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Country Elevators Facing Tough Times by James White, Chairman Washington Wheat Commission Wheat Life, June 2003

I recently visited with several eastern Washington country elevator man-agers to gauge how their companies were faring. The managers explained that profitably managing commercial grain warehouses is becoming more difficult due to rapidly rising costs, declining grain production in many counties, stiff competition between companies and the impact of either losing—or the possible future loss of—USDA Commodity Credit Corporation (CCC)-owned wheat reserves.

Often the wheat industry assumes erroneously that warehouse companies simply pass on increasing costs to their customers—the farmers. Currently, this is not the case. Most of the managers I spoke to have not raised their storage or handling charges for years. The fierce competition for shrinking grain production due to the Conservation Reserve Program (CRP) leaves them little choice but to economize and cut costs where they can in hopes of remaining competitive with the company down the road. This strategy has its limitations, as operation and maintenance demands and the cost of retaining capable employees nibble away at hard-won savings.

The importance of country elevator companies to small communities cannot be overstated. Like the school, equipment dealer, fertilizer company, and the remaining food store and gas station, they truly are part of the “heart and soul” of Washington’s eastside towns. They provide vital employment in a job market with extremely limited opportunities. Consider the impact of just four or five jobs to a town of 300 people. While this number would be insignificant to an urban area’s economy, those who live in small towns and support the businesses on Main Street realize the stretch of these dollars. To local growers, these companies store grain and provide essential services. They provide daily grain market liquidity to producers across the region, marketing grain where and when it is most convenient to their customers, rather than when the market is willing to take it. Company managers and merchandisers assist growers in marketing their grain with individual, personalized service. More often than not, this service is in person with a smile and a handshake, built on years of trust and mutual understanding.

Country elevator companies survive on grain volume, and like it or not, CRP affects wheat production in eastern Washington. The program is a boon for conservation of highly erodible cropland, but the long-term effects on warehouse companies and small towns is irrefutable. I support the concept of CRP for erodible cropland, but perhaps it is time to carefully consider the effects of whole-farm retirement under this program on local businesses and communities, especially for land with marginal erodibility.

Increasing costs for employee health and state industrial insurance, and rising property and casualty insurance are adding up. Managers cited employee health insurance premium increases of over 50 percent in the last two years, which is forcing some companies to require employees to pay part of this added cost. This may seem reasonable, except when you consider that grain companies ultimately must compete with urban employers who often pay higher wages and some or all of the health insurance costs. Property and casualty insurance premium increases of 25 percent or more in 2002 were common, with 2003 rates rising upwards of 40 percent, also forcing companies to increase insurance deductibles to control costs.

The unregulated raid on the Bill Emerson Humanitarian Trust wheat reserve, facilitated by the USDA-CCC last year, left several eastern Washington country elevator companies reeling. Legislation passed by Congress provides some security to companies with remaining CCC wheat stocks for the remainder of FY 2003, but the constraints imposed upon CCC wheat sales by this legislation expire with the new fiscal year at the end of September. Managers were quick to point out that their storage and handling charges remained static over the past 10 years due in part to storage revenues from CCC-owned stocks. This additional revenue allowed companies to keep their storage and handling charges low. The companies stored the CCC wheat at discount storage rates and built additional bins to accommodate the reserve grain. The USDA policy morphed rapidly in 2002, and companies fear the additional bins built to accommodate CCC-owned stocks may soon sit empty.

I talked to company managers about alternatives other than grain storage and handling. Limited expansion of seed operations may be possible, due in part to the increasing demand for grain varieties possessing novel traits and the seed stewardship required to bring this technology to the marketplace. Specialty crops offer some potential for companies, but create their own risks and logistical challenges. Bio-fuel production is a concept we are hearing more about, and grains or oilseeds grown for this industry will have to be stored until needed for fuel production. Managers mentioned expanding or initiating fuel and fertilizer sales, but these are mature markets and are also affected by declining wheat acreage. I know that country elevator companies and their boards of directors are keeping their options open and striving to diversify their operations, while maintaining their core competencies—storing, handling and marketing grain for their growers.

The Washington Wheat Commission and I extend our appreciation and support to country elevator companies, their managers and staff, and to their growers. They provide essential services to the wheat industry and help maintain an open and competitive market for Washington wheat.

Related Pages:
Rail Solutions Sought: Competition by Glen Squires, Wheat Life 2/4
Transportation - Pursuing Rate Issues by Glen Squires, Wheat Life 6/3