On September 1, 2016, Fremont, OH-based Sunrise Cooperative formally merged its operations with Trupointe Cooperative, based in Piqua, OH. This created the largest agricultural cooperative within the Buckeye state with approximately 40 retail outlets primarily located in the western half of Ohio. In all, more than 7,000 members will be served by these facilities, with annual sales expected to top $750 million.
In this day and age of commonplace agricultural consolidation, the news of two cooperatives merging their operations isn’t exactly unique. Indeed, over the past 24 months or so, dozens of the country’s cooperatives located across dozens of different states have decided to blend their businesses in a never-ending quest to improve efficiencies, reduce expenses, and increase bottom lines.
However, according to George Secor, President/CEO of Sunrise Cooperative, the corporate marriage between Sunrise and Trupointe is different than many of the others the ag retail industry has witnessed these past few years. “A lot of cooperatives in the past that merged had no other choice than to do so because they were in some bad financial straits and didn’t really have any other alternative to stay in business,” says Secor. “I know a little about this kind of scenario first-hand. When I first became CEO of this company, when it was called Country Spring Farmers’ Co-op in 1996, it was a merger of three cooperatives called RuralServ, River Springs, and Bellevue Farmers. Those cooperatives all had bad bottom lines and financial challenges that took our management team almost three years to dig out from under.”
(Editor’s Note: Sunrise was adopted as the company name during an additional cooperative merger that took place in 2007.)
In the case of Sunrise and Trupointe, this definitely wasn’t what drove the talk of consolidating. “When our two cooperatives first started talking about merging in the summer of 2015, we were both at the strongest points in our respective histories,” says Secor. “In fact, both Sunrise and Trupointe ended their 2015 financial years with the strongest and most healthy balance sheets they had ever had.”
So given these circumstances for both cooperatives, what could possibly have been the incentive for their board of directors to even discuss joining forces? “In a word,” says Secor, “relevancy.”
“That’s the one word I kept using as Sunrise and Trupointe held some 35 merger meetings throughout the two companies during January and February of 2016,” he says. “We were both coming off really strong financial years. At the same time, I kept telling our board that with what was going on across the agricultural space, the decks could easily get re-shuffled and we could suffer as a company. In fact, I reminded them that 10 years ago, Sunrise and Trupointe each would have easily ranked in the Top 10 cooperatives in the country based upon our sales volume. However, by 2015, neither of us ranked in the Top 20 among cooperatives anymore, despite doing financially fabulous.”
Secor’s point that today’s strong companies/brands don’t always remain relevant has some historic merit. For example, back in the early 20th century, business analysts used to joke that every household in America likely owned the same two books — the Bible and a Sears catalog, a testament to the retailer’s then-strength with the buying public. Flash forward to now, and Sears is an afterthought in the general retail marketplace. In fact, the company has warned investors it might not survive until the end of 2017 because of being overshadowed by newer retailers such as Target, Wal-Mart, and Amazon.
A more recent example of this trend in action is Blackberry. At the start of the 2000s, Blackberry mobile phones were so very popular in the market that folks referred to them as “crackberries,” alluding to their power over owners to be unable to “put them down.” Today, with iPhone and Android smartphones the norm, Blackberry phones have become another once-strong brand now nearly extinct in the marketplace.
Of course, in agriculture, the threats to remaining relevant for most ag retailers have less to do with the emergence of “new, flashy competitors” or new technological trends and more to do with overriding new market realities, says Secor. Namely, contraction.
“In the last several years, at each of our yearly planning sessions, the board of directors and I discussed how we could see the six-major crop protection product companies collapsing down to three or four,” he says. “I reminded them that when that happens, which companies remain as major ag retailers could drastically change. Then, we would be in danger of losing our relevancy, in not only representing our customer-owners, but where we stood in the whole cooperative marketplace.”
As others before him, Secor could foresee a day when crop protection company mergers reshaped the agricultural landscape. In fact, he believes that if the grower economy hadn’t been so robust during the 2008-13 time frame, major consolidations in this segment would have happened already. “Frankly, I didn’t see them happening all at once and so fast, which is what we are seeing take place right now with Dow-DuPont, ChemChina-Syngenta, and Bayer-Monsanto,” says Secor. “In reality, this had to happen. Companies couldn’t keep spending an average of 15 years and more than $300 million to bring every new trait to market. There had to be some kind of pooling of resources for this to continue.”
Overall, Secor believes this kind of consolidation will be a “good thing” for agriculture. “I know most folks will say that this is not good for agriculture, but I would take the opposite view,” he says. “I would say this is fantastic because I think all of the cost efficiencies gained through the crop protection company mergers will end up trickling all the way down to our farmers.”
Furthermore, given agricultural market conditions right now, Secor adds, growers could use this kind of break. Besides seeing plenty of consolidation in the supplier and ag retail arenas, many growers have also been merging their operations, largely because of the steep drop in commodity prices experienced over the past few years. This is another big reason why Secor believes the consolidation of Sunrise with Trupointe makes economic sense.
“The number of farmers is reducing, but by and large, cooperatives really haven’t reduced the number of locations they have to service them,” he says. “For instance, in grain, many locations today don’t even handle one million bushels total per year — and that includes corn, soybeans, and wheat combined. Not too many years ago, these same locations were doing three to four million bushels each year.”
“Farmer fortunes in Ohio have a chance to change,” adds Secor. In mid-2015, the Clemens Food Group broke ground on a new pork processing plant in Coldwater, MI — geographically, right next door to Sunrise Cooperative and its grower-customer base. He anticipates this facility will have a major positive impact on Buckeye state growers over the next 18 months or so.
“Right now, I am being told the plans for this plant is to process 10,000 hogs per day when they open this fall — and then they hope to climb to 20,000 per day after six months,” says Secor. “All of these will likely be ‘new’ hogs, with many of them probably raised here in Ohio. That will drastically change the demand for corn and soybeans here in the state, with six to 10 counties probably ending up grain deficient as a result.”
In theory, all this demand for crops to turn into animal feed should begin boosting commodity prices back up, putting more money back into grower pockets. However, it still might be a slow climb upward. “Keeping our customer-owners whole is one of our major goals as a cooperative,” says Secor. “Most folks that watch this market will tell you that grain prices fell from their highs in 2008-13 as far as we expected, but probably further than we wanted them to. Right now, I don’t think they will fall any deeper, but I still think prices will have a flat bottom for several more years yet unless there’s some kind of major flood or drought in some part of the U.S.”
Knowing the Customers
In all likelihood, the customer-owners of Sunrise Cooperative will begin utilizing many of the new traits and technologies coming into the marketplace to boost their yields and increase their revenues. For example, corn seed traits have markedly improved over the past decade to typically boost yields. Now, says Secor, soybean traits are beginning to catch up.
“The amount of soybeans we expect in 2017 will be huge,” he says, alluding to the recent USDA Planting Projections report that pegged soybean acreage at an all-time high of 89.5 million acres. “A lot of this will end up going for export to other countries, but the amount we use here in the U.S. is huge as well. Many of the growers we work with said they were pleasantly surprised by how high their yields were on soybeans in 2016 using these new traits, and virtually all of them are expecting similar results in 2017.”
“In the end,” says Secor, “two financially-stable cooperatives coming together with the merger of Sunrise and Trupointe should make the overall mission of such entities much easier to accomplish.
“Looking at the future of agriculture,” he continues, “we need to boil it down to one thing — there are so many new products, seeds, and technologies becoming available for growers to choose from, we need for our people to understand all of them to act as a funnel for our customer-owners to pick the best ones for their needs. I always say you don’t win as a company in ag if the farmer doesn’t win. We’ve got to do whatever it takes for the farmer to win. I believe this merger will allow us, and all the suppliers that are teaming with us, to make that happen.”