PRIOR LAKE, Minn. - Directors of Minnesota cooperative grain elevators are the "guardians" of those business and must be keenly aware of marketing risks and policies, especially when markets are volatile and farm-customers are facing cash flow problems.

John Christianson of Christianson PLLP at Willmar, Minn., was one of the speakers on March 7 at the 111th Minnesota Grain & Feed annual meeting and trade show at the Mystic Lake Casino Hotel in Prior Lake.

Bob Zelenka, executive director of the association, said about 600 attended the event, which also included a trade show. When he started in the business more than three decades ago there were 2,600 attendees, but there has been considerable industry consolidation. Thirty years ago there were 275 local co-ops but today there are fewer than 70. Today, the association has 200 members, including co-ops, private elevators and some vendors.

The Christianson firm operates in 36 states and has a focus on agricultural businesses. The certified public accounting firm has a special focus on ag production, processing, grain elevators and feed mills.

Christianson said the board is responsible for hiring the chief executive officer but also for setting guidelines and monitoring their compliance. He says common problems are people transacting grain beyond their authority or using trading instruments that create losses for the business.

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Lots of risk

Christianson told about cases in which traders were operating out of their authority, or with instruments and derivatives outside of the risk management strategy set by the board. There must be "segregation of duties," so that no one person can "take a transaction all the way through," without a colleague's review.

"We're dealing with a commodity-based business," Christianson said. "A commodity-based business has a high level of volatility, there is a substantial amount of risk."

On the farm supply side, co-ops selling chemicals, feed and fertilizer can put the company at risk for receivables that are not collectable. "This type of receivable management takes more work, takes more time," he said. His company is one that trains companies on policies and then helps audit them.

"Oftentimes it comes back to lack of controls, a lack of direction and leadership from the board of directors," Christianson said, of failures. One co-op director from a Minnesota elevator, who declined to be identified by name, said he wished he'd heard Christianson's talk five years ago, before his company had to cope with serious trouble.

Kent Thiesse, a farm management analyst and vice president of MinnStar Bank of Lake Crystal, Minn., described a "continued pattern tight margins" that won't go away anytime soon.

Thiesse estimates that about 20 to 25 percent of cash crop farmers are having to restructure debt to survive. Another 25 to 40 percent are not making huge profits. About a third of the farmers - often with land paid for - are doing quite well and in a position to make strategic maneuvers. Among other things, he said farmers need to be willing to give up some unprofitable lands where rental rates are too high.

Joe Martin, Minnesota state executive director for the U.S. Department of Agriculture's Farm Service Agency, said his agency's loan programs are getting more of a workout in the difficult farming times..

199A screw-up

One of the hot topics in the hallways was the "Section 199A" tax issue, which in December gave cooperatives an advantage over corporate grain elevators.

Zelenka says he's been asked to go to Washington to meet especially with Minnesota Democratic congressional members to get their support for a fix to the glitch that was created when U.S. Sens. John Hoeven, R-N.D., and John Thune, R-S.D., pushed through a tax deduction provision in the tax reform package. Zelenka called it "poorly thought out, poorly crafted."

"In my 37 years representing the industry, this has the potential ... is the most disruptive that I've seen," Zelenka said. "It's about a fairness thing. You shouldn't have a tax law picking winners and losers and that's kind of what happened."

Zelenka says he hopes the issue is sorted out in the March 23 vote in an omnibus spending bill in Congress. Democrats "weren't included" in the tax package, but will be needed for the fix. One Democrat initially said they'd be "damned if we were going to bail them out," Zelenka said, but "they have to realize the significance of this unintended consequence and it does need to be corrected."

Zelenka said he's "fairly confident" it can returned to the "original intent," and retroactively.

He said he knows of a private ethanol producer that in early March created a cooperative entity so patrons could qualify for the tax advantage.

"We also had a private elevator that lost a third of his business who felt he couldn't wait any longer" for a congressional fix, and had to go to a cooperative to assure the tax deduction," Zelenka said. "If you don't have any faith in Congress, you know, maybe you need to try to take advantage of this opportunity by selling to a co-op."