MN_Valley_Business by Free Press Media

Sam Ziegler, on his Good Thunder farm, leads GMG’s effort to make the region an Agricultural Epicenter. Photo by John Cross

Ag Powerhouse Region promotes its world-class agribusiness economy

Also in this issue • Fred Lutz, public citizen extraordinaire • Flying Buttress Media in New Ulm • D&K Powder Coating of North Mankato

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The Mankato region works to capitalize even more on agriculture and agribusiness and to let people know it’s among the best in the nation for its massive ag economy.

Dana Schnepf and Todd Yancey thought there would be steady but slow growth for their D&K Powder Coating business, but from the start demand has driven fast growth.

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Jack Beranek and John Guggisberg, took their wealth of experience to start Flying Buttress Media, a video production and marketing firm in New Ulm.

MN Valley Business • october 2015 • 5

■ October 2015 • VOLUME 8, ISSUE 1 PUBLISHER John Elchert EXECUTIVE EDITOR Joe Spear ASSOCIATE EDITOR Tim Krohn CONTRIBUTING Tim Krohn WRITERS Kent Thiesse Pete Steiner Heidi Sampson

PHOTOGRAPHERS Pat Christman John Cross COVER PHOTO John Cross PAGE DESIGNER Christina Sankey ADVERTISING Ginny Bergerson MANAGER ADVERTISING sales Jen Wanderscheid Theresa Haefner ADVERTISING Barb Wass ASSISTANT ADVERTISING Sue Hammar DESIGNERS Christina Sankey CIRCULATION Denise Zernechel DIRECTOR For editorial inquiries, call Tim Krohn at 507-344-6383. For advertising, call 344-6336, or e-mail mankatomag@mankatofreepress.com. MN Valley Business is published by The Free Press Media monthly at 418 South 2nd Street., Mankato MN 56001.

■ Local Business memos/ Company news................................7 ■ Business and Industry trends.........9 ■ Minnesota Business updates....... 10 ■ Business Commentary................. 12 ■ Construction, real estate trends.. 37 ■ Agriculture Outlook...................... 38 ■ Agribusiness trends..................... 39 ■ Job trends..................................... 40 ■ Retail trends................................. 41 ■ Greater Mankato Growth.............. 42 ■ Greater Mankato Growth Member Activities ....................... 44

From the editor

By Joe Spear

Can we be agribusiness epicenter?

eading the cover story in this month’s issue raises an interesting question: Could South Central Minnesota be to agriculture and agribusiness what Silicon Valley is to computer technology? The implications of such an evolution could significantly impact the growth of the region and turn its six-cylinder economy into an eight-cylinder economy. The Agricultural Business Epicenter (ABE), a new program of Greater Mankato Growth, has been focused on highlighting and growing the agribusiness sector in Mankato. That industry represents the largest segment of the economy with nearly $6.3 billion in annual sales. We not only have corn and soybeans, but also some of the biggest dairy and hog production farms in the state. The region has a robust agribusiness processing industry including ag giants ADM and CHS, making Mankato the largest conglomeration of soybean processing in the U.S. There’s specialty wheat milling like Ardent Mills. And Ridley, a worldwide maker of animal feeds and nutrition products, has a solid base in Mankato, recently building a new corporate headquarters in downtown Mankato. Earlier this year, Alltech, a multinational diversified company, purchased Ridley for about $500 million. We have small manufacturing companies like Dotson Castings Inc. that makes specialty iron castings for farming equipment like planters. But our strategic advantages don’t stop there in agriculture. There are important “knowledge industries” associated with agriculture like AgStar financial services and banks like United Prairie that have developed broad knowledge of the agricultural marketplace. These mainly financial institutions don’t just loan money, they collect knowledge about what works as agribusiness. They have knowledge bases that include understanding new technologies and having a sense of the market value of agricultural assets like farmland. They are key to growing our own agricultural Silicon Valley. As these industries have grown and

6 • October 2015 • MN Valley Business

farming has come back full force from the 1980s, “expert industries” have also sprung up in the form of farm real estate brokers and grain merchandisers. Associate Editor Tim Krohn interviews many of these experts in our cover story. “Crop and livestock farming is huge, but we’re not recognized as having so much more,” says Sam Ziegler, director of the Agricultural Business Epicenter project for GMG. “One town has processing plants, another equipment makers. As a cluster, we’re second to none in the country.” Ziegler points out 66 percent of the state’s ag-bioscience sector is in southern Minnesota and mostly in South-Central Minnesota. So what’s the risk of having agribusiness influencing a major share of your economy? The volatility of commodity prices could be considered a significant risk. We can see subsidiary businesses that rely on farmers go up and down with prices. When prices go down, farmers cut back on implement buying and implement buyers cut back on advertising. But listening to the ag finance experts in this month’s cover piece, one gets the sense that farmers learned their lessons from the boom and bust of land prices and later commodity prices in the 1980s and 1990s. They’re not as leveraged as they once were. They’re more sophisticated in using futures markets to hedge their risks and they’re more fiscally sound overall. Even with land prices hitting their peak at $10,000 or more per acre a few years ago, real estate experts suggest no one has become overly leveraged in buying up farmland. Now, even with land prices off 20 percent in two years, there doesn’t appear to be a crisis anywhere. The idea of an agribusiness epicenter appears to be a real possibility, and the economic risks appear to be minimal. MV Joe Spear is executive editor of Minnesota Valley Business. Contact him at jspear@mankatofreepress.com or 344-6382. Follow him on Twitter @jfspear.

Local Business People/Company News

■

Flanagan named City Center director

Megan Flanagan has been selected as the City Center Partnership director. Flanagan comes to the position with more than 15 years of experience in the nonprofit and government sector. She recently located to the Mankato area from the Iowa City area. She most recently was managing director for the Coralville Center for the Performing Arts. She has a MBA in non-profit Megan Flanagan management. City Center Partnership aims to improve the MankatoNorth Mankato city center and is an affiliate of Greater Mankato Growth. ■■■

Brunton opens Twin Cities office

Brunton Architects & Engineers opened a second location in the Twin Cities. The new office is located at 5900 Green Oak Drive, Suite 300A, Minnetonka. ■■■

Lurken joins Gislason

Gislason & Hunter announced that Jennifer Lurken has joined the firm in the Mankato and New Ulm offices. She is a graduate of William Mitchell College of Law. Her legal practice focuses on banking and bankruptcy law, employment law and business & commercial law. She has recently been named to the YWCA Board of Directors.

Jennifer Lurken

that opened in September. Pioneer Bank of North Mankato is a partner on this loan. After an area-wide survey by the city of Mapleton indicated that residents wanted a casual, family dining option, Jason Langworthy of Mapleton decided to take advantage of the market opportunity. The loan helped Langworthy purchase the necessary supplies to build out a commercial kitchen and dining room. ■■■

Mankato Packaging earns certification

The Printing Industry Midwest - the association representing the graphic arts communications industry announces that Mankato Packaging in North Mankato has achieved Great Printer Certification. The Great Printer Environmental Initiative is a certification program of the Printing Industry Midwest that recognizes members who go beyond and maintain compliance with all environmental, health and safety rules, regulations and laws. Mankato Packaging is a designer/manufacture of paperboard packaging solutions for the wholesale and retail industry. They have been a supplier to the medical, pharmaceutical, cosmetics, health and beauty, toys and games, dry foods, frozen foods/ cold foods, multimedia, automotive, recreation and many other industries for over 75 years. Brian Fingerson is CEO of Mankato Packaging. ■■■

ReStore names new manager

Habitat for Humanity of South Central Minnesota added Jeff Devens as the new Habitat ReStore manager. He is a graduate of South Central College and most recently the assistant manager at Gander Mountain. ReStore accepts new and used building materials and sells them to the public to support the mission of Habitat to provide safe, simple, and affordable housing. Jeff will also be responsible for

■■■

SMIF supports Mapleton restaurant

Southern Minnesota Initiative Foundation recently approved funding from its Small Enterprise Loan Fund to Maggie J’s in Mapleton, a casual-dining restaurant and bar

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MN Valley Business • october 2015 • 7

the new ReStore building across the street from the existing building. ■■■

Pantheon named Silver Partner

Pantheon Computer Systems has been named a WatchGuardONE Silver Partner by WatchGuard Technologies, a leader in multifunction firewalls. The designation includes partners who have made the commitment to the highest level of security expertise and service to WatchGuard customers. In 1996, Jon Stagman and Grant Scheffert started the business in Waseca. They now also have locations in Mankato, Faribault and Albert Lea.

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Business and Industry Trends Energy

U.S.-Mexico swapping oil

Economy

Local vehicle sales up

Mankato auto dealers sold cars and pickups at a rate 2 percent ahead of last year for the first six months of 2015. Dealers sold 5,352 vehicles through June, 101 more units that in 2014 at the same time. The month of February was a low spot for dealers as they sold just 571 vehicles, compared to 739 in February of 2014. April was the best month so far this year with 1,152 vehicles sold, up from 969 the previous year. The figures come from Mankato sales tax collection data.

Crop prices down

U.S.-Mexico crude oil swaps approved in August by the U.S. Department of Commerce’s Bureau of Industry and Security will likely involve exchanges of U.S. light sweet crude for Mexican heavy sour crude that is already being exported to the United States. The swaps, which are provided for under longstanding regulations governing U.S. crude oil exports, are expected to be both economically and environmentally beneficial to both parties because of differences in crude oil qualities as well as differences in each country’s petroleum refineries, according to the federal Energy Information Administration. The swaps will allow a greater degree of operational efficiency in both Mexico and the United States while allowing for increased supply of lower-sulfur gasoline from Mexican refineries.

Crude keeps falling

North Sea Brent crude oil prices averaged $47/barrel in August, a $10 decrease from July. This third consecutive monthly decrease in prices likely reflects concerns about lower economic growth in emerging markets, expectations of higher oil exports from Iran, and continuing growth in global inventories. Brent crude oil prices should average $54/barrel in 2015 and $59/barrel in 2016. West Texas Intermediate crude oil prices in 2015 and 2016 average $5/barrel lower than the Brent price.

Local corn prices continued to tumble leading up to this fall’s harvest. Corn prices in September were 3.24 per bushel, after reaching a yearly high of $3.75 in July. The price of corn is similar to what it was last year at this time. Soybeans saw a bigger drop this year. Last year in September soybeans were selling for $12.47 per bushel, but were at $8.42 this September. Soybeans reached a high of $14.70 in 2014, but have only hit a high of $9.93 this year (in July).

Less renewable electricity

U.S. GDP more than expected

Ethanol production, which averaged 934,000 barrels per day in 2014, is forecast to average more than 950,000 barrels per day in both 2015 and 2016. Ethanol consumption, which averaged 877,000 barrels per day in 2014, is forecast to average slightly more than 900,000 barrels per day in both 2015 and 2016, resulting in an average 9.9 percent ethanol share of the total gasoline pool. There is not expected to be a significant increases in E15 or E85 consumption over the forecast period. Proposed Renewable Fuel Standards by the government could encourage imports of Brazilian sugarcane ethanol, which were 3,000 barrels per day in 2014. The largest effect of the proposed RFS targets will be on biodiesel consumption, which contributes to meeting the biomass-based diesel, advanced biofuel, and total renewable fuel RFS targets. Biodiesel production averaged 81,000 barrels per day in 2014 and is forecast to average 92,000 barrels per day in 2015 and 98,000 barrels per day in 2016.

The Bureau of Economic Analysis reported that U.S. real GDP increased at an annual rate of 3.7 percent in the second quarter of 2015, higher than the initial estimate of 2.3 percent. The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures, exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Forecast real GDP growth is expected to reach 2.1 percent in 2015 and rises to 2.5 percent in 2016. Real disposable income should grow by 3.5 percent in 2015 and by 2.7 percent in 2016. Total industrial production should grow by 1.5 percent in 2015 and 1.6 percent in 2016. Projected growth in nonfarm employment should average 2.1 percent in 2015 and 1.4

Total renewables used in the electric power sector will decrease by 3.5 percent in 2015. Conventional hydropower generation is expected to decrease by 10 percent, and nonhydropower renewable power generation is forecast to increase by 3 percent. The decrease in hydropower generation reflects the effects of the California drought.

Ethanol production rising

MN Valley Business • october 2015 • 9

Minnesota Business Updates

■

■ Best Buy is shining Motley Fool is one of many analysts bullish on Best Buy, noting the company’s recent quarter revenue rose 0.8 percent annually to $8.53 billion, beating expectations by $240 million. Comparable-store sales climbed 3.8 percent. During a conference call, CEO Hubert Joly noted that connected devices, like smart home appliances and wearable devices, would be “positive catalysts in quarters to come.” In the wearables segment, the Apple Watch is expected to be a standout performer during the current quarter. Joly declared that “demand for Apple Watch has been so strong” that Best Buy now plans to sell Apple Watches at all 1,050 of its big-box stores and 30 of its Best Buy Mobile Stores. Tightening its relationship with Apple helps Best Buy stay relevant against online-only competitors. Morgan Stanley also weighed in saying Best Buy is well poised for a strong performance in the fourth quarter of 2015. Morgan Stanley analyst Simeon Gutman asserts that the company is well positioned to deliver strong upside over estimates for comparable sales and earnings per share. The analyst expects 4K televisions to drive sales in the next few months. Gutman also thinks that comparable sales for the mobile phone segment will not be as difficult as perceived.

■ Green Giant being sold Snack food company B&G Foods Inc. will buy General Mills’ Green Giant frozen foods and Le Sueur canned vegetables brands for about $765 million to expand its distribution network and enter the frozen foods market. Growth in the frozen vegetables category has been sluggish in recent years as consumers shift to fresher items. This has led to companies scaling back marketing spend on frozen foods. B&G plans to double the amount General Mills has been spending on marketing the Green Giant brand, B&G Chief Executive Robert Cantwell said on a conference call. “In General Mills, Green Giant was an important brand, but they had a different direction... It makes more sense under B&G’s ownership and we’re going to pay a lot more attention to it,” Cantwell said. Green Giant, with a portfolio of more than 160 products, is the second-biggest frozen foods brand by market share in the United States and the largest in Canada.

■ Johnson wins patent decision An administrative law judge at the International Trade Commission has determined that Garmin International violated the Tariff Act of 1930 by importing and selling SideVü sonars, 10 • October 2015 • MN Valley Business

which the judge found infringe a Johnson Outdoors’ side scan sonar patent used in certain Humminbird fish finders. “Humminbird’s pioneering, patented side scan sonar technology, marketed under its Side Imaging brand, is the gold standard in fish finders.,” said Helen JohnsonLeipold, CEO of Johnson. The judge found that all three patents asserted by Johnson Outdoors are valid and enforceable and that numerous models of Garmin’s SideVü sonars directly infringe on patents. A cease and desist order prohibits Garmin from selling any infringing product from its inventory.

■ Target settles hiring suit Target Corp. has agreed to pay $2.8 million to settle a hiring discrimination claim filed by the U.S. Equal Employment Opportunity Commission, according to the Star Tribune. Three employment assessments formerly used by the Minneapolis-based retailer disproportionately screened out applicants for professional positions based on race and gender, and the tests were not sufficiently job-related, the EEOC said. The commission also said an assessment that was performed by psychologists violated the Americans with Disabilities Act, which prohibits employers from subjecting applicants to medical exams prior to making a job offer. Thousands of people were adversely affected and the settlement money will be divided among them, the EEOC said. Target agreed to take several steps to ensure the validity of its hiring process, including keeping better data for assessing the impact of its hiring procedures.

■ Arctic Cat moves headquarters

Arctic Cat is moving its headquarters from Plymouth to a historic brick building in Minneapolis’ trendy North Loop neighborhood. The maker of snowmobiles and off-road vehicles will lease the Western Container building at 500 North 3rd Street, which offers five times the space Arctic Cat has in Plymouth, according to Minnesota Public Radio. CEO Chris Metz says the company needs more space as it strives for a 50 percent sales increase by 2020. He expects the new headquarters location should help attract employees. “We like the central location of the North Loop,” Metz said. “It’s accessible by mass transit. And we love the fact that it’s probably the hippest and coolest place to be in the Twin Cities area.” Between new hires and transfers, he expects the company could have 150 to 200 employees in Minneapolis within a few years.

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■

Business Commentary

By Eric Cope

Congress can help Minnesota

ccording to a recent CNBC study, Minnesota is the Since we rely on large communication and electric top state in the land for business. companies to buy our products, incenting those other While this may be surprising to some living companies to invest causes them to invest more too, outside of the North Star State, what we’ve known here giving small and mid-size manufacturers like Condux for a long time is that with a strong and well educated more opportunities to sell the products we make. workforce, great infrastructure and many of the nation’s Renewing the capital investment expensing and bonus top-producing businesses, a local economy can thrive. depreciation provisions also will help improve But there are a few changes to the federal tax code that Minnesota’s public infrastructure, such as bridges, the U.S. Congress can make to help keep the Minnesota roadways, dams, and drinking water systems. economy - indeed the entire U.S. economy - competitive Since the American Society of Civil Engineers released for the future. the 2013 America’s Infrastructure Report Card finding While a much-needed that hundreds of wholesale reform of the billions of dollars is tax code is necessary in needed in order to order to fundamentally maintain and upgrade help American the nation’s public businesses remain infrastructure, including competitive in the tens of billions in global marketplace, Minnesota alone, there renewing two has been much important tax discussion in Congress provisions currently about how to pay for being debated as part of these upgrades. Congress’ annual “tax While state and extenders” legislation federal funding will play “Section 179 an important role in expensing” and “bonus improving public depreciation” -- will go infrastructure, private a long way in helping investment will play an foster economic growth even bigger role. and job creation, both Renewing Section 179 Mankato-based Condux manufactures a variety of cable equipment and tools. here and across the expensing and bonus country. depreciation provisions These two provisions permit businesses to expense a of the tax code is an important way to encourage this greater share of their capital investments in the year type of investment by private companies. those investments occur. Doing this creates an increased Condux, like most other businesses, relies on future incentive and ability to invest in the future by reducing investment to stay competitive. Extending bipartisan the risk of making investments and increasing cash flow, provisions in the tax code like Section 179 expensing and thereby fostering economic growth and increased bonus depreciation is a no brainer and deserves the employment. attention of our local Congressional delegation, including For instance, Condux, headquartered in Mankato, U.S. Rep. Tim Waltz and Sens. Amy Klobuchar and Al manufactures underground and overhead cable Franken. Minnesota’s leading business climate depends installation tools and equipment for telecommunications on it. MV and electric utility companies. Increasing demand for new technologies like high speed Internet requires us to Eric Cope is CEO of Condux International Inc. a make sizable capital investments continually in order to manufacturer of a wide variety of underground and change and upgrade the products we sell. overhead cable installation tools and equipment for the Renewing Section 179 expensing and bonus telecommunications and electric power industries. The depreciation will help ensure that we are able to make company is headquartered in Mankato. www.condux. these new investments in a timely manner. com Not only do Section 179 expensing and bonus depreciation help small and mid-sized businesses like Condux directly by providing an increased incentive and ability to invest in our companies, these provisions also create a positive macro-economic effect.

12 • October 2015 • MN Valley Business

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Sam Ziegler leads a new GMG division aimed at promoting agriculture.

The Epicenter New focus on touting region’s ag strengths By Tim Krohn | Photos by John Cross 14 • October 2015 • MN Valley Business

An expected bumper crop this year is being offset by much lower prices than in recent years.

arming has been a dominant force in this area since the start of settlement. The rich prairie turned up some of the most fertile land in the world and the river and rails provided transportation arteries that supported everything from grain and flour milling to equipment manufacturing. Today cities such as Mankato, North Mankato and St. Peter bustle with health care services, higher education and tech companies. But the role of agriculture is as strong as ever. “There is this natural industry cluster in southern Minnesota that’s agriculture based,” said Sam Ziegler, who heads a new organization within Greater Mankato Growth aimed at capitalizing on the ag economy. “Whether it’s in Mankato or Lake Crystal or other towns, a big part of their business is tied to agriculture — whether it’s Dotson Foundry making ag equipment parts or Eide Bailly (CPAs) and all their ag customers,” he said. Indeed, agriculture is the largest business industry segment across south-central Minnesota with about $6.3 billion in sales annually. The state of agriculture and agribusiness remains strong overall, but crop farmers are facing a headwind as crop prices have plummeted in the past couple of years. “We have a wide variety of agriculture but corn and soybeans still dominated,” said Rod Hebrink, CEO of AgStar Financial Services, based in Mankato. “Prices have turned significantly. Everyone in ag knew it was coming, but it maybe came a little more quickly and dropped lower

than people thought.” Scott Bradley, CEO of United Prairie Bank, said that in spite of the crop price drop, farmers’ balance sheets are as strong as ever. “Many of the ag producers the past few years have had some tremendous years. The good producers have done a good job of controlling debt and maintaining working capital. Even with the way prices are now, we have a tremendous crop that will be harvested and the disciplined producers will weather the downturn.” The decline in crop prices is pushing down farmland prices, which hit record highs a few years ago when corn was above $5 a bushel and soybeans above $12. (Today corn is just above $3 and soybeans just above $9.) “In 2013 (land costs) peaked and there has been a steady decline ever since,” said Chuck Wingert of Wingert Realty. But as has always been the case, when the fortunes of one part of ag ebb, another flows. Low crop prices mean low feed costs for livestock producers, and feed is the No. 1 cost in their operations. “2014 was probably one of the better financial years that pork producers have had,” said Dave Preisler, executive director of the Mankato-based Minnesota Pork Producers Association.

Cover Story

An ag epicenter

Ziegler has a long history in farming and in agribusiness. He raises corn soybeans and pigs on the family farm near Good Thunder and worked for 10 years with the Minnesota Soybean Growers Association and worked for ADM in

MN Valley Business • october 2015 • 15

Rod Hebrink, CEO of AgStar Financial Services. Mankato. This past spring he became the director of Project Agricultural Business Epicenter or ABE, a GMG program. The mission of ABE is fourfold. “We’re about promoting agribusiness, talking about it, having it in the conversation,” Ziegler said. “Second, we need the talent sources and education sources here to retain and attract the most skilled and educated and best workforce. “Third is business development. How do we help our businesses that are already here to thrive and how do we attract others businesses to locate here,” he said. “The fourth is keeping a keen eye on what’s happening in the public policy area. Not necessarily taking a stand on those issues, but understanding how they affect things.” He said one goal is to remind people that ag isn’t just about farming. “Crop and livestock farming is huge, but we’re not recognized as having so much more. One town has processing plants, another equipment makers. As a cluster, we’re second to none in the country.” Ziegler said that if you look at the state’s ag-bioscience sector, 66 percent of the total in the state is in southern Minnesota and mostly in south-central Minnesota. “We’re in the top 10 in a lot of products and crops in Minnesota and here in our area. We’re the largest soybean processing city in the U.S. We have wheat milling right downtown (in Mankato). “It’s some pretty impressive stuff Mankato has that should be talked about more.” He said that as he talks to virtually any business, they know that a lot of their business is somehow tied to agriculture. “There’s a lot of good stories to share about ag.”

Land bubble losing air

Wingert’s real estate business has always handled a lot of farmland sales and recent years have been a boon for

16 • October 2015 • MN Valley Business

sellers as prices reached once unimaginable highs of $10,000 per acre or more for good farm land. “Right now, it’s as you’d expect. Our commodity prices have changed dramatically and expenses have stayed up,” Wingert said. “We will see land prices and rents adjusted in 2016. We’re down a solid 20 percent (from the peak), and it may decline a little further.” Still, farmers who have strong balance sheets are still looking for high quality land. “We recently had four sales in the $9,000 and $9,500 (per acre) range.” And he said there is still plenty of land coming up for sale. “We’ve sold 40 farms this year and are getting a whole bunch for this fall after crop harvest.” He said he does have to do some “counseling” to prospective sellers that things have changed. “If you want those peak prices of a few years ago, you’re not going to get it.” Wingert said rent prices are also generally falling. “The $400-$450 (per acre) rents — the high rents — those did come down this year. The $350 rents maybe came down to $325. But the $250-$300 rents didn’t move much.” But even as rents slip back, the current low crop prices and relatively high input costs make profits tough. “Even at that (lower rent) if you pencil it out right now, that doesn’t work. But people are hoping it rebounds and will work.”

AgStar staying strong

Hebrink said AgStar continues to see growth. “Our year is going very well, somewhat better than we anticipated with grain prices the way they are. Our portfolio in Minnesota and Wisconsin, which is our main retail market, has grown. Not at levels of past years but it grew more than we expected. “Earnings are up 5 or 6 percent from a year ago, so we feel very good about that. We’ve been managing our

expenses and being more efficient as well — just like we’re telling our clients to do.” AgStar has 23,000 clients and manages almost $8 billion in loan and lease assets. He said it will be a hard year for most of the crop farming clients. “Current crop prices are below production costs, so it’s going to be a tough year. But Minnesota probably has the best crop outlook of anywhere in the country. So that’s the good news, we have a strong harvest to offset some the low prices.” He said they’ve been counseling their clients to plan for a three-year downturn. “Not that we know it will be three years, but we think they should be positioned for a several year downturn. If things get better, then great. But if you want to be in a position to survive a downturn, what kind of risk management steps do you take?” He said all eyes are on what the price of farmland will do. “It’s going to be one of the real interesting areas to watch. There’s just less revenue than a few years ago and that’s going to have an effect. “Prices and rent didn’t go up in one year and won’t go down in one year. But if crop prices stay down, it will have to have an effect.” Still, Hebrink said this is not a repeat of the 1980s crash in the farm economy, when land values plummeted 60 percent and many farmers went out of business. “You won’t see what happened in the ’80s by any means. Farm balance sheets are very strong now compared to then.” He said that while crop producers are facing challenges,

the swine industry has done very well. Dairy had a strong couple of years with things now in a break even or small profit range. Hebrink said a big factor in the future strength of all ag will be the global economy. The U.S. dollar is very strong now, making it expensive for other countries to buy our products. “The other big thing is does the global economy slow down or stabilize? There’s a lot of talk about China, which is huge, but they continue to take ag products from the U.S. “We export 25 percent of our soybeans and pork, so that trade is very important to the demand side of ag.”

Implement sales slow

Bradley, of United Prairie Bank, said they’ve seen the same caution with clients as other financial institutions. “Equipment purchases have slowed down. But (farmers) upgraded a lot in recent years.” He said about 50 percent of United’s portfolio is from ag producers and maybe another 20 percent is tied to other agribusiness loans. “We’re actively pursuing agriculture. We are very positive about ag.” The bank has 13 locations in 11 communities. Bradley said he is a big supporter of the GMG Project ABE idea and thinks there is plenty of room for attracting and growing agribusiness locally. “The good producers are going to look for technologies to enhance their business, and as they do, there should be more opportunity for Mankato as an agribusiness center,” he said.

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Scott Bradley, CEO of United Prairie Bank. Bradley is on the South Central College Foundation Board and said many businesses seek partnership to have SCC train future and current employees. He said workforce development will be a key to the area’s success. “Employment will be tighter, whether it’s for diesel mechanics or whatever.”

producers that have changed feed ingredients because there are some ingredients that bring it in. It’s settled down considerably from 18-24 months ago.” The higher production of pork has, however, brought pork prices down. Preisler is predicting slight losses in the fourth quarter of this year and first quarter of 2016 for producers, but then profits starting in the second quarter of next year.” He said the outlook for short-term losses is driven in part by the strong dollar, which will likely slow exports. “The dollar is strong against virtually every other country, so it’s been tough to compete.” Mexico is the biggest buyer of U.S. hogs by volume and Japan is the biggest in dollar sales. Mexico, he said, is close to leading in both categories. He said the reason Japan’s spending is higher is because they want the higher-priced cuts of meat. “With Mexico it’s primarily hams that aren’t cured or smoked — just fresh hams. And some pieces of the pig we don’t eat in the United States they use. In Japan it tends to

Pork producers rebound

Preisler said a prosperous 2014 for hog producers was unfortunately driven in part by the lower number of hogs on the market because of the PED virus that affected the industry. The virus kills pigs but isn’t passed to humans from pigs or from eating pork. “PED is still out there, but it’s probably 10 percent of what it was a year or two ago. Productivity is very good. We’ve returned back to normal and above in production levels.” He said improved biosecurity measures have helped dramatically in keeping PED contained. “They’re watching everything that comes onto the farms. There have been

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be higher-quality loins and tenderloins. “But Mexico, they’re just buying more and more pork.” Preisler said his group is watching the pending Trans-Pacific Partnership trade agreement between 12 Pacific Rim countries. “We’re hopeful they can possibly have an agreement yet this year. It would really open up some additional markets for us, like New Zealand, Australia, Vietnam, and it would expand access into Japan without tariffs we pay now.” He said retail pork prices look to hold pretty steady. “Loin cut prices have been really reasonable and have come down. Bacon demand is always good so that tends to stay relatively high compared to other cuts. Bacon and ribs are the most in demand.” He said demand has increased the most for pulled pork, which comes from the shoulder. “Every restaurant has pulled-pork sandwiches now.” MV

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Left to right: Owners Dana and Kathy Schnepf, with General Manager Todd Yancey.

Rapid growth D&K Powder Coating finds unexpected demand By Heidi Sampson | Photos by John Cross

n 2011, Dana Schnepf began looking for a new business adventure to expand his and his wife, Kathy’s, already diverse business portfolio. Todd Yancey, a close personal friend of Dana’s, offered up the idea of powder coating. At that time Schnepf conducted some preliminary research and turned down the idea based on costs. Over the next couple of years, Yancey became a bit more persistent. When Yancey presented the idea a second time

he’d gotten some numbers and projections together for Schnepf. Based on the numbers Schnepf agreed to give the business a try. For a few weeks the two worked at putting together a business plan and crunching numbers. Once they had a pretty firm plan in place they looked at equipment, signed a lease and got a bank loan, all in one day. Their hope was to start production in two months. “We had a four year projection,” said Schnepf. “I was

Profile

20 • October 2015 • MN Valley Business

going to do the books and Todd was going handle production. We figured by the third year, if the business grew, we’d have to get Todd some help. The fourth year, we’d maybe have two guys on staff, and by the fifth year, three guys but that’s not what happened. “A month into developing our shop, word of mouth led people to stop by to ask if we could do powder coating for them. There was so much interest that we talked about hiring Miriam Storjohann, who was a friend and my wife’s first employee, to do office managerial items for us. Originally, she was going to work part-time for us and parttime for my wife. Due to interest in the business I’d hired Miriam full-time, as well as four full-time production workers, all before we even opened the door. Our first day of production was July 12, 2013.”

A New Location

D & K Powder Coating’s last building was 10,000 square feet and situated on two different elevations. At the time they signed their lease they took the top part and weren’t entirely sure if they’d ever use the bottom elevation. As demand grew they ended up using the space immediately and quickly found they needed more. “Our bank encouraged us to build a new building,” Schnepf said. “They had a much more aggressive vision for this business than we did. Once we found the land, we put plans together for our current 25,000-square-foot building. We also have plans for two additional buildings of about the same size. Actually, we are looking at doing one of them within a year. We are already out of space and we’ve only just begun production here at our new site around the end of August.”

Environment Friendly

What had intrigued Yancey the most regarding the powder coat industry was the environmentally friendly aspect powder coating offered. Having been in the auto body business for quite a while he was anxious to get away from liquid chemicals. Powder coating offered a better process for the environment as well as one’s own health. In fact, 99 percent of the products D & K Powder Coating uses are environmentally friendly products. “Compared to liquid paint, powder coating is durable,” said Yancey. “It’s gotten to be cost competitive and in some cases the powders are even cheaper than liquid paint. It’s even 20 times more durable when it’s done right.” D & K Powder Coating does a wider variety of paint jobs, from agriculture to industrial with parts that can range from 18,000 pounds, to a part that is no more than a few inches square. As with any coating there are multiple steps in the process. D & K Powder Coating can build a finish to fit any client’s financial budget. “Our standard coating process is a very durable process,” said Yancey. “Our customers can expect upwards of 10 years on the life of the finish. If you go into some of the more aggressive steps for quality you can get a finish that lasts for 50 years. The process is designed around the customer’s needs, what their process specifications are. Everybody has a little bit different process specification. So we give our customers options regarding the different steps they can do to get their needs met.” Hourly changes in production can be the norm for D & K Powder Coating, as they meet whatever the demand happens to be, on relatively short notice. Since D & K Powder Coating is not a line operation per say their production is constantly changing in terms of size, color and job specifications, which allows them to be more

MN Valley Business • october 2015 • 21

efficient. “We try to be cost competitive,” Yancey said, “but we are not always the cheapest, and we are not willing to compromise price to put out a lower quality product. Our base line, the very bottom of the barrel we run is probably 100–200 percent more stellar than anybody out there. “We are in an industry that is price driven and quality is not a concern until it’s a problem. For us, it’s not worth risking our company’s quality or credibility over quality. We try to spell out job by job what it is that is expected of our employees so that our customers get exactly what they expect.” Usually they can finish projects, on average, in three days’ time. A swift turnaround time keeps their client’s manufacturing industries rolling, as well as builds the demand for their services. “We’ve been very fortunate in this economy to get good help,” said Schnepf. “One of the things we did in the beginning is spend a lot of money hiring competent management. We were a little heavy on management but we were looking for growth. Our employees have a pretty good relationship with management and that gets the word out. It also gets us employment opportunities that we wouldn’t have gotten any other way. “It’s our employees, their dedication to our mission that allows us to grow as fast as we have.” MV Left: Blaine Christensen packages some finished products at D&K. Right: Ben Snyder paints parts for Industrial Fabrication Systems of Lake Crystal.

22 • October 2015 • MN Valley Business

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Fred Lutz may be long retired but he comes to his office in Profinium Place each day.

Hurricane Fred A day in the life of a Public Citizen By Pete Steiner Photos by John Cross

echnically, he’s been “retired” for 23 years. But Fred Lutz still arrives at his office by eight every morning, Monday through Saturday. After checking e-mail and phone messages, he’s off to his regular nine a.m. coffee group. (That’s after an even earlier breakfast chat he had with some other cohorts.) There’s nowhere he HAS to be anymore, but Fred’s frenetic pace and endless curiosity

seem to define the term “networking.” When the coffee group learns he’s being profiled, someone shouts, “If you ever want to know anything that’s happening, just call Freddie!” The conversation, not constrained by Robert’s Rules of Order, continues: “If it’s 9:30, he’s already had coffee twice and been to two meetings!”\ “He gets around!”

Spotlight

24 • October 2015 • MN Valley Business

Lutz presents a sponsorship check from Northland Beverages to Don Amiot, longtime athletic director of Mankato State University. “We always wanted him to get into politics, but he wouldn’t.” “All the women talk to him!” Suddenly, glimpsing the Weather Channel on an overhead screen, Lutz himself says, “Look! They got a hurricane named after me! ‘Fred’ is targeting Florida.” One of his coffee-mate gives me a heads-up about my assignment: “Your butt will be draggin’! Be careful, or he’ll have you on a couple boards, raisin’ money.”

mandatory.

Airport his epicenter

Last year, Lutz was honored with the Wright Brothers Master Pilot Award from the FAA for his 50 safe and successful years as a pilot. This year, he chaired the successful Minnesota Air Spectacular at the Mankato Regional Airport. On the way there, we drive through Eastwood Industrial Park: “See that new building over there? That’s the big new Boundless energy warehouse… And did you If it seems like Fred Lutz notice? Gas is down again?” is everywhere, and that he Lutz is on the Airport knows everybody in town, Commission, and everybody well, he comes about as at the airport greets him close as a human can to and chats with him, whether achieving those two they’re a mechanic or impossibilities. I got to accountant or flight shadow him on a recent instructor. He proudly warm September morn. points out a large room Fred’s still-full head of hair with two flight simulators may be white at 75, but the inside, and asks the youthful twinkle in his eye, instructor and his student the engaging smile, and yes, Fred Lutz Jr. and his dad Fred Lutz Sr. are shown in this 1980 photo. The younger how it’s going. He’s ecstatic the boundless energy with Lutz was 40 and his dad 80. about the booming state of which he attacks the day would be impressive in someone the MSU Aviation/Flight Program, now the only one half his age. He seems to make every civic event, schmooze available among all state universities. in every restaurant, even making the rounds at the “There’s 87 new kids in it just this year!” he gushes. Farmer’s Market. Asked how he felt when the program was nearly abolished “Wanna go for a plane ride?” he smiles. “It’s a beautiful several years back, he stops smiling: “I’d have been real day!” But there’s just too much to do today, so the plane disappointed.” But a grin quickly returns as he leads me ride is scratched. Still, a trip to the airport is deemed through several hangars housing corporate planes,

MN Valley Business • october 2015 • 25

stressing the air access is why companies like Wal-Mart can increase their presence here, or why his friend, billionaire Glen Taylor, can manage his sprawling business empire while still residing in Mankato. The Airport is obviously a passionate cause for him: “I put in a LOT of time on the Air Show…”

Public Citizen

On the way back to town, I ask if we’re returning to the office. “I’ve got two more stops first,” he says, “gotta check my investments – it’s been pretty volatile! – and check out the new Non-Profit Center.” We pull up at a downtown bank and walk up the stairs to where investment adviser Brian Koch greets us. “So whaddya think the market’s gonna do?” Koch says he wouldn’t be surprised by more volatility: “We might test the lows again.” The conversation continues for another 10 minutes or so. Fred wants to know, how’s the banking business in general? And there’s a couple guys he hasn’t seen in a while, so where are they now? Leaving, we pause to marvel at the rapid pace of construction of the new civic center addition, and how quickly the downtown skyline is morphing. Then we head for Second and Walnut, where remodelers are busy turning one of the oldest buildings in town into a new center for local non-profits. Mankato Area Foundation Executive Director, Nancy Zallek greets us, and leads us to an interior brick the remodelers have uncovered: it’s inscribed 1846. We get a tour of how things are progressing, and Lutz says he’s happy he spearheaded the fundraising effort that led to Zallek’s being hired as permanent Foundation Executive Director.

26 • October 2015 • MN Valley Business

Only technically “retired”

As many know, Fred Lutz made his fortune in the soft drink bottling and distribution business. His family owned Northland Beverages. His personalized license plates still read, “UNCOLA”, the nickname for 7-Up, one of the company’s primary beverages. Lutz served as National President of the 7-Up and Dr. Pepper Bottlers’ Association, and as State President of the Minnesota Soft Drink Association. In Northland Beverages’ peak year, nearly three decades ago, revenues reached $25 million. The bottling operation was sold to Wis-Pak in 1987, the distributing business to Pepsi in 1992. That was the year Lutz “retired.” “A lot of our employees did well, too,” he notes, “on their profit-sharing and with new job offers. It was earlier than we’d planned, but the timing was right. I miss the people.”

Plenty of ‘hobbies’

Lutz lists among his hobbies, fundraising and community involvement. Just a partial list of his current volunteer activities includes the Mankato Area Foundation Board and the President’s Advisory Councils of both Minnesota State University and South Central College. He’s still a member of Greater Mankato Growth, and has been an officer or board member at the YMCA, Mayo-Mankato Hospital, the downtown Kiwanis, the Volunteer Center, and Educare Foundation. He went along on the visioning visits with other local leaders to Bellingham, Washington and Colorado Springs. He’s obviously excited about all the local progress that’s now apparent. Lutz still considers himself a salesman, and is often asked to help raise money for various causes or organizations. “I pick and choose now,” he says. “I never

ask for something I don’t do ]myself]. I’ve been around long enough to know the right people.”

Always inquisitive

At 11:45 we finally arrive back at Fred’s office in the new downtown Profinium Tower. I can’t help but marvel at the full-length, picture-window view of Riverfront Drive and the whole river valley. Lutz exhibits almost boyish enthusiasm as he points out how he can see his North Mankato home several miles away, across the valley on a hillside. He does a quick check of the markets and his e-mail. “I’ve never had an office in my home,” he says offhandedly. “Diane (his wife) wouldn’t let me!” “You seem to be really proud of your community.” “Oh, yeah. I love the people. I just like finding out what’s going on.” That had become evident: not one of the many he’d interacted with this day had gotten by without answering at least one question. It’s always genuine, always friendly. It occurs to me, maybe Fred Lutz should star in a video about Networking. Even give a TED talk. “Okay,” he says, turning away from the computer screen, “you’ve never seen my home. I usually go there over the noon hour.”

trees, and grouses, “Raking acorns is a pain!” He does some landscaping work, even washes his own windows: “I actually like that!” Whatever the afternoon brings, he nearly always returns in the evening for a home meal with Diane.

Advice for life

It’s been an intense, whirlwind half-day. I half-in-jest ask Lutz if he really considers himself retired? “No!” he grins. And then he offers the closest thing to a Fred Lutz formula for wellness and a long, productive life: “Stay active and do stuff!” MV

Staying active

Still trim and fit, Lutz says he does a mild workout at home three days a week, does some swimming, plays some golf. “I don’t overdo it,” he says, adding that it helps to stay active. “I’ve been lucky, too.” The only major medical procedure was a knee replacement two years ago. He never smoked. “I don’t overdo it. Not much snacking or drinking.” Fred and Diane’s upper North Mankato home has a spectacular view of much of the city and both river valleys. Over the noon hour, he might have a light snack while he peruses the Wall Street Journal on the kitchen counter. He checks out The Free Press on his iPad. He picks up a past issue of MN Valley Business magazine and asks if I review the monthly business statistics pages. He never takes a nap. This day, he was contemplating skipping his regular golf date because it might interfere with attending a Maverick football game that evening. But he decides to play nine.

Meals at home

If it were a non-golf day, he might return to the office, or attend a board meeting, or, if the weather is right, go for his weekly flight in his plane, or even just “piddle around the yard.” He leads me out back, under some oak

Lutz has the personalized plate reminiscent of his days owning the 7Up bottling plant in North Mankato.

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Jack Beranek (left) and John Guggisberg near some flying buttress architecture in New Ulm that influenced the Flying Buttress Media name on their business.

Flying high

Flying Buttress aims for high quality video By Heidi Sampson Photos by John Cross

ack Beranek and John Guggisberg, coowners of Flying Buttress Media of New Ulm, were raised around the New Ulm area. Guggisberg would go on to earn a broadcasting degree from Brown Institute. He’d spend the majority of his career in the

Twin Cities, working for large corporations such as West Publishing, American Express, Thomson Reuters, and Allina Hospitals and Clinics, independent production companies, as well as taking part in various freelance positions.

Feature

30 • october 2015 • MN Valley Business

This still shot from a Flying Buttress video shows the iconic Domeiers store in New Ulm. Looking for a change of pace, Guggisberg returned to New Ulm, were he began working at New Ulm Community Access Television earning a statewide Producer of the Year award during his time there. Guggisberg would meet Beranek at New Ulm Community Access Television, as the two would briefly work on a few projects together. However, Beranek having recently returned from obtaining a bachelor’s degree in film studies from Minnesota State University in Moorhead was eager to learn more about the industry. As a result, Beranek spent a year in Los Angeles where he worked for various production companies including Film Independent. “I had a great experience,” Beranek said, “but I also wanted to get back here where there is a little more breathing room for pretty much the same reasons John came back as well. We love the pace of life here.”

Rise of Flying Buttress Media

In 2013, Guggisberg and Beranek reconnected to discuss the need for a high quality video production and marketing company in southern Minnesota. Although the New Ulm area had a public access channel they felt it didn’t really offer much for production purposes that could be beneficial for businesses and nonprofits. Shortly after their discussion regarding the need of a high quality video production house, area businesses began to seek their assistance in producing a video or a series of videos. As the need for what they could offer materialized, Flying Buttress Media officially began operations in the fall of 2013. “Basically, we do whatever the goals are for the particular company,” Beranek said. “We do videos for informational purposes, sales, as well as to recruit employees and volunteers. However, where we see ourselves as different is that we like to be involved from the very first step. From conceptualization, we help develop a plan and strategy for production. We also like to be involved in the distribution end. We realize that no one wants to see a video produced

and then have it just sit around on a shelf somewhere.” During a client’s initial meeting, Guggisberg and Beranek begin by asking what their goals are for their company. Once they have a better understanding of how the company sees what it is they do and hope to become, Guggisberg and Beranek lay out the style of video they think would best achieve those goals. The style of video moves into a discussion regarding distribution strategies that would best reach the client’s intended audience. “We really see ourselves as a full service stop,” Beranek said. “We don’t want to just produce a product and hand it off. We want to make sure that we are continuing a relationship and that the product is reaching the intended audience.”

Production to Distribution

Depending upon the specifications of a production, a premise may be written while local community actors are interviewed for the necessary spots. When it comes to voice-over talent, Guggisberg and Beranek have contacts from New York and L.A. who are willing to help out. The length of a project is dependent upon the size and scope. For Flying Buttress Media a production from the writing stage through postproduction and editing, could take roughly four weeks. On the longer end, about two to six months, especially if they need to capture a lot of different seasons. Or, if the production calls for a series of videos, that could also take longer to complete. “We believe a high quality video can create an emotional connection, excitement, or a buzz,” Guggisberg said. “Where a less quality production might leave the viewer a little flat, that’s what we want to avoid. We believe that there is no reason why this area can’t have a high quality visual product that is as good or better than what the metro or west coast areas produce. On the distribution end, we also promote our customers videos through our own distribution channels, such as Facebook or YouTube.”

MN Valley Business • october 2015 • 31

Hermann monument in New Ulm is featured in a Flying Buttress promotional video. In the past eight months Flying Buttress Media has expanded to the St. Peter area. More recently they’ve begun working in the Mankato are and they’ve begun to receive interest from the state’s western communities, all of which Guggisberg and Beranek are extremely grateful for. “We are not afraid to travel to L.A. or New York,” said Guggisberg jokingly as he looks to Beranek. “However, we generally consider our territory to be roughly the 60 mile radius of Mankato. Certainly with stretching outside of that range, we’ve had interests with business and organizations where the population isn’t as large but they just don’t have this kind of service.” Their aim is to be the premiere provider for advertising, marketing and distribution. They feel that their unique

approach involving conceptualization, distribution and marketing services goes along way when other production houses might only focus strictly on the production aspect. Guggisberg and Beranek have found that with Facebook becoming more business savvy, a post can be boosted for a few dollars a day. According to Beranek, if a post on Facebook is boosted by even $5 it’ll extend that posts reach to at least 1,000 people. The business could then maximize their budget based on interests, behaviors, and location of various Facebook users for a more targeted approach to marketing. “We did a 60-second piece for the Chamber of Commerce in New Ulm,” Guggisberg said. “They boosted that post by $100 on Facebook. As a result, they reached 77,000 people. They had 35,000 actual views of the video and

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32 • october 2015 • MN Valley Business

something like 400 shares. To get 35,000 people watching a video, that is a remarkable bargain.” However, if the company lacks an established audience, Flying Buttress Media will assist in recommendations for building a target audience. In fact, they’ll most likely recommend a video campaign - a series of videos over a period of months - to start building an audience. The video campaign allows their clients to be more strategic regarding how they spend their marketing dollars. “We enjoy what we do because it combines creativity and technology,” Guggisberg said. “When our clients can see all of the pieces come together and get the effect they wanted, that’s very rewarding for us to see.” MV

MN Valley Business • october 2015 • 33

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34 • october 2015 • MN Valley Business

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36 • october 2015 • MN Valley Business

Construction/Real Estate Residential building permits Mankato

(in thousands)

- 2014 - 2015

15000

$3,297

7500

$3,522 1000

Source: City of Mankato

- 2014 - 2015

Information based on Multiple Listing Service and may not reflect all sales

241 253

275

Includes single family homes attached and detached, and town homes and condos

Housing starts: Mankato/North Mankato - 2014 - 2015 40

220

165

13 14

110

55 J

Source: Realtors Association of Southern Minnesota

Source: Cities of Mankato/North Mankato

Commercial building permits Mankato

(in thousands)

- 2014 - 2015

Commercial building permits North Mankato

- 2014 - 2015 (in thousands)

4000 3000 2000

$10,939 $6,050

5.5 5.0

4.1%

4.5 4.0 3.5

3.9% M

Source: Freddie Mac

Foreclosures: 2014 Year End

— 2014 — 2015

Source: City of North Mankato

Interest Rates: 30-year fixed-rate mortgage

$273 $1074

1000

Source: City of Mankato

3.0

Source: City of North Mankato

Existing home sales: Mankato region

80000 70000 60000 50000 40000 30000 20000 10000 0

$241

2000

3750

- 2014 - 2015 (in thousands) $253

3000

11250

Residential building permits North Mankato

County

2013

2014

Percent change

Blue Earth Brown Faribault Le Sueur Martin Nicollet Sibley Waseca Watonwan

101 19 27 70 25 43 39 36 24

72 21 21 47 28 24 22 27 7

-29% +11% -22% -33% +12% -44% -44% -25% -71%

Source: Minnesota Foreclosure Partners Council C. Sankey

MN Valley Business • october 2015 • 37

■

Agricultural Outlook

By Kent Thiesse

End of a (noisy) era on the Chicago Board of Trade

his summer a tradition that was 167 years old came to an end when open outcry futures trading on the Chicago Board of Trade (CBOT) was permanently discontinued. The Chicago Mercantile Exchange Group, which manages grain and oilseed futures trading at the CBOT, made the decision to switch totally to electronic futures trading for grain futures. Many grain traders, local grain elevator managers, and farm operators have fond memories of past days when a majority of grain futures were traded through face-to-face communications in the grain pits at the CBOT. The origin of grain futures trading, and all futures trading, in the United States, traces back to 1848, which was the year that the CBOT was founded. The CBOT was established to promote commerce, as well as to have a specific market place for price discovery and transfer of risk for various commodities. In the early days of the CBOT, there were no futures contracts, and trading was simply cash contracts between buyers and sellers. By 1865 the CBOT developed new and innovative concepts for trading commodities, which really were the cornerstones of the grain futures contracts that we utilize today. They identified standardized contracts, with specific terms for quantity, quality, and delivery procedures. About that same time, the CBOT also developed terms for payment and contract settlement, and initiated procedures for margin calls. This totally changed the way commodities were sold by grain elevators and farmers, and for purchases by processing plants and other end-users. In addition, this led to “grain speculators” being quite common, as well as the use of “hedging,” whereby grain sellers and buyers could establish a price without actually transferring the physical commodity. Today, the concept of futures trading, hedging, and the use of standardized contracts has extended well beyond agricultural commodities and is utilized in business and commerce throughout the World. The early rules and management processes at the CBOT evolved into practices that are utilized today, such as daily position settlements on futures contracts, facilitating the paying of losses and collection of gains on contract positions. The upgrading and “tweaking” of these processes over the years has helped maintain and improve the overall integrity of the CBOT, and the entire futures trading industry. In the late 1800s and for the greater part of the next century, futures trading at the CBOT continued to thrive and grow in volume. There were many fortunes made and lost through the open outcry process in the grain pits at the Chicago Board of Trade. However, as technology grew across the United States in the late 1980s and throughout the 1990s that greatly affected the grain trading industry, and ultimately lead to

38 • october 2015 • MN Valley Business

the end of grain pit futures trading at the CBOT. In 1987 the Chicago Mercantile Exchange developed electronic futures trading, which was initially conceived as means to provide “after-hours” market coverage for CME currency trading. In 1992 the CME launched “screenbased” electronic futures trading, which quickly became common-place for all types of commodities, including agricultural commodities. Electronic trading boosted volumes and revenues from futures trading, and also allowed many newcomers to enter the futures market. This also lead to new competitors in futures trading, such as the Intercontinental Exchange, which utilized electronic trading for all transactions, with no open outcry trading.

Electronic trading takes over

The use of electronic trading continued to grow rapidly in the late 1990s and early 2000s, and by 2006 the volume of electronic futures trading had surpassed the open outcry trading in grain pits at the CBOT. By early 2015, electronic futures trading had totally taken over the grain trading industry, and less than 1 percent of the total grain trading volume at the CBOT was accomplished through the open outcry trading method. This finally led to the decision earlier this year to discontinue open outcry trading on grain futures contracts at the CBOT. The CME Group is continuing to offer floorbased trading for options contracts, as well as the S&P 500 Index Futures. Despite the historic development of the discontinuation of trading grain futures in the trading pits at the CBOT, the grain futures trading industry is alive and well. The electronic grain trading process continues to offer the same basic concepts that the open-cry grain trading did several decades ago. It serves the dual purpose of price discovery and risk transfer for commodities. It allows grain producers to lock-in a selling price well ahead of harvest, or to set a basis level for grain sales, which is the difference between the CBOT futures price and the local cash price being offered. The use of electronic futures allows grain elevators, soybean processing plants, ethanol plants, and other end users of grains to offer competitive bids to producers well before delivery of the grain. It also allows these purchasers of grains to change their bid offers instantly as CBOT futures prices change. Livestock producers also use CBOT grain futures to lock in feed costs for livestock production, when grain prices are favorable. Feed costs are the largest expense in most livestock production systems. Livestock producers also utilize CME livestock futures to set market prices for livestock sales at profitable levels, as part of an overall risk management strategy.

Agriculture/Agribusiness Corn prices — southern Minnesota

(dollars per bushel)

— 2014 — 2015 8

12 8

Iowa-Minnesota hog prices

Source: USDA

Milk prices

185 pound carcass, negotiated price, weighted average

— 2014 — 2015 140

$9.27

$3.18

Source: USDA

$24.82

110

Minimum prices, class 1 milk Dollars per hundredweight

— 2014 — 2015 30

125

95 80 65 50

$11.44

(dollars per bushel)

— 2014 — 2015 20 $3.28

Soybean prices — southern Minnesota

$107.46

$77.10

Source: USDA

$17.10 J

Corn and soybean prices are for rail delivery points in Southern Minnesota. Milk prices are for Upper Midwest points.

Hedging an important tool

The use of hedging through the CBOT futures and options grain markets have become an important grain marketing tool for grain producers in recent years. In the past couple of years a successful grain marketing plan has been one of the main differences between profitable grain farming operations, and those that have struggled a bit from a profitability standpoint. Typically, in years with high levels of nationwide corn and soybean production, such as 2014 and 2015, grain prices tend to peak earlier in the growing season

Source: USDA. Based on federal milk orders.

and then tail-off toward harvest season in the fall. This makes it very important for producers to have the tools and skills to forward price some of their production well before it is harvested in a given year. The term “hedging” refers to setting a price on the futures market for anticipated commodities, such as corn or soybeans that are growing in the field. At some point after the crop is harvested the hedge position is lifted and crop is actually sold on the cash market. Even if the cash price has dropped the producer will have a profit from the grain hedge

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position. Many times the basis between the CBOT futures price and the local cash price is quite wide at harvest time. Hedging allows a farm operator to lock-in a price on the grain prior to harvest, to store the grain after harvest, and physically deliver the grain at some future time after harvest when basis levels usually have improved. Electronic trading makes grain trading easier, faster, and more accessible, as well as improves the communications in the industry. Fortunately, the integrity of the grain trading industry is just as solid as ever, and the importance of having grain futures trading as a risk management tool is as important as ever to grain farmers, livestock producers, processors, and others in the agriculture industry. For many of us, we will always have special memories for the “prime time” of open outcry trading in the grain pits at the CBOT, which is now part of history. MV Kent Thiesse is farm management analyst and vice president, MinnStar Bank, Lake Crystal. 507- 381-7960; kent.thiesse@minnstarbank.com

MN Valley Business • october 2015 • 39

Employment/Unemployment Initial unemployment claims

Minnesota initial unemployment claims

Nine-county Mankato region Major August Industry ‘14 ‘15 Construction Manufacturing Retail Services Total*

59 90 39 158 346

Percent change ‘14-’15

128 322 30 122 602

Major Industry

+117% +258% -23% -23% -74%

August

Construction Manufacturing Retail Services Total*

‘14

‘15

Percent change ‘14-’15

1,879 1,423 970 3,818 8,090

1,973 2,303 831 3,575 8,682

+5.0% +62% -14% -6.4% +7.3%

Services consist of administration, educational, health care and social assistance, food and other miscellaneous services. *Categories don’t equal total because some categories not listed.

Local non-farm jobs

Minnesota Local non-farm jobs

- 2014 - 2015

Nine-county Mankato region

126,871

133000

(in thousands)

122000

2000

111000

1000

100000

Local number of unemployed

- 2014 - 2015

Nine-county Mankato region

8000

5,600 5,221

6000

Minnesota number of unemployed 200000

10000

- 2014 - 2015

130,497 115,958

150000 100000

4000

50000

2000 0

2,892 2,926

3000

127,877

- 2014 - 2015

Mankato/North Mankato Metropolitan statistical area

Unemployment rate Number of non-farm jobs Number of unemployed

2014

2015

3.6% 55,163 1,802

3.3% 56,991 1,703

Source: Minnesota Department of Employment and Economic Development

40 • october 2015 • MN Valley Business

Unemployment rates Counties, state, nation

(includes all of Blue Earth and Nicollet Counties) June

County/area Blue Earth Brown Faribault Le Sueur Martin Nicollet Sibley Waseca Watonwan Minneapolis/St. Paul Minnesota U.S.

June 2014 3.7% 4.3% 4.8% 4.7% 4.4% 3.3% 4.2% 4.7% 5.3% 4.0% 4.1% 6.3%

June 2015 3.4% 4.4% 4.8% 4.2% 4.9% 3.1% 4.0% 4.4% 4.6% 3.8% 3.8% 5.6% C. Sankey

Retail/Consumer Spending Vehicle Sales Mankato — Number of vehicles sold - 2014 - 2015

1,111 1,057

1200

(In thousands)

500

800

400

600

300

400

200

100 J

Source: Sales tax figures, City of Mankato

Lodging tax collections Mankato/North Mankato $47,450 $26,563

60000

$413 $461

Source: Sales tax figures, City of Mankato

Mankato food and beverage tax

- 2013 - 2014

110000

50000

$47,450 $26,563

88000

40000

66000

30000

44000

20000

22000

10000 0

- 2014 - 2015

600

1000

Includes restaurants, bars, telecommunications and general merchandise store sales. Excludes most clothing, grocery store sales.

Sales tax collections Mankato

Source: City of Mankato

Stocks of local interest

Aug. 14

Sept. 11

Percent change

Archer Daniels

$46.83

$42.82

-8.6%

Ameriprise

$121.35

$109.72

-9.6%

Best Buy

$32.21

$37.99

+18%

Crown Cork & Seal

$51.81

$49.03

-5.4%

Consolidated Comm.

$20.36

$19.10

-6.2%

Fastenal

$40.19

$38.67

-3.8%

General Growth

$27.93

$24.95

-10.7%

General Mills

$58.30

$58.47

+0.3%

Hutchinson Technology

$1.66

$1.37

-17.5%

Itron

$33.07

$28.30

-14.4%

Johnson Outdoors

$26.80

$22.71

-15.3%

$146.23

$141.26

-3.4%

Target

$79.54

$77.88

-2.1%

U.S. Bancorp

$45.57

$41.06

-10%

Wells Financial

$31.00

$30.50

-1.6%

Winland

$1.69

1.74

+3.0%

Xcel

$36.18

$33.16

-8.3%

Gas prices-Mankato — 2014 — 2015

$3.33

$2.19

1 0

Gas prices-Minnesota — 2014 — 2015

$3.32

4 3 2 $2.29

1 0

Source: GasBuddy.com C. Sankey

MN Valley Business • october 2015 • 41

southern minnesota’s sleeping

GIANT By: Sam Ziegler, Director of Project ABE, Greater Mankato Growth

t’s time we talk about the single largest engine of the Southern Minnesota economy, an industry hidden behind old adages and divided by misalignment. To do this we must dig deeper into employment reports and industry sector scores to find an industry that has its roots in manufacturing, research, engineering, natural resources and branches into all professional service business sectors.You may have figured out by now that the industry we’re referencing is agriculture.

Greater Mankato Growth

For a moment let’s look at the roots of agriculture, roots that are stronger, deeper and more wide spread than any other industry in the region.

*The areas listed above are just a sampling of the broad range of industries that impact agriculture. The roots are strong due to the diversity and range of products and services within agriculture. The roots are deeper due to the rich soil and clean water, which have built this region for well over 100 years. Our roots are wider spread than any other as we appear on the top ten lists of many sectors of agriculture including dairy, pork, corn, soybeans, sugar beets, sweet corn, peas and turkeys. And this is just at the beginning of the supply chain. Food processing plants, renewable energy facilities and feed processing plants all contribute to the agricultural impact throughout Southern Minnesota.

42 october2013 2015• •MN MNValley ValleyBusiness Business 1 •• JANUARY

“

But what truly is the sleeping giant in agriculture of Southern Minnesota? Manufacturing. From companies such as Dotson Iron Castings in Mankato where they design, engineer and produce iron castings or Avery Weigh-Tronix in Fairmont that specializes in scales, to AGCO’s major operation in Jackson and Environmental Tillage systems in Faribault, the list of those in the manufacturing arena is extensive.

“In the early years we made farm tractors (more than 500 were sold) and many agricultural implements,” says Denny Dotson, Chairman of Dotson Iron Castings, the oldest manufacturer in Mankato with a history that goes back to 1876. “Today our iron foundry is still heavily involved in the ag industry, suppling castings to most of the major implement companies in the U.S. The [ag manufacturing] industry makes up 30 - 40% of our annual sales each year.”

...if you are a person or a business that finds value in being connected to the ag business industry, the South Central Minnesota Agricultural Region is where you will want to be.

”

The advancement of technology, driven by a desire to become more efficient and sustainable, has been booming from companies’ specializing in GPS technology to robotic milkers to developments in high tech drones. With the great impact the agriculture industry has on Southern Minnesota what is being done to direct the conversation to the engine of our economy? In early 2013 Greater Mankato Growth began a process of connecting with the ag business community and launching what would become known as Project Ag Business Epicenter (ABE). Since the initial roundtables, a snapshot of the regional ag marketplace has been produced, revised and distributed, we’ve hosted an Ag Business Summit and appointed a Steering Committee in the late summer of 2014. The Steering Committee, made up of 15 executive leaders primarily from business with a geographic mix representative of the Southern Minnesota agricultural region, developed a unifying document to serve as the foundational guideline to move forward.

The next big step was to bring on dedicated staff to focus exclusively on Project ABE and that came to fruition in April of this year when a director was hired. Since then the initiative has been gaining size and momentum at a rapid pace.

“Like other dominate industry clusters in the United States, Silicon Valley or The Research Triangle for example, if you are a person or a business that finds value in being connected to the ag business industry, the South Central Minnesota Agricultural Region is where you will want to be,” says Jonathan Zierdt, president & CEO of Greater Mankato Growth, Inc. With many specialties and a strong talent pool it is no wonder agriculture is the sleeping giant in Southern Minnesota. To better understand the massive existing agricultural infrastructure beyond production of crops or animals visit our website at greatermankato.com/agribusiness and be sure to read the agbioscience report that will take you deeper into this incredible diverse industry.

For more information on Project ABE or agribusiness in the region contact Sam Ziegler at sziegler@greatermankato. com or 507.385.6672.

MN Valley Business • october 2015 • 43

Greater Mankato Growth

Following the Steering Committee’s design work and its request to invest in the organizational infrastructure that would be required to move the initiative forward, the Greater Mankato Growth, Inc. Board of Directors approved a strategic investment of approximately $370,000 to finance the first three years of work.

An annual dinner event spotlighting leading business executives on the national and international stage in candid conversations about their road to success and insights on leadership.

Tuesday, October 20, 2015 5:30 in the evening

Greater Mankato Growth

The Woods Grill & Bar at Shoreland Country Club

This Greater Mankato Growth Public Affiars inaugural event will feature John Jimenez, a top executive with British Petroleum and a Loyola Catholic School Mankato alumnus, sharing his journey of leadership. Registration is required for this event, only 100 tickets will be sold. More information including registration information can be found online at greatermankato.com/journeys.

An event of:

44 october2013 2015 •• MN MNValley ValleyBusiness Business 1 •• JANUARY

The Greater Mankato Business Awards & Hall of Fame is Greater Mankato’s premier business awards event. It is a time where each organization in the Greater Mankato Growth, Inc. family recognizes and celebrates the outstanding businesses, organizations and individuals within the community. Save the date and be sure to join us for this years event.Visit greatermankato.com/business-awards-hall-fame for more information, registration and to see this years award recipients. Tuesday, November 17 | 5 - 9 pm Verizon Wireless Center Ballroom

5:00 - 7:00 pm October 6 November 3 December 1

I+S Group Blethen, Gage & Krause Gislason & Hunter

2015 Business After Hours Sponsored by:

October 21 November 11 December 16

South Central College Consolidated Communications Wells Federal Bank

2015 Business Before Hours Sponsored by:

August Business Before Hours Hosted by Minnesota Valley Federal Credit Union

Business After and Business Before Hours gives representatives from GMG member businesses at the Engaged Level or higher an opportunity to get together with one another to exchange ideas and learn about each other’s businesses. For more information on these and other member events, visit greatermankato.com/events.

MN Valley Business • october 2015 • 45

Greater Mankato Growth

August Business After Hours hosted by Unique Specialty & Classics

7:30 - 9:00 am

NEW PRESIDENT

RIBBON CUTTING

Growth in Greater Mankato

GROUNDBREAKING Bethany Lutheran College 700 Luther Drive Mankato, MN

Kwik Trip - Mankato 1721 Premier Drive Mankato, MN

NEW OWNERS

GROUND BREAKING

RIBBON CUTTING

Monarch Healthcare Management 638 Southbend Ave Mankato, MN

M2 Lofts 1050 Marsh Street Mankato, MN

Walmart Distribution Center 101 Sohler Drive Mankato, MN

DEDICATION & RIBBON CUTTING

Cavaliers

Greater Mankato Growth

Mankato Rotary Clock 12 Civic Center Plaza Mankato, MN

Brock White Company 55177 210th Lane Mankato, MN brockwhite.com

Cavalier Calls on the Newest Greater Mankato Growth Members

Main Street Dental Clinics of Mankato 287 Saint Andrews Drive Mankato, MN mainstreetdentalclinics.com

46 october2013 2015 •• MN MNValley ValleyBusiness Business 1 •• JANUARY

August Schell Brewing Company 1860 Schell Road New Ulm, MN scheelsbrewery.com

Pantheon Computers - Mankato 515 North Riverfront Drive, Suite 160 Mankato, MN pantheoncomputers.com

Embrace the Race

Mankato Marathon Hypes up for Year 6 By Kathryn Reeder, Brand Manager,Visit Mankato

n 2015 the Mankato Marathon, presented by Mayo Clinic Health System, anticipates bringing nearly 10,000 people to town including runners and spectators. Some of these people will be visiting Mankato for the first time. It’s our job as a community to welcome them with open arms so they will want to return for another visit. The sixth annual Mankato Marathon takes place on October 17 & 18 and is projected to have an attendance of 5,000 runners. Each year research shows that runners bring at least two other people with them and that nearly half of our runners come from outside of a 60 mile radius of Greater Mankato. These overnight visitors are making a weekend out of the Mankato Marathon; they’re investing their dollars in our hotels, attractions and restaurants. As a destination, we embrace this event each year, along with its $5 million economic impact. It’s vital for local businesses to welcome these visitors with banners or messages on marquees, promotions/specials, or by coming out race day to cheer on the runners.Visit Mankato will also help promote your specials for the runners.

Runners of the 10K, Half, Relay and Full marathon routes will now cross the finish line at the intersection of Front Street and Liberty Street next to the Public Safety Center, allowing the opportunity to showcase Mankato’s recent Front Street developments. The post-race area will be amidst the local businesses and outdoor patios of Front Street, making for a fun and unique post-race celebration with great ambiance. This atmosphere will include live music, spirits and delicious local cuisine in a street festival setting. The Mankato Marathon’s 2015 Keynote Speaker;

For more information about the sixth annual Mankato Marathon weekend, go to mankatomarathon.com or call 507.385.6660.

Mankato Marathon Schedule of Events Saturday, October 17 Scheels Sport and Health Expo – 11 am - 7 pm Pediatric and Adolescent Dentistry Toddler Trot & Diaper Dash – 1 pm, 1:10 pm Orthopaedic & Fracture Clinic Speaker Series – 12:00, 5:30, & 7 pm YMCA Kids K – 2:45 pm (Ages 7-12); 3:00 pm (Ages 6 & Under) Pork Power 5K – 4 pm Sunday, October 18 Wells Fargo 10K – 7:30 am Half Marathon, Relay Marathon and Marathon – 8 am Post-Race Festivities – 8:30 am to 3:30 pm

MN Valley Business • october 2015 • 47

Greater Mankato Growth

In addition to the event’s great economic impact, to keep things fresh, the event always offers new and exciting features each year. This year includes: a new finish line location, an additional charity to the Charities Program and an Olympian Minnesota-native Keynote Speaker.

Minnesota-native and Olympian Carrie Tollefson, will inspire us with how to GET AFTER IT in life. Born and raised in Dawson, MN, Tollefson was a 13-time State Champion in High School, a 5-time NCAA Champion and NCAA Indoor Track Athlete of the year at Villanova University and a three time national champion in her post collegiate career. After winning the 1500m trials in 2004, Carrie represented the U.S. in the 2004 Olympic Games in Athens, Greece. Be sure to catch Carrie’s speech about how to GET AFTER IT in life, 6 pm, October 17 at the Sport & Health Expo.

Our roots run deep. Did you know that Minnesota is home to 81,000 farms totaling nearly 27 million acres? And, it’s important to note that the agriculture and food industry is the second largest employer in Minnesota. At AgStar Financial Services, we know how important agriculture is to the state and to this community. We’re proud to have served agriculture and rural communities for more than 95 years. For generations, we have served farm families and agribusinesses as their trusted financial partner. We wouldn’t want it any other way.

48 • october 2015 • MN Valley Business