Alceco – as the Ag Partners parent company, it’s making considerably more money than it used to make.
Alceco, a 100-year history
Albert City Elevator, A Cooperative, better known as Alceco, began in 1905 with the founding of Farmers Elevator Company in Albert City, Iowa. Farmers Elevator was originally created as a stock company and reorganized in 1925 as a cooperative. Alceco now has 2,000 owner members.
Membership in Alceco is similar to other cooperatives with a few exceptions. Shareholders accumulate dividends for their business with Ag Partners LLC. In addition, most of a member’s share is paid in cash with a lesser amount applied to an equity share.
According to Scott Lovin, vice president of feed for Ag Partners LLC, Alceco wasn’t looking for a partnership when it crossed paths with Cargill AgHorizons in 1997. In fact, both companies were simply searching for a location around Albert City to build a fertilizer blending plant. Once each company realized what the other was doing, it was natural that conversations began about building a plant that both could use.
Working together on the fertilizer project demonstrated that the two companies worked well together. From there, discussions began about another partnership that would take advantage of the synergies between the two companies. The result was the formation of Ag Partners LLC.
Many questioned why a division of a company the size of Cargill would be interested in a joint venture with an Iowa co-op. From Alceco’s point of view, the advantages were obvious; Cargill could bring global market data and financial resources to the table. So what was in it for Cargill?
Cargill – widely misunderstood
According to Steve Becraft, crop inputs manager for Cargill AgHorizons U.S., there was clearly an opportunity for Cargill by entering into a joint venture with Alceco, though he admits that the Cargill name can, at times, be a stumbling block.
“Even though a lot of people would say that Cargill has a lot of money to invest, and that’s true, they don’t realize that individual Cargill business units compete for capital globally,” Becraft says. “When we look at capital, we have a fixed amount to deploy and a hundred-some locations we need to deploy it across. There’s a lot of competition for capital inside of Cargill.”
This, according to Becraft, is why the joint venture model has worked so well. “A bin project in Albert City stands on its own merits with Ag Partners, whereas in Cargill a bin project in Albert City would have to compete against capital projects from a hundred other locations, and it may or may not have gotten funded.”
Becraft adds that since Ag Partners is financed independently of Cargill, both parent companies have been able to invest at a pace that neither would have been able to do on its own.
A unique operation
Lovin is keenly aware of Ag Partners’ uniqueness. “We sit in the middle of several co-ops, and yet at the same time we are half owned by a co-op. So we still have a cooperative influence as well as a private ownership influence. I think blending those two perspectives gives us a unique approach to the marketplace.
“With Cargill, you have their influence on the board. At the same time, you've also got the cooperative side, farmer-owners that come in and help create a balance. For them, its ‘OK, it's not just about the bottom line, it's about how do you service members, because that's how this whole thing was built – on farmers being members and owners.'
“Cargill looks at things more from a business standpoint. They feel we should utilize markets and products that make the most sense for Ag Partners. This could be Cargill or it might not be.”
The board of Ag Partners LLC is a reflection of its joint venture status. There are eight members, with four coming from Cargill and four from the Alceco board of directors. The Alceco board consists of nine directors that are elected by Alceco members.
When Alceco and Cargill began Ag Partners in 1997, Alceco had seven facilities in Iowa and Cargill had four. Since the creation of Ag Partners, the total number of facilities has increased to 19. Of those locations, some facilities are grain elevators, some are retail agronomy stores and four are feed mills. Two of the feed mills are located in Sheldon, one is located in Fonda, and its flagship feed mill is located in Ellsworth.
However, feed is not the primary business unit driver for Ag Partners. In terms of size, Ag Partners is led by grain and then agronomy. Most Ag Partners facilities have grain storage facilities and move around 70 million bushels of grain a year. Ag Partners offers full-service agronomy, including a small fuel business, fertilizer, chemicals, crop-related seed and ground fertilizer application. Feed production, while significant in its own right, accounts for 10% to 15% of Ag Partners’ total revenue.
In a true spirit of cooperation, ownership of the Ellsworth facility is yet another partnership venture, with 50% of the facility owned by Ag Partners LLC and 50% owned by 10 turkey producers in the Ellsworth area. The mill has a 500,000 ton capacity.
For many years the Ellsworth facility only produced turkey feed. When Ag Partners started, the facility was milling about 60,000 tons of feed for five or six turkey producers, and demand was growing. Unfortunately, so was the amount of repair and maintenance that the mill required. Finally it was determined that a new feed mill was needed. However, it was clear that turkey feed production alone would not be enough to support the cost of a new mill. With that in mind, Ag Partners made the decision to expand into producing swine feed.
Although the move was a big shift for the facility, the end result has been worth it. A new mill was built and put into operation in 2009. Turkey feed production has more than doubled to 140,000 tons a year and swine feed adds another 100,000 tons of feed to that number, effectively quadrupling the facility's production. Lovin gives credit to Ag Partners, with its unique private/co-op structure, for helping to make this happen.
According to Doug Pittman, feed operations leader for Ag Partners, 40 to 45 trucks are dispatched out of the Ellsworth facility each day. Corn is the primary crop that comes in for processing. The mill uses roller mills for grinding and operates one 300 hp boiler to enable pelletization. Between 40% and 50% of feed going out of Ellsworth goes to turkey producers.
The facility is run by a computerized control center, located on the second floor overlooking the mill. Software directs loading, unloading, formulations and bin levels. “If necessary, one person could run the entire facility from here,” Pittman says.
According to Pittman, turkey and swine feeds are not that different. “We use the same ingredients for both species. Some of the vitamins that we put in the feed are a little different, but for the most part much of the feed is the same.”
Looking ahead, Lovin is optimistic. “We continue to look for opportunities to grow our feed business through expansion, partnerships or acquisitions. I think that our assets are logistically positioned where livestock is going to be grown and fed for years to come.”
Ag Partners has been a win for Cargill as well. “Ag Partners was the first joint venture (LLC) that Cargill AgHorizons had with the U.S. farmer. Since then we’ve done seven or eight more, and we are about to announce a new one in Indiana. So we’re growing. We like this model,” Becraft says. “I think there is a lot of pride here – in both the Ag Partners brand and in the ownership model.”