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Note Summer 2011 Published by:
GreenStone Farm Credit Services
2 Comments from CEO Dave Armstrong CEO Dave Armstrong reflects on a challenging planting season and GreenStone's recent Board of Directors election.
If nothing else, one thing that can be said for the first six months of 2011 is that the weather has certainly been volatile. From the cold and rain of the spring, to extreme heat, and everything in between…it has definitely created a lot of uncertainty within our industry. We can only hope that the conditions in the second half of the year are favorable and help produce good yields for our customers. With summer now in full swing, you and your family are undoubtedly busy with the many activities this season brings; however, we hope you will also find a few minutes to enjoy this latest issue of Partners, which features an update on our governmental relations work, introduction of our summer interns, and an article on an Upper Peninsula dairy farm. Happy reading…and as always, your comments and ideas are welcomed.
3 Market Outlook Ag Economist Bob Utterback offers suggestions to producers on upcoming market conditions and opportunities.
9 Young, Beginning & Small Farmer Focus The DeBacker Dairy Farm has found success in a market niche that local consumers have embraced.
13 Governmental Relations GreenStone continues to support policy that protects members' interest and bottom line.
15 9 15 Directors' Perspective Three directors share opinions on alternative energy options for producers.
17 Guest Column Decisions regarding new employees should involve a solid process. Are you covering your bases?
Summer Notes 6 News Update 8 Candid Comments
Please note: GreenStone offices will be closed in observance of holidays on the following dates: July -Monday, 4th September -Monday, 5th
This newsletter is published quarterly for the customers of GreenStone Farm Credit Services. Partners, 3515 West Road, East Lansing, MI 48823 • 517-318-2290 • email@example.com
From CEO Dave Armstrong
will hopefully hold through this fall and winter to offset any reduction in yield.
By the time you read this, whatever corn is going to be planted in Michigan and northeast Wisconsin is either in the ground or won’t be planted. As of June 3, USDA indicated that 67 percent of Michigan’s corn crop was planted compared to the average for this time of year of 90 percent. Soybeans were also well behind the five-year average of 69 percent, at 31 percent. The 2011 planting season will certainly be one for the record books. The past five years of unusually early, perfect planting conditions has played a cruel trick on our memories making us think that kind of weather was normal! Unfortunately, Mother Nature has cruelly reminded us who is in control, but not all is lost!
Remember, June 5 was the final plant date for the full yield and revenue guarantees on corn, with June 15 being the date for soybeans. Make sure you have carefully reviewed your crop insurance policies and contacted your crop insurance agent regarding any questions or concerns. Good communication early is the key to minimizing “surprises” should claims arise. Board of Director Elections Congratulations to incumbents, Bill Stutzman, Darl Evers, and Ed Reed for being re-elected to a new three-year term on the GreenStone Board of Directors. I would also like to extend a hearty GreenStone welcome to Bruce Lewis, a dairy farmer from Jonesville, Michigan, who was newly elected to the board. Bruce defeated incumbent, Lyn Uphaus, from Manchester, Michigan. Lyn has served on the GreenStone board since its inception in January of 2000 and served as either the GreenStone Board Chair or Vice Chair several
“The past five years of unusually early, perfect planting conditions has played a cruel trick on our memories making us think that kind of weather was normal!”
With unseasonably warm temperatures forecasted for the first two weeks of June and only scattered showers, most of our members should be able to get their original crop rotations in. This reprieve from Mother Nature, coupled with better seed genetics and bigger equipment used in many farm operations today, will all combine to get a crop in that should produce “decent” yields. Plus, new crop prices continue to provide good margins for cash croppers and
times throughout his tenure. He was highly respected by his fellow board members for his pragmatic and selfless leadership style. During Lyn’s tenure, GreenStone has grown from a $1.3 billion financial institution to over $5.6 billion Continues on page 6...
â€œThe trade is very nervous because there is confusion about how many corn and soybean acres have been planted, and the full brunt of the hot, dry weather of July and August will make By Bob Utterback
it difficult to gauge late planting conditions.â€?
It has been a rough planting season for those in the Eastern Corn Belt. As of June 1, corn plantings nationwide were 86 for corn and 51 for soybeans. Historically, the crop is usually in the ground by then and there is talk of summer weather. The trade is very nervous because there is confusion about how many corn and soybean acres have been planted, and the full brunt of the hot, dry weather of July and August will make it difficult to gauge late planting conditions. So we are in a full blown supply uncertainty event. Normally the function of the marketplace is to anticipate these actions and drive prices higher to ration usage so enough inventory will be left over.
Partners Summer 2011
Since the June 2010 lows, the December 11 corn contract has rallied from $3.83 to $6.83 (5/31/11). This could amount to a $300,000 change in value for every 100,000 bushels of corn produced. November 11 soybeans have moved from the June 2010 low ($9.13-1/2) to a March high of $14.08 (or $4.94-1/2). A 50,000 bushel soybean producer has seen a $247,300 change in value. Having a 12-month bull market without at least a 50 percent correction is very rare. This raises the question: Are prices high enough to ration usage? Up to now, feed usage has not been significantly affected by higher corn and soybean prices because of the constant price improvement in the cattle and hog complexes through spring. Tight inventory numbers and general expectation of improving economic conditions have kept demand stable. Looking forward, I see a problem with the livestock market no longer having cheap corn to feed and consumers will start to push back at the retail level. I suggest feed usage will fight hard to maintain its current usage level; don’t be surprised to see some usage reduction in the fourth quarter of 2011 if prices are near current value levels. Other big demand prospects—energy and exports—are hanging on, but expectation is growing daily that a sharp drop in usage is just around the corner if it has not already happened. It is rumored many ethanol producers are not forward buying corn for July through fall needs. They believe prices will drop or they will shut down production. China has made a concerted effort to reduce domestic usage by increasing the cost of capital 2011 Corn Suggestions: I believe producers will have two times at bat to get their (anticipated) 2011 crop sold. The first one was as we moved into early July and the market had maximum concern about reduced acres and pollination. The second opportunity will come between February and April of 2012 when the market is trying to drive up prices to assure adequate acres are planted. To my way of thinking, the July 2011 high will be the best time to sell. 2012 Corn Suggestions: I’m always watching for opportunities for producers to lock up exceptional profits. I suggest setting a target selling objective of 20 percent to 30 percent over all costs. According to my numbers, we are getting close to those price levels. The only problem is I see a lot of market movement over the next 12 months. Focus on selling 2012 on a weather bounce, and focus on buying call protection in September-October. While there are alternatives to this plan, one must adjust their market plan to be in conjunction with their ability to handle cash flow risk exposure, emotional temperament in handling market movement, and the level of complexity they are willing to handle to balance cash flow versus revenue opportunities.
used for export purchases along with other domestic policy to discourage consumption. It appears the market has done its job to ration usage with higher prices. Will supply be negatively affected by weather, creating a major imbalance in the market? My greatest concern is that we are hovering on the edge right now with extremely tight domestic corn stocks. If a dry weather event occurs between June 1 and July 15, it may be short-term positive for those who had the nerve to remain unpriced at near record prices. But it’s a major negative longterm, in my opinion, because I fear sharply higher prices will not only ration demand, but destroy it! Once the end user is priced out of the market and he secures other supplies or chooses to move out of the consumption stream, it may take an exceptional amount of time and effort to regain the end user. What does a producer do? With input costs already locked up for the 2011 crop and December corn in excess of $6.70 many times this year, producers are being offered historically high profit levels. I hate to say it, but agriculture is an industry that does not handle prosperity well. Eventually, cash rents will increase drastically along with other input costs; at the same time demand will be rationed and supply increased globally. Often times the end result is sooner rather than later and the market moves “below the cost of production.” The big difference this time is the emergence of the Asian markets and ethanol usage. Both brought essential demand growth to the corn and soybean complexes; but I have to say it is only a matter of time before supply catches up. 2011-2012 Soybean Suggestions: The soybean complex pricing has been range bound since January; after a $3.60 price rally off the June 2011 low, it ran into the brick wall of big supply coming out of South America and stiff demand resistance from China to import more soybeans. Both of these factors established major overhead resistance at $14 and major support around $12.25. I believe a close above or below either level will trigger aggressive market activity as major position squaring will be required and, more than likely, major speculative activity would be triggered. I believe the odds do not favor the bull right now with the possibility of late soybean acres coming out of the Eastern Corn Belt and active price resistance in the export sector. It appears the only really bullish potential for a solid breakout lies in a hot, dry late July-August time period. I have suggested focusing on selling cash soybeans off-thecombine at $13.50 or higher and only considering a limited upside call defensive strategy if the November 2011 contract is able to decisively close above $14.08. In fact, if we do get a summer dry weather event and the November 2012 contract is able to move above $14, I believe producers should give serious thought to selling a portion of their expected 2012 crop.
2011 Wheat Suggestions: This market started the year off with a bang, but has faded. With harvest just around the corner and Russia suggesting large export sales, this market has fallen on hard times. I would not be surprised to see wheat fall back to its winter lows before finding support. The major ally that wheat has going for it is the corn complex. If corn does get into trouble this summer, we could see a decisive effort by livestock feeders to move to wheat. This, I believe, will help put a lot of stability in wheat prices. Long-term, I believe the corn and soybean profits will continue to pull acres away from wheat. It will be very difficult for July 2012 wheat to get above $9.50 unless we see a solid reduction of acres this fall or winter injury problems. Those who waited this long to sell their (expected) 2011 crop might as well go all the way. Hold off on selling during harvest and shoot for an August selling date. Essentially, I feel those producers are betting on tight corn stocks to push demand their way, along with a normal seasonal bounce in basis and price once harvest is finished. I assume those following my recommendations have already sold a fair portion of their expected wheat above $9 using the July 2012 contract. They now have to wait and see what type of bounce they get into the fall. Hogs: The hog chart looks like the wheat chart. After the sharp upside blow off top in March, we saw a rapid retreat to the winter lows. In May, this market was trying to develop a bottom and producers have been waiting for the seasonal bounce to price. The problem is retail demand is being pushed back by consumers resisting higher prices. The biggest problem I see developing for the hog sector is $4.50 corn in the bin being replaced with $7.50 or higher cash corn. Be prepared for some herd contraction in the fourth quarter. There is some good news: a moderate herd liquidation could result in better prices [long-term] as we move into 2012 rather than soon. Focus on defending anticipated fourth quarter production in the December contract between $86 and $88 basis; donâ€™t go much further into 2012 hedges. Hog producers must remain open and buy corn hand-to-mouth if they have not already bought inventory. As a producer, I would plan to aggressively buy corn after August but before the October supply/demand reports. End users will want to lock up lead-month corn below $6 to avoid the possibility of higher prices during the summer. Cattle: The story is essentially the same. Winter highs are fading fast. The biggest long-term ally the cattle complex has is its breeding herds are already historically low. This helps keep inventory numbers low. Beef prices have slipped; but it is
Partners Summer 2011
very expensive to keep a heifer for the breeding herd. I expect expansion to be very slow if at all. As summer temperatures increase along with the price tag for beef, I expect consumers to rebel and use lower priced meat cuts. The bear is firmly in control of cattle prices. Donâ€™t be surprised to see prices slip well into August and early September. While pricing would be strongly recommended if we see good technical bounces in the December cattle contract back to the 120 to 122, the real story lies in controlling corn and meal costs if a respectable fall correction develops. Outside markets: Energy: After a wild start to the year, the energy markets are finally coming back down. While gasoline could still be very high due to summer driving and refinery disruptions, overall supplies are getting better and setting the stage for a slide into fall. I would only buy fuel needs hand-to-mouth. Side note: I expect this to have a moderately negative impact on fertilizer values this fall. But, because I believe there will be a big push to buy additional corn acres next year, the risk is clearly higher that fertilizer input costs will rise rather than drop as we move into 2012. I suggest buying on the seasonal low usually seen during August. Interest rates: The Federal Reserve's quantitative easing came to an end in June. Many expect the federal Reserve to lay low for a few months to see how the economy does before deciding if and when to increase interest rates. It appears there is more concern right now about a secondary slow down in the economy rather than any inflationary pressure. Subsequently, I see limited upside risk of interest rate growth until well into 2012. ABOUT THE AUTHOR Bob Utterback is the Economist for Farm Journal magazine and President/CEO of Utterback Marketing Services, Inc., located in New Richmond, Indiana. He has over 28 years of experience analyzing ag commodity markets, with special emphasis on the corn and soybean markets. Strategy updates are available by subscribing to Utterback Marketing Servicesâ€™ email/internet services at www.utterbackmarketing.com or by calling 800.832.1488 (ask for Laura). The information provided is believed to be reliable. There is risk of loss associated with trading futures and options. Consult your Risk Disclosure Statements before trading. Commodity trading may not be suitable for recipients of this outlook. To comment on Outlook, email to firstname.lastname@example.org. The opinions stated herein are not necessarily those of GreenStone FCS.
News Update Summer 2011 Online Banking System Advancements GreenStone’s Online Banking system has implemented a group of user-focused enhancements: Login Website Address: Users should now utilize the new URL onlinebanking. gsfcs.com to access the login screen. The address change is part of a step to
ensure the protection and confidentiality of our Online Banking customers. Login Screen: A revised login process further helps to protect customer’s privacy, while making the experience more streamlined and executable. Look for this change during the month of July! Styling: Improved color utilization and styling
will help to reduce user confusion by simplifying the look and details associated with online banking tasks.
Partners to see what these students gained from their summer experience with GreenStone.
If you haven’t signed up to utilize GreenStone’s Online Banking system, now is a great opportunity. Visit greenstonefcs.com/ onlineresources and select “Enroll” to gain online access to your accounts.
Joshua Gunderson Credit Intern Gunderson attends the University of Wisconsin –River Falls where he is majoring in Agricultural Business. He is involved in the Ag Education Society and the Ag Business and Marketing Society. After graduation, Gunderson hopes to find a position that he enjoys in the Farm Credit System or a job in international agridevelopment. He enjoys
Intern Introduction GreenStone is excited to introduce our six summer interns. We are pleased to have these bright and talented individuals on our staff. Watch for a follow-up article in the fall issue of
...CEO Comments continued with 20,000 customers, a strong capital base, and an ongoing patronage program that has paid members over $85 million since its inception in 2005. Performance like this doesn’t just happen. It’s the result of dedicated board members like
“Having the people who use the association’s products and services also serve as its owners is truly unique in today’s business world”
Committees to the Board of Directors and Tellers Committee, it’s a true team effort that we should never take for granted. The association elections are at the foundation of your cooperative’s governance structure. Having the people who use the association’s products and services also serve as its owners is truly unique in today’s business world. Your Farm Credit Association is not governed by a few elite stockholders in far-off places who never use its services, but by those who have firsthand “customer” experience day in and day out. This ensures that GreenStone remains focused on the needs of its members in a financially responsible manner to provide dependable and competitive credit and financial services for many years to come. I will close by thanking you for your business and loyalty to your association and invite you to contact me directly at (517) 318-4105 or email@example.com if I can ever be of assistance.
Lyn working with a competent staff to truly be the “best at providing credit and financial services” to our marketplace. Please join me in thanking Lyn for his 13 years of service and wishing him the best of success in the future. Thank you to all of the other candidates as well for their willingness to participate and serve, if elected, in the organization’s governance process. From the Nominating
hunting, fishing, being outdoors and traveling. Matt Naeyaert Credit Intern Naeyaert attends Michigan State University (MSU) where he is majoring in Economics, and is a member of MSU College Republicans. Naeyart plans to pursue a career in the financial services industry post graduation. In his spare time, he likes to play sports (especially golf) and watch television and movies. Mike Niesyto Credit Intern Niesyto is a student at Central Michigan University majoring in Finance, and is an active member of the Financial Management Association. Niesyto has a long-term goal of taking on a Chief Financial Officer role for a large corporation. His first step toward this goal will be landing a job in the financial industry and possibly pursuing a master’s degree in finance. He enjoys golfing and watching and participating in all types of sports. Steven Schaefer Legal Intern Schaefer is majoring in Law at the University of Toledo College of Law. He is a member of the Federalist Society and the Cycling Club. After college, he hopes to find a job involving business law work. Schaefer enjoys biking in his free time. Sarah Spagnuolo Operations Intern Spagnuolo attends Albion College where she is 7
Partners Summer 2011
majoring in Economics Management and Communications. She is a member of the Alpha Chi Omega Sorority and the Investment Club and is the Vice President of Finance for the Panhellenic Council. Spagnuolo is interested in pursuing a career in business and possibly obtaining a Masters of Business Administration in the future. She enjoys playing tennis and golf in her leisure time. Andrew Warner Audit/Appraisal Intern Andrew is a student at Adrian College where he is majoring in Business
Administration. He is a member of the Adrian College Varsity Track and Field Team. Warner is still exploring potential career paths and views this internship as an opportunity to gain insightful business knowledge and experience. He likes to read and enjoys athletics.
You could win big at the 2011 MSU Ag Expo. Stop in and see us during Ag Expo and enter our drawing for a $500 Tractor Supply Company gift card. It only takes a minute and you could be our lucky winner. We’re supporting the
Michigan FFA Foundation again this year with a puttputt course where you can put your putting skills to the test. We’ll make a $1, $3, or $5 donation to FFA if you can sink a putt. Plus, you can enjoy a cold lemonade, some peanuts, and free balloons inside our tent. There are also a lot of demonstrations and educational exhibits to visit while you’re at the show. You can learn about everything from sprayer calibration to the benefits of cover crops. For more information on the show visit www.agexpo.msu.edu.
2011 Customer Appreciation
Customer Appreciation Events and Trade Shows Customer Appreciation Events
UpComing Trade Shows
Corunna: July 8, Lansing Lugnuts Game at Cooley Law School Stadium
Ag Expo: July 19-21
Charlotte: July 15, Eaton County Fair Ionia: July 24, Ionia Free Fair Schoolcraft: August 18, Annual Picnic at Nottawa Fruit Farm Allegan: August 26, West Michigan Whitecaps Game at Fifth Third Ballpark
Lake States Logging Congress: September 8–10 Michigan Association of Realtors Expo: September 28-29 Great Lakes Fruit and Vegetable Expo: December 6-8
Powering Haiti Justinien Hospital in recent earthquake-stricken Haiti now has light and electrical power to provide a higher quality of medical care, thanks to the gift of a generator donated through a partnership between Sparrow Hospital, Michigan State University (MSU), Williamston’s Explorer Elementary School and GreenStone Farm Credit Services. “The need for dependable sources of electricity in Haiti is still great, and nowhere is that need greater than in hospitals,” said Dr. Reza
Nassiri, director of MSU's Institute of International Health. “This generator will literally save lives.” The Cummins 150 kilowatt diesel-powered generator originated from GreenStone’s former corporate headquarters. “We are pleased to have the opportunity to partner with Sparrow, MSU and the Explorer School students in this humanitarian endeavor,” said GreenStone CEO Dave Armstrong. “These are great partners and this is an important cause.”
Pure, Honest, Home Grown. Your results speak for themselves... we’re proud to helpad you share the word. Include here
Candid Comments... Dear Mr. Armstrong, Thank you. It is not often that a financial institution shares in the success of the company. The cash patronage dividends that were sent to me were certainly a pleasant surprise and will be reinvested in my business and family. Between that and the great work that Tyson Lemon does out of the Berrien Springs office, I look forward to a long and loyal relationship with GreenStone Farm Credit Services. Thank you once again. – JJ, Coloma, Michigan
Ag financing that yields results.
Photos by: Mark Durow
Success delicious by Design By Jennifer Vincent With almost 40 percent of Michigan’s farmland being rented, the DeBacker family is not alone in feeling some anxiety over what will happen when the lease is up on their rental ground. Terry and Tracy DeBacker currently milk 200 Holsteins, raise all their feed, and farm alfalfa, corn, corn silage, high moisture corn, dry hay, peas and oats on 600 acres. The farm is in Daggett, nestled nicely between Menominee and Escanaba in Michigan’s Upper Peninsula. All but 40 acres is rented. “We have a 10-year lease, but we’re uncertain of what will happen when that expires,” explains Tracy, who is the financial manager of DeBacker Family Dairy. “We had to come up with someway for us to afford to buy land or develop other options.” About three years ago Steve Zimmerman, GreenStone Farm Credit Services senior tax accountant, helped the family conduct a feasibility study for doubling its herd size. “It was determined that it really wasn’t feasible at that time,” Zimmerman says. Rather than settle for a milk check that limited their growth and future security, the DeBackers began dissecting ideas for greater profitability. 9
Partners Summer 2011
Young, Beginning & small farmer feature
Instead of trying to grow with raw milk production, they decided to vertically integrate the value of their existing milk production with retail sales of milk and dairy products. New approach The DeBackers were not quick to take the leap from wholesaler to processor and end retailer— and they say the jury is still out since they just started processing milk in February—but it appears consumers are willing to pay more for locally produced and processed, premium dairy products. That’s not all, consumers like the nostalgic marketing techniques they’ve implemented and the return to less processed foods, as well as the direct connection they established with the farm. DeBacker Family Dairy is bottling whole, 2 percent, skim and whole chocolate milk in glass, half-gallon bottles and currently distributing to 22 stores that generally place their orders on Monday. Tuesday is processing day, where the farm’s milk is pumped directly from the cows to the on-farm processing facility. On Wednesday and Thursday between 1,200 and 1,300 half gallons are delivered to stores as far north as Houghton and as far south as Menominee.
the DeBackers are taking advantage of that niche opportunity by exclusively selling cream line milk—meaning it separates and the cream rises to the top—a familiar characteristic of freshfrom-the-farm milk.
The response by consumers and the support of the community has been, “amazing,” Tracy says. “At first, stores were ordering a case of each (milk variety), which is 24 bottles. Now they are ordering 200 bottles of each.”
“We knew we had to differentiate ourselves,” Tracy says. “Even though we know we are producing wholesome, premium milk (which has received multiple quality awards), we had to offer something new on store shelves,” Tracy says.
Milk prices vary, but in Escanaba a half gallon of DeBacker whole milk was selling for $3.30, plus a $2 refundable deposit that is returned when the bottle is returned to the store.
Consumer interest has kept the milk flying off store shelves once the DeBackers were able to convince retailers to carry their product. “Generating interest from smaller stores wasn’t too hard, but some of the larger ones wouldn’t take our milk. How we got past that was we offered to replace any outdated product free of charge. That got them to try the product.”
The return of the bottles has been a little glitch so far. The stores have been very accommodating, but it turns out people want to save them as souvenirs or for other uses. “The $2 a bottle deposit is not enough to cover our costs,” Tracy explains. “Of the 10,000 bottles out there, we only have 200 left (not yet in circulation). That’s a bit of problem that we are debating how to fix.”
“We didn’t want to be just a retail outlet, we wanted to be a destination.”
By law, all milk must be pasteurized. However, there are options. Instead of high, quick heating of milk through a plated system, the DeBacker Family Dairy uses a low temp method that heats the milk to 145 degrees for 30 minutes through a vat system that heats the milk while agitating it. Unlike pasteurization, homogenization that keeps milk at a constant consistency is not required by law and
Young, Beginning & small farmer feature
Left: Terry bottles a half-gallon of their popular "creamline" whole milk. Right: Makayla DeBacker helps out behind the ice cream counter.
Quality speaks For Zimmerman, who is not only their tax accountant but also a stark supporter and regular customer, the whole milk is simply “better” than anything else on the market. “I value non-homogenized milk. I want to make sure my seven-yearold son has proper calcium in his diet. Because we all like the milk so much, we reach for a glass of milk more often. For me, it enhances the sweetness of milk on cereal. It may be psychological, but it just tastes better to me.” One reason may be is that whole milk from DeBacker Family Dairy is just that, whole milk… nothing removed. It is pasteurized, but otherwise un-altered. “Whole milk you buy in most stores is required to have 3.25 percent butterfat and is processed to have that amount. Our fat content is whatever is coming out of the cow, and it’s higher than that.” The non-homogenized, glass-bottled milk is tolerable to some lactose intolerant customers, Tracy says, and, “we also hear how much better it tastes because it doesn’t have a plastic taste.” 11
Partners Summer 2011
Customers welcome Part of the business plan for this new enterprise included a retail outlet. Zimmerman advised them to locate along the highway that runs about two miles from the farm. “Tracy and I had disagreed on this,” Zimmerman says. “She was adamant about connecting consumers with the farm and showing them where their food comes from.” Tracy wanted to show the workings of a farm and what it takes to produce food. In the end, and after much discussion, the former machine shop on the farm was targeted to become the store. In less than a year, the dirt floor shop was transformed into a cemented and attractive 50 by 80-foot building, that included a new 30 by 30-foot store front. “We didn’t want to be just a retail outlet, we wanted to be a destination,” she says. The farm and store are now popular attractions for field trips and highway traffic is more than happy to take a detour, where Tracy strives to educate kids and the general public about agriculture.
To entice customers, the DeBackers use their milk to make cheese and 40 different flavors of ice cream. The store also offers farm raised beef, farm raised eggs, beef jerky, hamburgers, cheese burgers, hot dogs, sloppy joes, grilled cheese, pizza and an array of appetizers. A selling point, Tracy says, is that most hand-dipped ice cream is about 10-12 percent cream, “mine runs about 18 percent,” she says. The business is also dabbling with the idea producing drinkable yogurt. “It’s trial and error, and we’re in the process of determining what works and what doesn’t. Like with our cheese curds, after about six or seven batches, we're pretty happy with our product right now.” One distributor is also quite pleased, as the DeBackers were approached with a beginning order of 1,000 pounds of curds a week. While some may say that’s fantastic, Tracy says they are evaluating their business constantly to ensure growth is productive both financially and personally. “We don’t want to end up hating what we’re doing and have it be what we’re doing all day long.” The on-farm store is pretty busy,
Young, Beginning & small farmer feature
with upwards of 400 people making it the place to be on a single weekend. “The farm is what it’s all about,” Tracy says. “People want to be here and we’re glad to have them.”
“She was adamant about connecting consumers with the farm and showing them where their food comes from.”
A 30-foot glass wall in the store allows visitors to watch cheese and ice cream being made. “We’re still learning and we’re constantly asking visitors what they want,” she adds. A recent addition is a petting zoo with goats, sheep, calves, two billy goats and miniature horses and donkeys. Tracy has gone from calf caretaker to marketing executive. Knowing that word of mouth is the best advertisement, she offers visiting children a chance to enter a drawing where 10 are chosen as weekly winners of a free ice cream cone. She also supplies the local park with free gift certificates as prizes for games. Making it happen A fourth generation farmer, Terry has farming in his blood. Tracy, however, had a transfusion of sorts 11 years ago when they started out renting a farm from Terry’s dad, Jeff. They bought 100 bred heifers and freshened them in 30-40 days and grew their herd. In 2004 they bought their current operation and moved the family and the cows to Menominee County. Zimmerman helped make that possible. “If it wasn’t for Steve, we wouldn’t be farming,” Tracy says. “He helped us 11 years ago. He’s done our book keeping, taxes and gone above and beyond what people call their accountant.” No surprise, when the DeBackers started talking about this valueadded adventure, Zimmerman was,
The DeBacker Dairy supplies between 1,200 and 1,300 half gallons to stores as far north as Houghton and as far south as Menominee.
“behind us 100%,” Tracy says. The DeBackers started developing a business plan and visited other operations with small on-farm dairy outlets in Minnesota, Wisconsin and down state. “Everyplace we went, they were doing it different,” she says. “We had to define what we wanted to offer.” The two and a half year process involved a comprehensive business plan and a lot of number crunching. Through GreenStone Farm Credit Services and USDA’s Farm Credit Services young farmer loans program, the DeBackers were able to finance the venture. “We tested the feasibility of it, how much to invest, and how much return was projected based on market studies of sales and cost of operation,” Zimmerman says. Dollars and cents aside, Zimmerman says the DeBackers have a “passion for what they want to do. Terry has a
love and a passion for farming, Terry and Tracy are long-term team players and they have a work ethic like no other. They will work 25 hours a day to get the job done. I applaud and respect them. They are the entrepreneurial spirit at its best.” With the current retail products only consuming about one day’s worth of milking, there is room for growth. Tracy’s mom and dad, John and Peggy Kirkpatrick, live on the farm and have multiple roles in the operation, including helping with the children. Terry’s brother, Jerry, works in processing and the DeBackers six girls, Makayla, 16, Macenzi, 14, Malaina, 13, Maelynn, 8, Montana, 7, and Maguire, 2, currently help out, or will have the opportunity to, as the DeBacker Family Dairy continues to grow. Check out their Website at www.debackerfamilydairy.com.
Governmental Relations Program
GreenStone’s State Governmental Relations Program: Standing Up for our Members and Protecting Your Bottom Line In the last issue of Partners we wrote about the importance of the GreenStone MI PAC to our state governmental relations program. In this issue we want to give you an update about what we’ve been up to in Lansing. Taxation In 2010, we worked with our lobbying firm, Kelley Cawthorne, and our members to pass the Farm Loan Parity Bill (2010 PA 156). This amendment treats a Farm Credit association similar to banks and other financial institutions for state taxation purposes. It also saved GreenStone more than $430,000 annually in state taxation and allowed us to increase our patronage return to members accordingly. 13
Partners Summer 2011
In 2011, we worked to preserve this victory by ensuring that Farm Credit associations were included in the definition of a financial institution as we moved from the Michigan Business Tax to the new Corporate Income Tax. We were successful in this effort. Moreover, the new Corporate Income Tax will provide substantial tax relief for members who are organized as a partnership, LLC, or s-corporation due to the removal of double taxation for so-called “pass-through” entities. Invasive Swine Legislation By the time you read this article, the “Great Feral Swine Debate” in the Michigan Legislature may well be settled. At issue is the desire of game ranches to offer regulated hunts of
exotic swine species and the impending Department of Natural Resources (DNR) order to eradicate exotic swine as an invasive species which is set to take effect on July 8, 2011. GreenStone has worked closely with a broad-based coalition of agricultural commodity, outdoor, and environmental groups to support the DNR’s eradication order. Members of our coalition include the Michigan Pork Producers, the Michigan Milk Producers, the
Michigan Potato Growers, Michigan Allied Poultry, and the Michigan AgriBusiness Association. Some members of the Legislature have asked why GreenStone is involved in this issue. The answer is simple. Our customers support the DNR’s eradication order. Every agricultural commodity group which has taken a position on the issue supports the order because it is necessary to prevent the spread of disease, such as Bovine TB and PRB, and to prevent crop damage. Eradication of invasive swine is also important to GreenStone’s bottom line. We have approximately $1.5 billion in loan volume invested in more than 2,000 pork, dairy, and cattle producers in Michigan and northeast
“GreenStone has worked closely with a broad-based coalition of agricultural commodity, outdoor, and environmental groups to support the DNR’s eradication order.”
Wisconsin. In short, the risk of disease and crop damage that invasive swine poses to our customers and to our loan portfolio requires us to stand with our customers in support of the DNR’s eradication order. So far we have been successful in blocking legislation that would water down the DNR’s order, but, as of the writing of this article, the battle is far from over. Foreclosure Reform In 2009, the Legislature passed a mortgage foreclosure reform package. Unfortunately, the package of bills did not recognize the existing federal regulation of GreenStone as a farm credit association. Moreover, it subjected GreenStone to unnecessary
and duplicative state regulation. It now appears that the expiration or “sunset” of this legislation will be extended through the end of 2012. In the meantime, the Legislature will consider modification or the possible elimination of the 2009 regulations. GreenStone has already begun efforts to ensure that any future legislation includes recognition of the existing federal regulatory scheme for Farm Credit associations. As you can see, we’ve been busy protecting our bottom line—and yours—in the halls of the State Capitol. Look for continued updates in future issues.
Grow to Give Michigan agricultural companies are joining together to support a new initiative called Grow to Give. The effort, led by Lennard Ag, is sharing resources to grow, store and distribute 1.6 million pounds of potatoes to those families in need throughout the country’s mid-section. Working in partnership with Hope and Encouragement for Humanity, Oak Prairie Farms and others, the Grow to Give program will distribute the potatoes grown on a 40-acre field east of Sturgis Michigan to food banks throughout the Midwest. Additional Michigan companies partnering with Lennard Ag are North Central Co-op, Lutes Flying Service, Family Farms LLC, Michigan’s DuPont team, GreenStone Farm Credit Services, Lookout Ridge Consulting, Syngenta, CoAlliance, Morgan Composting and CPS/Blissfield. It is estimated that the production from 40 acres will feed roughly 4 million people. Something unique about the Grow to Give program is that 100 percent of the produce will be donated. More information on the Grow to Give program is at www.lennardag.com/grow.
Farm Credit Retail Bonds In late May, the Banks of the Farm Credit System, through the Federal Farm Credit Banks Funding Corporation, launched a Farm Credit Retail Bond Program. This new Retail Bond Program is an addition to the Funding Corporation’s existing funding programs. Unlike commercial banks that have access to deposits, the
five Farm Credit System Banks generate funds by issuing highlyrated Consolidated Systemwide debt securities, such as bonds and discount notes, with various yields, maturities and structures. Farm Credit Retail Bonds are Consolidated Systemwide Bonds issued in denominations of $1,000 for fixed-rate bonds and $100,000 for floatingrate bonds. The unsecured bonds may have maturities ranging from one year to thirty years. However, the Funding Corporation expects most maturities of Retail Bonds to be five years and longer. Farm Credit Retail Bonds will be available to investors through a select group of securities dealers that comprise the Funding Corporation’s Farm Credit Retail Bond Selling Group. Interested investors can obtain information and a list of Retail Bond Selling Group members on the Funding Corporation’s website: www.farmcredit-ffcb.com. Farm Credit Retail Bonds are the general unsecured joint and several obligations of the Farm Credit System Banks and are not obligations of or guaranteed by the United States or any Federal agency or instrumentality, other than the Banks. This information does not constitute an offer to sell or solicitation to purchase Farm Credit Retail Bonds. The Farm Credit Retail Bonds are not deposits of a Farm Credit System Bank or Association and are not insured by the FDIC or any other agency of the United States. The Farm Credit Retail Bonds are subject to investment risk, including the possible loss of principal and value. Summer 2011
Partners Summer 2011
As operating costs swell, producers continue to research new ways to reduce expenses and increase profits. Basic utilities like energy can eat a significant chunk of the pie on many production farms. Therefore, when looking for options, producers may consider alternative energy such as wind power, solar power, and a host of other developing technologies. How do you see producers analyzing their bottom line to make use of these developing efficiencies? Are the advantages enough to offset the costs without the government stepping in with stimulus money?
Darl Evers Considering the focus on being “green” and employing “renewable energy,” I believe Congress and the Michigan legislature will undoubtedly pass more initiatives in the future to support renewable energy production and provide financial incentives. We, as farmers, could profit from this by contributing to the energy production. A farm could buy and install a wind turbine to produce the electricity for the farm, and then sell the excess to the electric company. Of course, a farmer could also lease a portion of his farmland to the utility company for wind energy generation. Some producers may also sell crops that are used to produce biomass fuels, like ethanol. Research is being done in this same area using other plant structures and trees. Similarly, the technology is here for livestock producers to use biodigesters to produce methane and carbon dioxide to produce electricity, though this is an expensive alternative without the availability of some kind of financial assistance. The new item is solar power generators. If they are large enough, producers could benefit from their implementation. Energy grant programs will help the farmers who want to take advantage of these options, though most of us probably won’t. In the end, we do have a choice.
Brian Haskin Farmers have been using wind energy for years —the traditional windmill is an iconic image of a farm—it was used to run things like water pumps. Now we’re just talking about it on a much larger scale. Though solar power is seen in limited use, I believe it has a long, arduous road ahead before it is introduced into the farming sector on a grand scale, at least from a cash crop farmer perspective. I don’t see any of these alternative energy options happening overnight, but I certainly think farmers would adapt to them it they can see it will pay for itself and make them money. Farmers don’t operate based on stimulus money, we have to
Edward Reed Alternative energy should be used where the environment provides low cost natural resources such as hydro-electric, wind, solar, and geothermal energy. The one-size fits all approach, with a government subsidy to make it economically feasible, is not sustainable. I feel we should exploit what the environment is providing, not legislate it. Michigan and Wisconsin producers unfortunately are not ideal candidates for wind or solar power generation. I have worked on the design of
make sure what we do out here is financially prudent. We are always in touch with our costs, especially energy costs. We shop around for fuel suppliers to ensure we purchase it at as low of a cost as possible. I’d like to see the alternative energy costs be more realistic from the manufacturing standpoint rather than the government having to subsidize everything. Research needs to continue, and technology needs to be refined in order for it to be affordable without subsidies. I think it can be done…technology takes such great strides so quickly. Look at what has been done with GPS in such a short time period. If there is money in it, the manufacturers will do the same with these alternative energy options. I can see myself driving across the field with a solar panel mounted on my tractor roof.
several co-generation projects in Michigan and Wisconsin and feel we could do a better job utilizing the carbon resources we have. Waste to energy is a sustainable solution. The waste used could be animal or human, and could provide competitive electric power and heat to thousands. Michigan and Wisconsin do have abundant supplies of natural gas. These could be utilized in cogeneration projects that provide clean electric and, if located next to large industrial heat users, provide complete resource utilization; an example of this is the Consumers Power Plant in Midland, Michigan.
Selection Snafus Barbara Dartt, DVM, MS Senior Business Consultant, Lookout Ridge Consulting
Partners Summer 2011
Mine your memory for a minute—what’s the last thing you selected? Dinner off a menu? The shirt you’ve got on? Paper or plastic? It probably took you seconds to make that choice. And unless you have significant food allergies or are dressed for a wedding, seconds are all it’s really worth investing in those kinds of daily selections.
“People decisions deserve at least as much homework as you devoted to that new tractor purchase!” Now, go back to the last “big ticket” selection you made. Accounting software? A new variety of corn? The green tractor or the red tractor (or maybe just the green 8235R or the green 8260R)? Likely, those decisions required an investment of time and research. And that investment made sense for an outlay of $8,000 –$150,000. Besides, envisioning yourself saving time with your new accounting system or relaxing in the cab of that new tractor is fun and exciting. Shift gears with me now to employee selection. Often, trying to choose the best candidate can be like choosing to cheer (or not to cheer) for the Big 10 conference when Michigan is in the Rose Bowl. Either is a distasteful alternative. Why is employee selection unpleasant? First, most of the producers I work with take selection pretty seriously. They understand that hiring decisions have a big impact on business culture, team productivity and the bottom line. Second, due to low turnover and/or small workforces, many business owners just don’t hire that often. So, when a selection process is
uncomfortable, we tend to do one of two things: speed through it or avoid it.
recommendations (for example: back off the batch by 10%).
“Speeding through” the employee selection process looks like relying solely on referrals to fill positions or depending simply on gut feel. It is also signaled by short-cuts like neglecting to check references or verify work experience. And “avoiding” can look like long delays in hiring for a vacant position, resulting in heavier workload for the current team.
Second, structure the interview. When you (the interviewer)
When you are facing a high impact but uncomfortable selection, trust your process. It takes time to lay out a consistent and successful selection system. But the investment offers a real peace of mind payoff. You’ll feel better about the tough hiring choices . . . and you’ll probably get better employees, too. There are lots of great references out there with very applied tips on recruitment and selection—my favorite for front-line positions like milkers, equipment operators or feeders is “Hire Tough, Manage Easy” by Mel Kleiman. Literature indicates one fundamental feature of a selection process is the interview. Improving interviews in two key ways can increase the tool’s effectiveness at predicting job performance. First, do a thorough assessment of the job you are filling. Focus on behaviors and competencies that are critical. For example, a key competency for a feeder might be “Analytical” - the ability to efficiently gather the right data (for example: bunk fill, feed quality and moisture, cow behavior) and turn it into meaningful observations and
•A sk good questions that were designed to measure the candidates’ competencies; •A sk the same questions of each candidate; and • S core the results of each question on a predetermined scale; the interview is three times as likely to accurately predict job performance. If you find yourself speeding through or avoiding employee selection decisions because they are unpleasant, step back and take stock of your motivations. Then invest a little time in your own peace of mind by designing a solid process you can rely on. People decisions deserve at least as much homework as you devoted to that new tractor purchase! ABOUT THE AUTHOR Barb is a Senior Business Consultant with Lookout Ridge Consulting (formerly Salisbury Management Services), a division of AgStar Financial Services, ACA. Barb works with farm families and management teams to help them keep their business healthy and the people happy. Barb can be reached at firstname.lastname@example.org or at 800.663.5608. The opinions stated herein are not necessarily those of GreenStone FCS.
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