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Class XIII Curriculum

"Regional Perspectives of Agricultural Industries,
Credit/Finance, Research, and Markets"

 Seminar V

 

February 14, 2007
Scribe: Bill Farris

We began Session V with Dr. Williams introducing Kelly Vierling, our new OALP Administrative Assistant and Julie Mate. Julie is a journalist from England researching changes in Agriculture.

Our first presentation was by Dr. Larry Sanders and Dr. Mike Dicks. Dr. Dicks began by stating that Agriculture is a very profitable business. It is the high cost of land and equipment that makes Agriculture a tough way to make a living. He then hinted at the possibility of recreational land users trying to attach public use legislation to future farm bills. At this point, no one can say for sure if a new farm bill will happen during this legislative session. As the Agricultural sub-committees each write their portion of the bill the President will be offering his version to Congress. This would be the first time a President has done so since the early 1990’s.

Dr. Dicks informed us the USDA is promoting a Revenue Assurance Program for farmers and the Bruce Babcock plan would meet WTO requirements. Senate control is more precarious than portrayed and if the Republicans were to regain control of the Senate it would probably create gridlock and Congress would likely just extend the current Farm Bill.

Dr. Sanders described the Revenue Assurance Program as an insurance policy that insures at a chosen level with one payment per year. Galen Beer asked: “Will this program satisfy WTO requirements”? Dr. Sanders answered: “It depends on the details”. Kevin Long asked: “will the revenue assurance payments be determined by county averages”? “Who and how would the payments be determined”? Dr. Dicks responded: “The Devil is always in the details”! Kevin Long asked: “Will the food stamp program budget increase”? Dr. Dicks answered: “the food stamp program budget is approximately $30 billion, the WIC program is $7 billion and the school lunch program is $26 billion”. He then asks “where will the money for new programs like the Fruit and Vegetable program come from”? Dr. Sanders reminded us that in 1985 there were the Conservation Reserve and the Wetland Protection programs that paid farmers to take land out of production. Congress is now looking to help keep land in production with the Conservation Security Program. This may bring CRP land back into production and maintain wildlife habitat, conservation practices and payments. Curtis Vapp asked: How is land selected for the Conservation Security Program”? Dr. Dicks replied: “It is determined by critical watershed”. Dr. Sanders added: The “Hook and Bullet” crowd are looking for leverage in future legislation. They say if taxpayers’ money goes to farmers then the public deserves access to private farmland. Joey Meibergen asked: “How much corn will be planted this year”? Dr. Dicks answered: “More”. “But seed availability could limit planting”.

At this point we boarded our bus and headed north to Wichita, KS. to the U.S. AgBank. Dr. Williams informed us that the U.S. AgBank is a financial supporter of OALP.

Jim Grauerholz Sr. VP-Administration welcomed us and told us that several OALP graduates were employed at the bank.

Butch McComas, CEO Chisholm Trail Farm Credit, presented an overview of farm credit in Oklahoma. The farm credit system was established in 1916 to be a reliable source of financing for U.S. agriculture. The system features an understanding and commitment to agriculture with customized lending programs for individual operators. The Farm Credit system is owned by the borrowers with patronage paid to borrowers and is governed by a board of elected directors.

Barry Bessinger, VP Chisholm Trail Farm Credit and member of OALP class Vl, presented Farm Credit in Oklahoma. He told us that Oklahoma Farm Credit associations loan $1.1 billion to 9,666 customers/owners with an average size loan of $84,000.00. He also showed us what percentage of loans go to each commodity group and told us that Farm Credit loans about 18% of the total Ag loans. Barry discussed the types of loans and related services such as Life Insurance and Crop Insurance provided by Farm Credit. Loans may be fixed, variable or adjustable and from 30 days to 10 years.

Our next stop was at Cargill Meat Solutions. Glen Dolezal introduced Matt Osborn who takes us on a tour of the culinary innovation center where chefs help develop menus for customers. We were then taken to the spice room, with 1,000 proprietary spice blends and on to the meat lab where meat can be injected, ground, smoked and cooked. Next, we were shown the lab where products can be tested for pathogens such as E.coli and campylobacter. The tour ended at the pilot plant where meat is tested under store conditions.

We then returned to the meeting where Norman Vasak talked about Cargills strategic intent.

The Cargill Vision Statement:

  • Purpose: To be the global leader in nourishing people.
  • Mission: To create distinctive value.
  • Approach: To be trustworthy, creative and enterprising.
  • Measured by:


    1. Engaged employees
    2. Satisfied customers
    3. Enriched commodities
    4. Profitable growth

Strategic Intent 2015:

By 2015, Cargill will be the partner of choice. Recognized as having great people with imagination committed to delivering the best ideas to the worlds we serve-Agriculture, food and risk management. The Cargill goal is to double by 2015. Cargill has $15 billion in revenue, 35,000 employees, operates in 4 countries and produces 5,000 products. Cargill is primed for growth because they engage people, develop opportunities, enable innovation and because they do core processes well and create customer solutions.

Our next speaker was Stanley Miller V.P.Sales at Cargill. Mr. Miller says that the factors affecting the International Meat Trade are:

  1. Economic conditions
  2. Human and animal health concerns
  3. Quotas and tariffs
  4. No tariff barriers

He says world meat consumption is growing faster than the population. Pork exports are up while beef recovers slowly from the B.S.E. scare.

The current trade issues are:

  1. B.S.E. related restrictions
  2. Korean bone chip dispute
  3. Japans age requirement
  4. Russian market opening protocols
  5. E.U. facility requirements and hormone ban.

Joe Locke asked: “Has the Korean beef shut down been offset by pork exports”? Mr. Miller replied: “Yes”. Hope Pjesky asked: “Are there markets where animal traceability would help with marketing”? Mr. Miller replied: “Yes, age ID would help in Japan”.

Matt Osborn then returned to discuss Cargills research and development program. Matt began by telling us Cargill has several product lines in the natural and organic categories. He said they consider the realty of the market place and do what is right for the customer. Matt told us that the FDA has declared cloned food is as safe as the food we eat everyday and the cloned label applies to the first generation only. He added that Cargill processes 9 million Hogs annually.

Cargill has 65 scientists in research and development and their pilot plant can duplicate most processes. Dr. Joe asked: “Where will Hog production expansion be located”? Matt replied: “Arkansas, Missouri and Iowa”. Pat Regier asked: “Where is the market for organic and natural products”? Matt responds: “In the Northeast”.

Our last speaker of the evening was Glen Dolezal. Glen began by telling us about the changes in marketing options over the last twenty years. He then pointed out retail food service customer concerns such as the continued carcass size increase while portion size decreases. Next he talked about producer opportunities such as animal ID, age verification, the growth in brands and new technologies. Beef marbling can now be scored by a camera. This technology can help the USDA do a better job with inspection and grading. Wendell Custer asked: “How much of the reduction in choice grade carcass can be addressed with genetics”? Mr. Dolezal replied: “About 40%. Growth hormones have a negative effect on carcass grade and rancher-owned beef grades better than corporate-owned”.

We had a great meal, courtesy of the folks at Cargill, and then we moved on to Kansas City.

Februaty 15, 2007
Scribe: Julie Fitzgerald

Harley Davidson Plant Tour

We began our day with a tour of the Harley Davidson Motor Works Plant in Kansas City, MO. The class was taken through the plant and was shown the different stages of production of several different styles of motorcycles. The class had the opportunity to take photos on different motorcycles and shop in the gift store once the tour was complete.

USDA – Grain Inspection, Packers & Stockyards Administration Federal Grain Inspection Service

Speakers

Dave Funk – Associate Director for Methods Development
Sharon Lethra – Assistant to the Director
Kathy Brenner - USDA
Mike Ustrum - USDA
Ron Jenkins – USDA, GIPSA, Tech Services Division

***FGIS website: www.gipsa.usda.gov

Primary Federal Grain Inspection Service (FGIS) Role

  • Facilitate the marketing of grain
  • Establish official U.S. standards for grain
  • Develop sampling & testing methods


FGIS Does Not:

  • Market Grain
  • Mandate Quality
  • Set Grain Prices


Governing Statutes

  • The U.S. Grains Standards Act
  • The Agricultural Marketing Act of 1946


**FGIS is the National Reference Point for all grain testing

Basic Services Offered:

  • Stowage Examination
  • Weighing
  • Sampling
  • Inspection
  • Certification


**FGIS is funded through the U.S. Government and fees paid by those wanting to export grain.

Facilitating U.S. Grain Exports:

  • Promoting harmonization by providing technical assistance to other countries
  • Conducting international training programs using TSD grading mats, CDs, etc.
  • Assisting USDA cooperators with market development projects
  • Investigating quality/weight discrepancies
  • Monitoring changes in grain shipments


**U.S. Standards & Inspection Process

Objective: To provide the customer (buyer/seller) with standard terms and definitions

Rule Making Process

  • Every 5 years, they must review a given standard
  • They want to keep the standards relevant to the changing needs of the customer
  • Proposal Phase
    1. Must remain neutral
    2. Must consider each comment on its own merit
  • 1-year span between final rule making to when the rule is implemented


**There are not currently plans for an international set of standards to be developed.

Trends in Consistency & Quality:

  • Varies from year to year
  • Majority of changes are customer driven
  • Incentive is yield and not quality
  • There are still minimum quality standards that must be met


USDA-FSA

Laws to Programs & How Programs are Administered – Paul Harte

  • Commodity Programs
  • Disaster Program
  • Conservation Programs


Risk Management Agency – Tim Hoffman

  • The Federal Crop Insurance Act
    • Established the FCIC and its Board to: Promote the national welfare…through a sound system of crop insurance and to provide the means for the research and experience helpful in devising and establishing such insurance.
  • The Risk Management Agency (RMA) Mission:
    • Promote, support and regulate sound risk management solutions to preserve and strengthen the economic stability of America’s agricultural producers.


ADM Milling

Speakers:

Dave Green
Nick Wygel

  • ADM is the largest flour miller in the world
  • Most flour is now shipped in trucks to bakeries.
    • 2% of the flour being 5# bags of family flour
  • In today’s bakeries, there are more mechanical engineers than actual bakers
  • Flour mills are now located all over the country rather than being concentrated in Kansas
  • Flour is a custom business (based on protein levels)
  • 95% of flour milled is white flour the other 5% is whole grain.
  • There are 3 major U.S. Millers
    • ADM
    • ConAgra
    • Cargill
  • By-Products of Wheat
    • Wheat Germ
    • Wheat Shorts
    • Mill Feed – (cattle feed)
The class visited various areas throughout the ADM plant, those include:

  • Analytical Wheat & Flour Area
  • Analytical Room for Special Ingredients
  • Physical Dough Testing Area
    • Farinograph curve (can tell how the flour will perform)
  • Milling Bake Lab
    • Key Items to look for:
      • Absorption
      • Protein
      • Mix Tim
      • Volume
      • Off-Color
      • Weakness


Seaboard Foods – presentation & dinner sponsor – Will Jenny’s Restaurant

Presenter: Mr. Gary Lewis, VP Integrated Business Strategies

Seaboard Corporation

  • Originated in 1918 – founder Otto Bresky
  • Today highly diversified international agribusiness & transportation company with sales of approximately $2.7 billion.
  • They’ve moved their flour mills to the coast for freshest flour possible


There are four different areas in the Seaboard Corporation. Those include:

  • Commodity Trading & Milling
  • Marine Division
  • Other – (sugar/orange/jalapenos/shrimp/electric power generation)
  • Foods
    • 3rd largest live hog production facility in the nation behind Smithfield & Triumph
    • 7th largest pork processing facility in the nation
  • The pork processing facility employs approximately 4700 individuals. It generates revenue of $1 billion.
  • Markets include U.S. & international markets
  • Products include fresh pork, marinated pork, ham, bacon & sausage
  • Labels
    • Prairie Fresh
    • Seaboard Farms
    • Daily’s Bacon – (foodservice)
  • Integrated System
    • Control over key aspects of production & processing
      • Nutrition
      • Genetics
      • Animal Handling
      • Antibiotic Withdrawal Practices
      • Others
  • Strong Commitment to Food Safety
    • Control of needles/barbed wire in meat
      • Needle-Free Technology (They no longer use needles)
    • Extensive HAACP system
  • Commitment to Research & Development
    • Japan concerned with the firmness of the pork since they prepare many menu items that contain thinly sliced pork.
  • Integrated Profit Protection
    • “The Model”
  • Traceability System
    • Product Tracing through their website
  • Challenges for Pork Production
    • Feed Costs
    • Labor
    • Animal Welfare
      • Activist groups are getting very powerful
  • Berkshire Pork is considered the “Angus Beef” of pork
    • 2nd would be Duroc
  • Asia & Mexico are the biggest international markets
  • Country of Origin – Seaboard is already meeting the demands expected


After the presentation, the class enjoyed a delicious dinner at Will Jenny’s sponsored by Seaboard Foods.

Februaty 16, 2007
Scribe: Summer Kemp

Federal Reserve Bank of Kansas City

Bus was loaded at 7:43 a.m. - 2 minutes early! Brian Jervis was our lively Chairman for the remainder of the seminar.

We passed through security at the Federal Reserve Bank (FRB) with no problem. Jan Huckleberry from Public Affairs escorted us to the Presentation Room, a small but cozy auditorium, where we were made very comfortable throughout our introductions.

Dr. Alan D. Barkema is the Senior Vice President of the Regional, Public, and Community Affairs Division of the Federal Reserve Bank of Kansas City. He is responsible for the regional economic analysis in the Bank’s four offices. He also leads the Bank’s economic education, community development and other public programs throughout the Bank’s seven-state region. Dr. Barkema explained the Federal Reserve System and its role in the greater picture of U.S. currency by describing the reserve as a bank for banks. The FRB of Kansas City is one of twelve like it in the country. All twelve are privately owned corporations that serve Member-banks within their respective regions. The FRB serves 3 basic purposes:

  • Provides Member-bank supervision and security of their excess funds.
  • Facilitates the payment system, the majority of which is check and electronic payment processing.
  • Creates Monetary Policy (as of 1 year ago). An FRB collects economic intelligence for its region and develops policies according to such information.

Dr. Barkema also gave us an overview of the United States economy. The Federal Open Market Committee (FOMC) is a 19-member group that holds eight meetings a year in order to discuss the stance of the economy and control the pace of inflation. The big question they face now is whether or not our most recent economy surge can be sustained. He says that the outlook for the near future is favorable and shouldn’t be compared with the events in the mid 1980s. While an economy bust is always possible, this time our economic growth is based on energy demand rather than supply. Though not all land purchases go into production, there have been strong gains in non-irrigated land values as construction begins on ethanol refineries across the nation.

In response to some questions, Dr. Barkema feels that the price increase in corn is truly due to the demand for ethanol production. One in five bushels (20%) went toward ethanol production in 2006. Ethanol production is encouraged as oil prices fall while corn prices rise. This also opens the door for switchgrass and cellulosic energy options. Even though the appropriate technology is not quite ready yet, the prices are tempting enough to keep grower attention on alternative fuels.

After our question and answer period, we broke into two groups to tour the Bank. Our tour guides were Trudy Hall and Gigi Wolf. Gigi’s group was taken to the Checks Department first. Only certain elevators access the 7th floor where checks and electronic funds are processed. Gigi said that only 1/3 of Americans still use checks as opposed to other forms of fund transfer. Checks are sorted by the Magnetic Ink Character and the routing number. Curriers bring checks 23 hours a day (the last hour is for machine maintenance) 6 days a week. The Bank’s 21 Image Processor scans photos of checks for the banks to send back to customers. This will probably be phased out and transferred to the FRB in St. Louis within the next couple of years because check circulation is so low.

  • It takes 3-5 hours to clear a check through the system.
  • It takes one hour for a check machine to process 65,000 checks.
  • It costs the bank ~ 4 - 7 cents to process a traditional check.
  • It costs the bank ~ .25 cents to process an electronic fund.

The cash department was by far the most interesting. In the basement of the building, the door to the East Vault weighs 35 tons. It was built in the 1960s and is a ventilated working vault. An armed guard escorted us through this department where excess cash was counted, sorted by denomination, and either stored or destroyed after too much ware. Across the hall, the door to the West Vault weighs 50 tons and requires part of the floor to be lowered before it can be opened or closed. The West Vault is for storage only and is surrounded by a narrow, tunneled perimeter hall that guards pace hourly.

To wrap up our visit at the bank, we took a quick tour through the Museum where we saw a $100,000 bill on display and a spot lit gold bar.

Kansas City Board of Trade

The Kansas City Board of Trade (KCBT) was established in 1856. Jeff Borchardt has been with the Trade for 8 years and has been the President for 3. He welcomed us warmly. Jeff gave us an overview of the KCBTs history and purpose. KCBT sets the world benchmark pricing for hard red winter wheat. Prices are influenced by supply and demand only. The overall purpose is to provide a place where contract owners can come to transfer price risk and to lift futures contracts. Futures contracts (or contracts on wheat that has not yet been grown) supply constant liquidity within the market.

They have operated by means of open outcry alone until 2004 because it gave total transparency to the operation. In recent years, they have begun side-by-side trading accepting online bids simultaneously with the open outcry process. They are now 20% electronic. To trade electronically, one does not need to purchase a seat on the board but they must trade through a seat owner. The most recent seat bids reached the 300-$400,000 range. Sixty percent of KCBT’s trade is commercial global commodities.

Jeff then took us to the middle of the action where we watched the closing on the floor at 1:15 pm. observing the open outcry process was eye opening for many in the group. It was both energetic and humbling to experience such organized chaos and witness the drive behind pricing commodities that affect so many areas of the world.

Next up, Steve Campbell of Louis Dreyfus spoke with us. Steve loves his job. Louis Dreyfus Commodities is consistently ranked among the largest merchants and distributors of grains. The company handles wheat, corn, barley, rye, sorghum, oats, rice and agricultural by-products. Dreyfus is 160 years old and competes with the likes of Cargill, Continental Grains and Wal-Mart. Steve has worked with Dreyfus since a year out of graduation in 1984 and has primarily traded wheat during his career. He also spent 3 years in the energy trade division but came back to wheat in 2000.

At the end of any day, the market needs liquidity. Without 9-10 buyers/sellers moving contracts (contract = 5000 bushels of #2 hard red winter wheat) along the floor daily, the market doesn’t move the way it should. Electronic trading allows a broader workbench and ensures a competitive market. Steve projects that the number of KCBT electronic contracts will soar much quicker than originally thought.

The wheat market, particularly the global wheat market, has become increasingly educated about what they want over the course of Steve’s career. Customer/consumer specs on the type of wheat they buy are much different than they used to be, specifically when it comes to restaurants or bakeries where product consistency is not negotiable. Nigeria is the country that buys the most exported hard red winter wheat. Steve regards Nigerian traders as highly sophisticated and choosy in their wheat purchases desiring 12.5 % protein and 25% gluten.

After Steve’s presentation, we gave our thanks and jumped back on the bus for the long trip home.