GreenStone FCS
Spring 2013
Promoting the business success of our customers and the rural community
SPRING MARKET OUTLOOK LOCAL & NATIONAL LEGISLATIVE EFFORTS
FRACKING FACTS FAMILY IS THE...
RECIPE
FOR SUCCESS
MICHIGAN AG DAY CELEBRATION GREENSTONE SCHOLARSHIPS
DIRECTOR'S PERSPECTIVE GREENSTONE’S STORY —STAFF FOCUS
Editor’s
NOTE Spring 2013 Published by:
GreenStone Farm Credit Services
2 Comments from CEO Dave Armstrong CEO Dave Armstrong talks about people... the basis for agriculture's existence.
3 Market Outlook Agricultural economist, Bob Utterback, forecasts global production, yield impact and other factors that will make or break the 2013 growing season.
10 GreenStone's Story People helping people, GreenStone's staff strive to do it better each day.
11 Feature Article
A season of renewal—the cleansing of April rains, the intensity of spring flowers, the vitality of budding field rows. Before the revival of the warmer months consume's you, take a minute to also acknowledge the people who play a role in your success each season…your family, your friends, and your coworkers and employees. This edition of Partners highlights one of these groups for us at GreenStone—our team of employees. From the experience they bring to the job, to the recognition of the success they achieved in 2012, to the value they bring to their communities, it is all here in this spring issue. Of course, you will also find the articles you rely on each quarter, including the market outlook, guest column, legislative corner and the young, beginning and small farmer feature. So take a look, and then go celebrate your people. Correction: Please note, the “Directors’ Perspective” in the Winter 2013 issue of Partners included a wording error. Director w Ritter’s comments should have ended with: “My advice to anyone would be to be very cautious with your optimism. A cure to high prices, is high prices.” We apologize to Gil and our readers for this editing error.
15 Director's Perspective Board chair, Scott Roggenbuck, shares the low-down on the Stockholder Advisory Meetings.
17 Fracking Facts Could fracking affect your farm? Is it safe? Find out what you need to know.
Spring Notes
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6 Candid Comments 7 News Update 9 2013 Ag Day 18 Top Sales Staff of 2012
Family and delicious products are the solution to adversity for one Michigan orchard.
14 Legislative Corner The political landscape is ever-changing and GreenStone's advocacy efforts are moving in stride.
This newsletter is published quarterly for the customers of GreenStone Farm Credit Services. Partners, 3515 West Road, East Lansing, MI 48823 • 517-318-2290 • marketing@greenstonefcs.com
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COMMENTS
From CEO Dave Armstrong
Spring is here, and with it the eternal optimism that sustains all of us in this high risk industry has emerged as well. For all the pessimism in our society today, fueled by political bickering and deadlock, economic stress, changing weather patterns, volatile markets, fickle consumers, and a fear mongering press (to name just a few!), the age old tradition of spring planting has begun along with the faith that this year will be better than last.
T
his optimistic attitude uniquely defines our industry and the rural communities in which we live. In spite of all that may be wrong with the world, the days are getting longer and farmers are once again back doing what they do best…feeding the world! It is easy to get caught up in the challenges and problems of a rapidly changing world and lose sight of the fact that what we do is really all about its people! In fact, the basis for agriculture’s very existence is people! If you don’t agree
with me, just take a look at what would happen to your bottom line if one billion Chinese people go on a diet! The story on page 11 of this issue regarding Almar Orchards in Flushing, Michigan further supports this idea that agriculture is more about the people than many may like to admit. These GreenStone members realized that they must change with the consumers, that meant diversifying and refocusing over the years. The Koan’s value those people who are their consumers, but also the
people who make up their network of distributors and their very own family members who have come together to build the business to what it is today. But it is not only about the producers and the consumers, the people who are behind the scenes playing a supporting role are another leg on the “people” stool. You tell us year after year that the staff at GreenStone is the primary reason you do business with us. Yes, interest rates, timely service, expertise, and so on are all important; Continues on Page 6...
Spring 2013
PARTNERS 2
MARKET OUTLOOK
2013
Market Outlook The big spring push is well on its way. A lot of decisions made about plantings in the spring will have a major impact for the rest of the year. The United States Department of Agriculture (USDA) numbers released in February have had a big impact on the market, but now is the time for the rubber to hit the road and actually get crops planted.
By: Bob Utterback
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PARTNERS Spring 2013
Developing an outlook for grain marketing at this time of year is always a challenge; but where a producer expects prices to go and subsequently what he is going do about it depends on his supply and demand assumptions. CORN— Here are my assumptions for the rest of 2013:
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The starting stocks level for corn will increase over time as demand continues to be rationed by high prices in old crop. It would not be surprising to see stocks end the year in excess of 720.
Planted acres will not be as low as early USDA estimates, but not as high as many market watchers have predicted. For planning purposes, I strongly believe in preparing for acres to be above 97.25 million. In many ways it could come down to spring planting conditions and the amount of moisture recovery in the areas of the country where soybeans, cotton or corn can be planted.
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MARKET OUTLOOK
The big variable that we must deal with each year is U.S. yield potential. I have to say the USDA yield projection numbers at trend line is ambitious. I suggest 2013 will be a rebuilding year; I believe 155 to 158 is a more practical target. The problem is, with yield and a modest demand growth figure, we are still building carryover well above 1.6 and possibly closer to 2 billion. Just a reminder—in early May of last year before the dry weather hit, December 2012 corn was at $6.05 on the expectation of carryover moving back to 1.6 billion.
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As a direct result of fundamental developments, I believe producers must be prepared for basis (the difference between local cash and futures contract values) to widen to levels not seen for some time. This, along with the lead month September contract moving below the deferred contracts, should lead to a positive storage situation. If not already done, producers must plan NOW for longterm storage of corn production for next year to capitalize on the carry incentive being offered, and overcome the expected wide basis at harvest. This, however, does not excuse them from aggressively forward pricing the anticipated 2013 crop between now and spring planting. I know producers want more, but a recovery in December corn above the winter high of $5.96 is not expected unless we see a significant event such as big spring planting delays. In fact, I am concerned that, if planting moves fast and timely rains start to develop, December 2013 corn could rival what December 2012 did last May. I suggested being priced by using September deep-in-the-money $7 puts when the September corn contract traded between $5.80 and $6. Long puts give downside protection. Buying deep-in-themoney creates a position as close to
a short futures contract as possible with a cap on margin risk exposure. Some aggressive producers may have bought the December $7 calls at 12 cents to insulate their investment in the September puts. The plan this spring and summer will be to roll up the September puts if the market rallies. Plan to spend 3 cents in premium if the strike price can increase 10 cents. This implies that, for every $1 rally, producers would be willing to spend 40 cents in cash flow to improve the bottom line by 60 cents. This is something that can be done in the cash market or in futures contracts if long the calls. Please note that the reason why I suggest buying deep-in-the-money puts rather than selling cash or futures is I want producers to have a firm handle on cash flow exposure just in case my assumptions about average yields proves to be incorrect and another yield reduction event occurs in 2013.
their anticipated 2014 corn crop by incorporating the exact same strategy laid out for 2013, but focus on rolling the contract forward to capture the expected carry sometime this fall. With the cost structure producers now find themselves involved in, can they take the risk of turning down $6 corn for 2014 in the hope that someone else will have a crop failure that drives prices back to the values seen in 2012? To my way of thinking, if anyone is that big of a risk taker, why invest so much money in land and equipment? Do it on paper with a lot less money and more risk control if they are wrong. SOYBEANS— Soybean pricing has been stronger so far than for corn and wheat, primarily because of productions problems in Argentina and shipping problems in Brazil. But I would argue these are short-term distortions that are
" Unless I’ve really missed the boat on planted acreage expectations, the possibility of November soybeans pushing beyond $13.50 (the winter highs) will be squarely on the back of the bull to prove that there is solid concern about yields."
Finally, I strongly suggest the biggest risk to producers is not pricing any remaining old crop corn in the bin. It may not even be the pricing of the expected 2013 crop. I believe the real risk is the 2014 crop pricing if anyone believes, as I do, that Mother Nature will balance things out and yields will move back to average and eventually a big crop could be seen with the ever changing corn hybrids. Producers should be able to protect
working themself out. In fact, I don’t think China is really that worried about buying since it is releasing some of its domestic reserves to soften the price impact there. They are not going to let go of their reserves if they believe global supplies are going to get tight or their production is going to be impaired. I also assume many producers who have the ability to plant soybeans rather than corn or cotton are looking favorably at Spring 2013
PARTNERS 4
MARKET OUTLOOK
" The problem is wheat prices have been influenced by global wheat production." planting soybeans. In my opinion, soybean plantings will be just under 80 million this year; this puts a serious risk to new crop pricing if we have anywhere above the 43 U.S. average soybean yield. Unfortunately, this reality descended upon the market in February. So, I hope the market is struggling back this spring to early summer under the concern of yield stress. Bottom line: unless I have really missed the boat on planted acreage expectations, the possibility of November soybeans pushing beyond $13.50 (the winter highs) will be squarely on the back of the bull to prove that there is solid concern about yields. The market plan for soybeans is like that of corn—get a floor in place. Do it in a way that gives the producer who is wrong about upside potential the opportunity to be priced, and allows him to improve his floor as the market rallies. Focus on buying deep-in-themoney November puts to create the floor. An alternate strategy depends on one’s desire to sell deep-out-of-themoney old crop puts for time value decay and buy deep-out-of-the-money calls to ensure the put investment. The objective of the strategy is to maintain flexibility to respond to higher price action if an event occurs, but not fall prey to the trap of hoping for higher prices and end up storing corn this fall simply because no action was taken and prices are below the cost of production. 5
PARTNERS Spring 2013
The same logic of price protection for anticipated 2014 production is as practical for soybeans as it is for corn. In fact, if anyone believes the USDA baseline projections, it is more important to protect 2014 prices than 2013 prices. All I can say is, it is going to take the solid support of your banker and, if anyone needs help in planning and implementing the strategy, I am ready to help. Last fall wheat producers had hopes of a higher price outlook as concerns about dry conditions in the western states helped to lift prices. The problem is wheat prices have been influenced by global wheat production. Since January, it has become very obvious wheat producers, such as India, have good reserves on hand and they are expecting another big crop. They have been pushing inventory into the export marketplace to undercut high priced corn for livestock producers. This has hurt both wheat and corn prices. The sharp drop in wheat prices in early 2013 pushed July wheat down to values where one has to assume some type of bounce will occur. As we move into July, I see the problem for wheat as follows: if corn acres increase and production is on track, the chance for any significant wheat price gain into late summer goes out the window. I strongly urge producers to sell wheat off the combine and focus on storing corn this fall. The theme of this outlook is producers must make plans for the possibility of building grain stocks. Protecting risk is not easy, but it helps to get a floor under expected production. In this era of high input costs and big price swings, it will not take much time to take away a lot of the profit that producers have recently enjoyed. I want producers to preserve profits, but still have the ability to respond to changing fundamentals as they occur. Have a safe planting season!
This material has been prepared by a sales or trading employee or agent of Utterback Marketing Services, Inc. and is, or is in the nature of a solicitation. This material is not a research report prepared by Utterback Marketing Services, Inc. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction without registration, the market commentary in this communication should not be considered a solicitation. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Utterback Marketing Services, Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.
ABOUT THE AUTHOR Bob Utterback is the Farm Journal Economist and President of Utterback Marketing in New Richmond, IN. Call Bob for strategy updates at 877-898-4324. Email comments on Outlook to utterback@utterbackmarketing.com. he opinions stated herein are not necessarily T those of GreenStone Farm Credit Services.
CEO COMMENTS
...CEO Comments continued but, above all else, you choose to partner with someone who has your best interests at heart, even when that means giving you advice or an answer you really don’t want to hear. Your association is blessed to have some of the best staff in the business, who are not only very good at what they do professionally, but who are also just as dedicated to serving others on their personal time. The “heart” of the GreenStone team can be exemplified by Pete Lemmer, GreenStone’s chief legal counsel. Long before joining GreenStone in 2008, Pete was helping others in the communities where he lived. Being an avid athlete in high school and college, Pete combines his love of athletics with a passion to help young people develop physically, emotionally, and spiritually as well. For years Pete has reached out beyond his traditional circles to positively engage children, including those from war torn countries who have settled locally as refugees. Deservingly, Pete’s actions were recognized by the national Farm Credit Council at its annual meeting in San Diego, California on Feb. 11. There he was presented the Phelps-Martin Award for Community Service. Take a minute and read more about Pete’s impact on the spirit of these youth on page 7. He’s just one example of what truly makes GreenStone staff members special. Did I mention this is a people business? On that note, be sure to take a look at the Director’s Perspective in this publication where your GreenStone board chairman shares a recap of the Stockholder Advisory Meetings held in December and January. GreenStone has conducted these meetings since its inception in 2000 as another way to provide direct, two way communications between the people in our daily business, you, our owners, your board of directors, and your management team, about the on-going activities of the association. We have
traditionally invited up to 50 members to attend each of the five or six sessions held in various parts of our association territory. I would encourage you to contact your local branch office if you have an interest in participating in one of the 2013/2014 meetings. We know that the most important thing to our members is the fulfillment of your hopes and dreams. Whether it is eventually owning that special place in the country to live and recreate on; building your farm business to the size and scope that can comfortably sustain you, your family, and future generations; or just being able to get up every day and work at a vocation you truly enjoy; our people at GreenStone genuinely care about you reaching your goals and will always be there as trusted advisors to help you succeed. Yield per acre, return on asset, cost per unit, interest rates…they are all just a means of achieving your goals. It is the people part of this business that is so important; people are the reason we all do what we do. Who really knows how 2013 will turn out? Many pundits would have us believe that the “end is near;” but, I choose to bet on YOU, and all the other people who make our industry great, as the way to overcome any challenge that will come our way. Why? Because this is people business, and together there is nothing we cannot overcome. If I can ever be of assistance, feel free to contact me at either dave.armstrong@ greenstonefcs.com or 517-318-4105. Best wishes for a safe and productive year!
Candid Comments... GreenStone FCS, “…Sheryl Smith has been working with us from day one. … We were our own general contractor through the process of building our house, and I personally came into the Charlotte branch probably once a week, if not more, for months while building. Every week I was welcomed with friendly smiles and great “Hellos.” I came to feel like family, and although I do not visit the branch near as often now, I still feel the same way. … I worked with Kelly Aiken a lot during the time of construction, and when I call into the office for the occasional refinance chat, I look forward to catching up with Kelly. Even when you can't actually see someone, you can still hear in their voice that they are smiling. Kelly is always smiling at me on the other end of the line.” — Lynn Beck Charlotte, MI
Have something to share? Submit your "Candid Comment" to marketing@greenstonefcs.com
Dave Armstrong
Spring 2013
PARTNERS 6
NEWS UPDATE
NEWS UPDATE SPRING 2013 GreenStone’s Lemmer Named Winner of Phelps-Martin Award for Community Service by Farm Credit Council
Pete Lemmer (Left), GreenStone Farm Credit Services’ senior vice president and chief legal counsel, was recently named a 2013 Phelps-Martin Award for Community Service winner by the Farm Credit Council (FCC). “I am truly honored and humbled to accept this award,” said Pete. “I have learned a tremendous amount about just how amazing the human spirit is when you give it a chance from these children, and I am grateful to all of the other volunteer coaches, and my family, who have helped make an impact in the lives of these young people.” “GreenStone encourages employees to get involved within their local area, and Pete is the epitome of an employee who engages with their local community,” said GreenStone President and CEO, Dave Armstrong. 7
PARTNERS Spring 2013
“Pete’s attitude and spirit are contagious, and they have driven other GreenStone employees to join him in his quest to impact the lives of area children and refugees.” After relocating to the capital region in the late 1990s, the former college athlete became involved with coaching several different youth teams including boys and girls basketball. Eventually, Pete began working with the refugee population in Lansing. He formed a team of refugee children from the Democratic Republic of Congo, Kenya, Tanzania and Zimbabwe to participate side
by side with American youth from local communities in a regular travel basketball program.
Community Service. As part of the award, he will also receive $1,000 to donate to the charity of his choosing.
In addition to interaction through sports, Pete has also introduced these children to Michigan agriculture. He has organized trips to various Breakfast on the Farm events around the state and has setup farm visits and tours where the groups have been given an up-close look at modern agriculture operations.
The FCC board of directors created the Phelps-Martin Awards for Community Service in honor of two Farm Credit System (FCS) employees, the late Steve Phelps and Marsha Pyle Martin, and their lifetime contributions to the system and the communities they served. The awards honor their legacies by recognizing the FCS institutions and individuals who exemplify their commitment to community service.
Presented at the FCC’s annual meeting in San Diego, California, Pete was one of three recipients of the Phelps-Martin Award for
CALENDAR OF EVENTS APRIL
JUNE
[29] GreenStone Annual Meeting GreenStone Corporate Office, East Lansing, Michigan
[18] G reenStone Election Ballot Deadline
MAY [21] O ffices Closed In Honor of Memorial Day
JULY [4] Offices Closed In Honor of Independence Day
NEWS UPDATE
GreenStone Pledges $25,000 in Support to FFA; Armstrong Awarded Honorary American FFA Degree GreenStone recently partnered with the Michigan Farm Bureau to host a special reception honoring Michigan FFA Star Award finalists at the Michigan FFA Convention. Following the special Star Award ceremony, GreenStone President and CEO, Dave Armstrong, presented the Michigan FFA Foundation with a check for $25,000 from the cooperative. During the group’s annual week-long convention at Michigan State University, Dave also received a Honorary American FFA Degree. “The FFA plays a critical role in developing the next generation of agricultural industry leaders, and I am happy to have a part in serving the organization,” said Dave. “I am honored and humbled to be recognized for my years of service to the FFA.”
GreenStone Scholarships Available GreenStone is proud to offer $12,000 in scholarships to graduating high-school students who are pursuing their agricultural interests at the collegiate level. GreenStone’s scholarship program aims to assist deserving students with continuing their education in order to prepare for a career in production agriculture or agribusiness. Michigan State University GreenStone will award a combined total of $10,000 to incoming freshman that have applied to Michigan State University (MSU) and have selected a major preference in the College of Agriculture and Natural Resources. MSU automatically
sends applications to eligible students. Further details about the scholarship and deadline to apply can be found on the application. University of Wisconsin One scholarship will be awarded to an incoming University of Wisconsin freshman that has selected a major preference in the College of Agriculture and Life Sciences. Applicants must meet specified criteria and submit a completed application form to GreenStone by June 1. For additional scholarship information, eligibility requirements, or to print out a University of Wisconsin application, visit www.greenstonefcs.com/ scholarships.
Dave has long been a champion of FFA and the work the organization does with youth interested in agriculture. He recently served on the Michigan FFA Foundation board of directors for six years, including tenure as board chair in 2011. The American FFA Degree is the FFA’s most prestigious honor and is reserved for individuals who have provided exceptional service to agriculture, agricultural education, or FFA. Award winners are chosen by the National FFA board of directors.
GreenStone Employees Featured on Michigan Out of Doors Did you know GreenStone is the presenting sponsor of the Michigan Out of Doors television program? We know many of our members enjoy spending time in the outdoors, and we do too! Financial service officers Luke Bakker and Mike Kennedy were recently featured on an episode of the show, steelhead fishing with host Jimmy Gretzinger. Michigan Out of Doors airs on all Michigan PBS stations in a primetime spot on Thursday nights and again on Saturday in most locations. You can watch the episode featuring Luke and Mike by visiting their website: http:// bit.ly/12emBwz.
GreenStone’s Annual Meeting Approaching GreenStone’s annual meeting is slated for Monday, April 29 at 3:00 p.m. at the corporate office in East Lansing, Michigan. Stockholders are invited to attend and participate in the approval of 2012’s annual meeting minutes, candidates for the board of directors in regions one and two, and candidates for the 2014 Nominating Committee for all regions. Tours of the corporate office building will be available at the conclusion of the meeting.
Spring 2013
PARTNERS 8
AG DAY 2013
Ag Day at the Capitol Caps Big Week for GreenStone The team at GreenStone Farm Credit Services was busy in mid-March spreading the positive story about agriculture in Michigan, and rewarding the cooperative’s members. GreenStone celebrated National Ag Day in a big way with Patronage Day on March 19 when the cooperative disbursed a record-setting $26.5 million patronage payment to you, our members. GreenStone has paid more than $134 million in patronage to its members during the eightyear history of the program. “GreenStone has been fortunate to experience unprecedented success in recent years due to the hard work and dedication of our members,” said Dave Armstrong, GreenStone President and CEO. “Sharing the organization’s success with those who help make it possible is important to everyone at GreenStone, and providing a patronage refund is our way to say ‘thanks’ to all of our members who help us remain a strong and stable lender.” Patronage Day provided a perfect lead in to Ag Day at the Capitol on March 20. For the past several years, representatives from various commodity groups and other agricultural organizations
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PARTNERS Spring 2013
have taken over the halls of Michigan’s Capitol in Lansing, to showcase the impact agriculture has in the state. The day also provides an opportunity for members of the agriculture industry to spend time with Michigan legislators and other policy influencers as they pass through the halls of the Capitol sampling commodities and products produced within the state. After the day’s activities at the Capitol came to a close, GreenStone hosted a legislative reception in downtown Lansing. The event allowed GreenStone’s executive team and regional leadership to meet with key state policymakers to discuss the challenges facing the agricultural industry and members of the cooperative. “Our passion is promoting agriculture, and these events have given GreenStone the opportunity to showcase the agricultural industries in Michigan and northeast Wisconsin and, most importantly, our members,” said Armstrong. “Additionally, the direction provided by our
board of directors and executive management team, as well as the expertise of our 475-plus employees, has positioned the organization to be a leading provider of financing and financial services to the agriculture and rural communities in our territory for generations to come.”
Top: Michigan Gov. Rick Snyder, (left) talks with GreenStone's regional vice president of sales, Jim Nowak, during Ag Day at the Capitol. Bottom: GreenStone President and CEO, Dave Armstrong, talks with Dianne Byrum (center), and GreenStone board of director member Laura Braun (right).
GREENSTONE'S STORY
HELPFUL
KNOWLEDGEABLE
FRIENDLY
People make it Perfect: GreenStone’s Staff Give Edge on Competition Friendly. Dependable. Knowledgeable. Flexible. Those are just a few of the words we often hear when members like you describe the staff at GreenStone. Our loyal staff are committed to helping each of our more than 23,000 members succeed —whether in your farming operation, with your home construction project, or finding a perfect piece of hunting land. “I really enjoy coming to work each day knowing that what I do will have a positive impact on my customers and our community,” said Kevin Bock, vice president of commercial lending for GreenStone. “Being active in farming myself, I am able to put my first-hand knowledge of agriculture to work for our customers.” Kevin, who produces hogs and cattle along
with cash crops, is not the only GreenStone employee who has experience turning soil and raising crops. Did you know more than 60 of our employees are currently involved in some type of farm activity in their spare time? Even though some our staff members may not be currently involved in farming, many GreenStone employees were raised on a family farm or worked on a farm growing up—including our President and CEO, Dave Armstrong—whose father was a partner on a small poultry operation in Ionia County, Michigan. The GreenStone team consists of more than 475 professionals in various
career fields who are focused on putting the needs of our customers first, and ensuring they have the tools they need to succeed. Most importantly, our members share personal relationships with our employees, and with 37 offices throughout Michigan and northeast Wisconsin, our team is easily accessible to you when you need us. As you know, GreenStone’s staff is most known and respected for their breadth of knowledge and experience when it comes to the agriculture industry. When employees make the choice to join the GreenStone team, they are here for the longterm and there is no substitute for experience. Our current employee roster features more than
100 employees with 20, or more, years of service at GreenStone. That means that one out of every five employees at GreenStone has lived through the ups and downs the agriculture industry has weathered over the years. You can’t find that type of experience and stability just anywhere! “The experience and tenure of our staff are just a couple of things that help set us apart from other lenders,” Dave said. “During my 30-plus year career, I have said many times that this business is about people and relationships first. We are fortunate to have a great team of employees working with an exceptional group of hard-working and dedicated producers.”
Spring 2013
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YBSF FEATURE
Family: The Recipe for Success By Jennifer Vincent
Three of Jim and Karen Koan’s children have returned to help run the orchard and hard cider business after acquiring college educations. When the Koan children were growing up, everybody would ask their dad, Jim, which one of his five kids would take over the farm. It was a growing business that focused mostly on apple production and it was just expected that one of Jim and Karen’s kids, if not more than one, would take over the helm at some point. Jim’s response each and every time was, “I’m not going to say. I want my kids to go out into the world and see if there is something else they would rather do. I want them to get an education. I want them to pursue other careers if they want. But, if they want to, they can always come back to the farm—it will always be here.” Just five years ago, none of the children were overly interested in joining the family business. Even though the business was growing, Jim, 64, was considering downsizing 11
PARTNERS Spring 2013
because he admittedly was having a hard time managing it well. Thankfully for Jim, circumstances change, people change and ambitions change. Today, by their own choosing, three of his children have come back home to be a part of Almar Orchards in Flushing, Michigan. “They all had the ability to be part of the farm, but I wanted them to also have passion, commitment and, to really farm, you need heart,” Jim says. Monique Lapinski, 33, Zach, 27, and Jake, 23, all have specific roles on the farm and as Monique says, “We all get along pretty well, and each one of us is doing our strong suit. We stay off each other’s toes.” The 500-acre farm includes 150 acres of organic apples, as well as corn soybeans, wheat, barley and pasture. Pumpkins are grown in the fall for the influx of farm visitors, who can also enjoy the reindeer. The Koan’s also raise
about 150 head of organic hogs. Piglets are used to eat dropped apples and to root around the trees. The meat is sold at the farm store, as well as various cooperatives With key management decisions, Jim has kept the farm profitable
YBSF FEATURE
and moving forward despite several challenges. “I was once told, if you don’t have the right location, you have no business growing apples. They were right,” Jim says. Almar Orchards is on, for the most part, flat land and centrally located in the state—not ideal for apple
regulation requirements and less labor costs. “I love farming, but to survive here, apple farming as everyone else is doing is not sustainable,” Jim says.
Monique, who is still teaching a few night courses at LCC, handles the entire farm’s accounting and payroll and, “I like it a lot,” she says.
The farm was transitioned into organic, creating a premium opportunity for cider and apples. They would sell from the farm store, as well as deliver to private, independent grocery stores. “Those grocers are gone now, and we knew we had to do more than sell from the farm,” Jim says. “I had to find a way to be a price maker and not a price taker. I knew we needed a shelf-stable product.”
Monique’s return to the farm was in August of 2011, and just three months later, her brother Zach made his way back—a move he says was never intended.
About five years ago, Jim developed a tasty brew of hard organic cider prized for its taste. It is differentiated from other hard ciders on the market because it’s organic, but also because it is made entirely from fresh squeezed apples, not from apple concentrate commonly used by other hard cider manufacturers. Jim’s hard cider, which now has more than 60 distributors in 40 states, has become the primary focus of the business and an opportunity that appealed to the Koan children. Return to the Farm
production. As the second generation on the orchard, Jim was faced with road blocks to profitability his father did not face, including a world market, over production, yearround availability of other fruits, and imports with less licensing and
Monique left the farm after high school and received a doctorate in analytical chemistry from Michigan State University (MSU). “I pursued a doctorate because I wanted to be able to teach at any level, even the college level,” she says. She took a job with Lansing Community College (LCC), but two years ago an issue surfaced on the farm. “There were some problems with the bookkeeping, so I said I’d take over. Now it’s my full time job,” she adds. “It’s exactly what my dad said he wanted to happen.”
Zach received a bachelor’s degree in food industry management from MSU and went to work for Hershey® as a sales representative in South Bend, Indiana. “It was a golden job,” he says, referring to the compensation, and benefits package. “I didn’t see this coming, but after a year, I was ready to leave,” he says. “I saw myself going farther with this company (Almar Orchards) than I did Hershey. And, it was the perfect time to come back, business was exploding in growth and there was a dire need for management.” Zach handles the apples once they come in from the fields for processing, including pressing, fermenting, bottling, labeling, packaging and storage. And, he’s started his own department—research and development. “I’m looking at developing ciders that no one else is doing,” he explains. The youngest sibling, Jake, didn’t like the farm much as a kid, but later decided to pursue a degree from the Institute of Agricultural Technology from MSU. He’s now pursuing a bachelor’s degree from MSU in sustainable and organic horticulture. Monique says Jake was always the most likely sibling to be involved in the business, calling him the farmer in the family. Three years ago, Jake secured a young farmer loan through GreenStone to purchase a 120-acre farm adjacent to his dad’s land. It will be certified organic this year. “I manage the orchards and take care of the pigs,” Jake says. “I’m my dad’s right hand man.” Spring 2013
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YBSF FEATURE
Jake is slowly transitioning his farm from row crops and pastures to orchards. “I’m working on getting the fertility for apple trees,” he says. “We’ve been doing our own grafting for nursery stock in greenhouses, which will allow us to plant more trees and put more land into (apple) production. Once I’m done with schooling, I really want to grow the business.” Currently, the business has been growing 10-20 percent a year, which they hope to maintain. While an unseasonably warm spring followed by several frost events decimated the entire 2012 apple crop, the farm mitigated some of its losses when Jim, early on, saw the potential for disaster. “Once we had those 80 degree days in March, even before the frosts, I went out and sourced 30,000 bushels of Michigan apples. We bought some from growers and some from processors that overbought.”
The farm purchased the rest of the needed crop from Washington growers in the fall at three times the regular price. “But, we managed and the operating line of credit from GreenStone helps us do that.” Production and relationships with distributors were maintained. The farm also took advantage of the low interest loans made available through the Agricultural Disaster Loan Origination Program of 2012. GreenStone is a participating lender in that program. The farm wanted to expand last year, but with no crop, that idea was shelved. “With the low interest loans, we couldn’t afford not to take advantage of it this year,” Jim says. “We’re expanding our warehousing and refrigeration areas.” For continued growth, Jim says he will work with his children and draw on his 35 years of growing apples, “but, there’s still more learning,” he says. “As new technologies, new research, and new discoveries come about, things are
changing in terms of varieties, rootstocks and management strategies.” While the Koan siblings position themselves in the business, Jim is still primarily in charge of most of the business decisions. “He has the experience and the background and frankly, his name is still on the business,” Monique says. “My dad will never be out of the business, kind of like my grandpa was never really out of the business. It’s his livelihood.” Jim says it’s necessary for him to share his knowledge so his kids can build on it. “You can’t understand the present and you can’t foresee the future if you don’t understand the past,” he says. “I still need to teach these kids to get them up to speed with my 35 years. But, at some point in time, say three to five years, I will be obsolete on the farm. They will know more than I do and I’m just going to be a gopher—and I’m okay with that.”
STRAIGHT TALK
Q:
hen you were eight, what did you W want to be when you grew up?
Zach: “ I wanted to work with machines; do
mentor?
Monique: “ Without a doubt, my father is most
definitely my mentor. Growing up, he was a strong influence in my life— challenging me to be as high-achieving as possible. He was firm when he needed to be, but always remained patient and encouraging.”
something cutting edge with science.”
Q: When did you first realize that you wanted to farm for a living?
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Jake: “ I hated the farm growing up because
it always took away from time spent with friends and after school activities. We always had to make sure our farm chores came first above all things except for homework and school. I decided I wanted to come back to the farm and own and operate a farm when I started going to Michigan State University and taking classes.”
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Q: Who do you look up to; who is your
Q: What is the biggest challenge for young, beginning, or small farmers today?
Zach: " It is a dog eat dog world in the value
added market. You can have an outstanding product but if no one is out there pushing it, you won’t sell much. How can you be on the farm and still be out pushing your product?"
LEGISLATIVE CORNER
Spring Legislative Corner GreenStone remains committed to its mission of engagement through communication and education of legislative officials at both the federal and state levels Considering the changes in the legislature, every two years, communication and education on issues affecting agriculture and our members remains an important part of our mission. Our efforts focus on legislative issues that are generally supported by a broad cross section of our agricultural and rural stockholders. From a financial perspective, we have three sources of funds for making contributions to Friends of Agriculture and rural issues. The MI GreenStone PAC provides support for those legislators that are engaged and supportive of this broad agricultural mission in the state of Michigan. The Wisconsin Farm Credit PAC provides resources to support those legislative initiatives in Wisconsin. Lastly, the Farm Credit PAC provides similar support on the federal level. At the federal level, the 2012 election resulted in several changes in committee assignments. A significant addition to the Agriculture Committee in the House of Representatives is Michigan’s First District Representative, Dan Benishek M.D. (R), who was recently reelected to his second term in office. Executive and board leadership of GreenStone has enjoyed opportunities to meet with Rep. Benishek concerning agriculture and Farm Credit issues. This relationship is certainly very important to our membership while Rep. Benishek serves in this capacity. Coupling this building relationship with Michigan’s Sen. Debbie Stabenow (D) as Chairperson of the
Senate Agricultural Committee, the presence of agriculture in GreenStone's territory is well represented in Washington, D.C. GreenStone's board and management continue to maintain strong communication to help sustain a supportive voice on any agricultural issues on a federal level, and particularly the funding of credit and furnishing of financial services to its territory. As a GreenStone member, we encourage you to maintain contact and provide input to your local legislators, and in particular these two critical members of our legislature, as they represent you in making decisions on federal agriculture policy. Within the state of Michigan, Republicans retained control of the Michigan House of Representatives for the 2013-14 legislative session by a 59-51 margin. Republicans also have the majority on this House Agriculture Committee by an 11-6 margin, and Rep. Kevin Daley (R), a Lapeer County farmer, remains the committee chair. New committee members include Rep. Roger Victory (R), a farmer in Allegan County; Rep. Dan Lauwers (R), general manager at Eastern Michigan Grain; Rep. Dave Pagel (R), a Berrien Springs owner of Pagel Produce; Rep. Jim Ananich (D), a second term member from Flint; Rep. Dough Geiss (D), a third-term member from
Taylor; and Rep. Bill LaVoy (D), a first term member from Monroe County. There were no changes in the Senate Agriculture Committee which remains chaired by Sen. Joe Hune (R), a farmer from Livingston County. On the Appropriations or Michigan Department of Agriculture and Rural Development funding side, the two subcommittees are also carry-overs from last term: Sen. Mike Green (R), from Mayville; and Rep. Phil Potvin (R) from Cadillac. Major state issues of interest to the agriculture community in 2013 include proposed gas tax and vehicle registration fee increases to support road and infrastructure improvements, a review of energy policy and rates, and wetlands regulation reform. Look for the Wisconsin legislative overview in the Summer 2013 issue of Partners.
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DIRECTOR'S PERSPECTIVE
Stockholder Advisory Meetings–from the Chair’s Perspective… By: Scott Roggenbuck, GreenStone Board of Directors Chairman GreenStone recently held four stockholder advisory meetings. If you have been a part of them, you may already know that these are yearly gatherings when the association looks to stockholding members for both feedback and direction. As a director, it is a great experience being a part of these meetings. The thoughts, opinions and ideas offered from our members drive us forward, and help us, the board of directors, to provide the guidance to the association that our members are looking for. Customers appreciated the opportunity to be engaged and learn more about their association. Beyond the stockholders taking time to hear from GreenStone executives who shared an association overview, discussed the economy and interest rates, and provided an update on marketplace initiatives, attendees also engaged in breakout discussions, and took advantage of an opportunity to speak candidly with the board directors independent of GreenStone staff. From those breakouts and the board interactive discussion, here are a few of my takeaways: Areas of Appreciation
• Customers appreciate the relationships they have with their loan officers; long-term staff who are knowledgeable about the industry is key
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• GreenStone’s community footprint is an advantage for the association
• Crop insurance, life insurance, tax and accounting services are important to customers
• While serving the varied needs of the membership is vital, it is also important to keep attention on the core of the association (lending) and not wander too far
• Can the association integrate more technology and/or be a resource for members’ education on technological implementation: go paperless, field mapping, utilize handheld devices in the tractor/ equipment, online banking, etc.
Areas of Consideration
• Our members are looking for a resource for transition planning/ services, financial planning, marketing education and consulting services • Other financing agencies may offer a quicker, less cumbersome lending process
Member and Director Dialogue
During this part of the meeting, members meet with the directors without the GreenStone staff present. Among the many topics discussed, the one that garnered
DIRECTOR'S PERSPECTIVE
“ The thoughts, opinions and ideas offered from our members drive us forward, and help us, the board of directors, to provide the guidance to the association that our members are looking for.” years. The existing plan does what it is supposed to do…pay less in years when GreenStone doesn’t do as well, and better in the years it does. Overwhelmingly, 92 percent of the members present stated that they would not support a vote to set senior compensation. Rather, they saw this as a principal duty of the board of directors who have access to the training, information and comparisons that are used to establish the complex compensation packages that provide our membership with the best overall value. the most conversation was the Executive Compensation Disclosure Rule being imposed by the Farm Credit Administration, specifically the provision of the rule pertaining to “Say on Pay.” The rule requires a non-binding vote of the membership in the event of a 15 percent increase in total compensation for the senior leadership. On the surface this would seem like a reasonable idea, and as a GreenStone member I can understand why the membership may want to have direct input. However, since the compensation package for our CEO is set up on a variable scale, a “poor year” followed by a “normal year” would likely trigger a vote instead of relying on a plan that has been in place for
In synopsis, members scored the meetings as a whole an overall 4.28 value based on a five point scale. This survey number may not provide a lot of detail, but I do believe it supports the need for these gatherings. After all, we don’t hold the meetings to get a score, but rather for this vital interaction with, and feedback from, our members.
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GUEST COLUMN
FRACKING AND WATER TAKING –Does it Affect Your Farm?
By: Christopher Paré, Dragun Corporation
Fracking has become a “lightening rod” environmental issue for some groups, claiming it will cause a host of environmental damages. But what is fracking and should you be concerned?
However, the stages of the fracking process may take place over a period of hours or days. While the volumes aren’t all that significant, they may impact your well if your aquifer is already stressed from a drought or other competing use of the aquifer.
Hydraulic fracturing or “fracking” has been used since the late 1940s. Simply put, fracking is the injection of water and additives into deep layers of hydrocarbon-containing formations (e.g. shale and sandstone) at pressures great enough to fracture the formation so it will release crude oil and/or natural gas.
It may be important to inform the company that is proposing the new fracking well that at certain times of the year, based on your farm’s needs, you cannot afford to lose/decrease your water supply. For example, for dairy producers, water supplies are absolutely critical during the hottest months of the year. This is also true for crop production that relies on irrigation. Further, this issue of water taking may be exacerbated by the current drought.
According to the United States Energy Information Administration, 862 trillion cubic feet of natural shale gas reserves are available in the shale in the U.S. But it will cause environmental damages and contaminate our groundwater, right? According to the U.S. Congressional Research Services report (January 10, 2013) “…the data suggest that hydraulic fracturing…is unlikely to contaminate sources of drinking water…” Further, according to the Michigan Department of Environmental Quality, fracking has been used for 50 years at more than 12,000 wells and it has “never jeopardized the environment or public health.” So, setting aside some of the sensationalism surrounding fracking, why should a farmer or homeowner be concerned if fracking is proposed in their area? There may be a concern if there is groundwater withdrawal for the fracking process (surface water could also be used). Water is required for fracking and a groundwater supply well is likely to be the best option. A typical fracking process at a natural gas well will use from two to six million gallons of water per well.
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It is important to understand your groundwater supply and determine if, or when, there is a risk from installation of water supply wells associated with fracking. In some cases, a simple evaluation of the hydrogeological conditions around the farm can help to quantify any risks. Should you be concerned about fracking? Based on reports from state and federal agencies, it seems the answer is no. That said, groundwater withdrawal of any type may have an impact on your ability to meet your water supply needs, so ask questions and understand how new fracking wells may impact your water supply.
ABOUT THE AUTHOR Christopher Paré is a hydrogeologist at The Dragun Corporation, an environmental consulting firm in Farmington Hills, Michigan. The opinions stated herein are not necessarily those of GreenStone Farm Credit Services.
STAFF RECOGNITION
GreenStone Recognizes Top Sales Staff of 2012 GreenStone recently recognized its “best of the best� in sales performance for 2012 with the Circle of Excellence Awards.
leadership, the top three crop insurance specialists and the top three tax and accounting specialists all received a gold award. Additional awards were also presented to the Most Improved Lender and the Rookie of the Year.
The Circle of Excellence program is a way to recognize and reward those lending and financial services staff members who are the top performers within the association. Various criteria such as loan and revenue growth and number of new customers are used to measure performance.
Each winner, along with the support staff of the Platinum Award recipients, was recognized at the seventh annual GreenStone Circle of Excellence awards banquet on March 1 in East Lansing, Michigan.
The top 10 lenders as well as the sales leadership with the highest performing region or unit received a platinum award. The next 10 lenders, the second place sales
Platinum Award Winners
Gold Award Winners
Traditional FSOs David Meyering, Cadillac, MI Gary LaMee, Corunna, MI Ian McGonigal, Grand Rapids, MI Wayne Sevilla, Bay City, MI Laurie Schetter, Manitowoc, WI Duane Paturalski, Berrien Springs, MI
Traditional FSOs David Messing, Sandusky, MI Tyson Lemon, Berrien Springs, MI Mark Buuck, Adrian, MI Luke Bakker, Grand Rapids, MI Tony Barcroft, Hastings, MI Patrick Koester, Mt. Pleasant, MI
AgriConsumer FSOs Michael Forst, Manitowoc, WI Melissa Humphrey, St. Johns, MI Brent Voss, Traverse City, MI
AgriConsumer FSOs Nancy Blaauw, Allegan, MI Sheryl Smith, Charlotte, MI Ann Klemp, Clintonville, WI
Commercial FSO Gayle Olson, Appleton, WI
Commercial FSO Troy Click, Ionia, MI
Sales Leadership Bert Sheridan, West Michigan
Sales Leadership Ben Mahlich, North Michigan
The following GreenStone staff members represent the 2012 Circle of Excellence Platinum and Gold award winners.
Crop Insurance Specialists Kyle McKenzie, Grand Rapids, MI Nicole Goetschy, St. Johns, MI Amanda Kutchey, Mason, MI Accounting & Tax Specialists Cindy Maciag, Bay City, MI Ralph Wesoloski, Coleman, WI Nicole Wesoloski, De Pere, WI
Additional Awards: Rookie of the Year Michelle Lane, Ann Arbor, MI
Most Improved Nicole Goetschy, St. Johns, MI
Spring 2013
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3515 West Road East Lansing, MI 48823
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