Declining Fortunes Grain Storage Industry Ripe For Major Shakeout Thin Profit Margins, Overcapacity Blamed For Financial Troubles

Some say the decline of the country grain elevator, long a rural landmark, began in 1985 when Congress retired millions of acres of farm land and withdrew a lucrative, mega-bushel storage program.

But Don Hauschild pegs it to the time when the company he patronized couldn’t deliver fuel to his Pleasant Prairie farm because they were too busy tanking up the carnival rides at Spokane Interstate Fairgrounds.

“I think some of them (elevator companies) have forgotten that it was the farmer who made them successful,” says Hauschild, who’s hauled wheat off the bluff north of the Valley for 40 years. “Farmers have been loyal through good and bad times, but I’m through with loyalties.”

Hauschild is one of hundreds of Inland Northwest farmers caught in the painful restructuring of an industry that’s come to symbolize rural America. Dismal profit margins, overcapacity of storage bins and bad management have brought down some of the region’s most prominent grain elevators in recent weeks.

Grain elevators that growers faithfully supported for decades have gone out of business virtually overnight. Larger companies have snapped up smaller ones, diluting local control that farmers had cherished. Customer service on a first-name basis has waned.

Since 1987, the Pacific Northwest has lost 154 companies, leaving 550 to serve the region, according to the Pacific Northwest Grain & Feed Association, a Portlandbased trade group for elevator operators and grain traders. In that same time, not a single new commercial grain bin has been erected in Washington or Idaho.

Spokane is not immune from the upheaval. Three giant steel bins on Desmet Avenue east of downtown changed hands last month for the third time in four years. Rosalia Producers Inc., based 35 miles south, leased the tanks in time to receive harvest grain from four farmers.

“We all scrape by with these low numbers and consequently you’re only seeing a few survivors,” said Roger Brincken, manager of the elevators.

Grain elevators are almost totally dependent on farmers for revenue. They charge fees to farmers for storing, handling and selling grain. The crop is tested and shipped by rail or truck-and-barge to export tankers that call at Portland, Seattle and Vancouver, Wash.

Some elevators have attempted to hedge themselves against a poor harvest by diversifying into sales of seed, fertilizer and chemicals, equipment, fuel and consulting services. Joint ventures with neighboring elevators also have become common, with each sharing the costs of operating a strategic elevator facility or a barge-loading river terminal.

Granted, many companies have benefited from the shakeout by adding customers and expanding their geographic reach. But most believe it’s only a matter of time before some remote elevator towers will have to be shuttered.

“The declining intake of grain is making them take a hard look at the bottom line,” says Don Michelbook, head of grain licensing for the Washington Department of Agriculture in Spokane. “All it takes is one bad crop in the wrong year and they’re in trouble.”

The industry could stand to shrink a bit. In Washington, 75 licensed companies compete for 150 million bushels of wheat and barley cut each year at harvest. But the elevators have space for 225 million bushels, meaning one-third of their fixed assets sit empty after harvest. The elevators’ problems can be traced back to their heyday in the 1970s. A drastic build-up of elevator space was spurred by trade embargoes with the former Soviet Union. That was followed by a massive federal grain storage program in the early 1980s.

The storage program created mountains of wheat that overflowed grain bins and piled up on the ground. Companies erected new elevators, but the government abruptly dropped the program before many could be filled.

At the same time, Congress launched an innovative soil conservation program that was a boon for farmers and a bust for elevators.

Beginning in 1986, the Conservation Reserve Program paid farmers to idle highly erodible crop land. Those in low rainfall areas jumped on the program, idling up to one-fourth of the available crop land.

The program saved soil and preserved wildlife, but it drained elevator coffers by dramatically reducing the volume of grain they could handle.

“It’s like a perennial drought for our industry,” says Jonathan Schlueter, executive director of the grain and feed association.

Elevators have been largely unable to compensate with higher charges to farmers. When they try, they offend producers who can drive down the road to a competing elevator.

The storage rates in the Northwest already are the lowest in the nation, according to the U.S. Department of Agriculture. The average charge to store wheat at an inland Washington elevator is about 2 cents a bushel per month, compared to 3 cents nationally. For an elevator storing 250,000 bushels, that’s a difference worth $2,500 a month.

Farmers are sympathetic to the elevators’ concerns, but they also are part of the problem. Hundreds of farmers have on-farm storage bins which compete against the country grain elevator. When farmers sell their crop, they often truck it straight to Snake River terminals, bypassing the country elevators.

“The trend now is river-direct,” says the agriculture department’s Michelbook. “I’m not sure that can ever be reversed.”

Inland Northwest farmers also are alarmed by another trend - the privatizing of the elevators.

Last month, Cenex Supply & Marketing Inc., a private company, bought the assets of Rockford Grain Growers Inc., which had been a farmer-owned cooperative for 64 years. The other bidder for Rockford was Columbia Grain International, a giant Japanese exporter based in Portland.

The squeezing of cooperatives worries Vern Regennitter, who spent several years managing facilities in Montana, where Columbia Grain and two other private companies dominate the market. He says cooperatives are sacred to farmers because they give them a say in how the company is managed and where the profits go.

“I got to believe the same (privatizing) is going to happen in Eastern Washington,” says Regennitter, who was named manager of Ritzville Warehouse Co. earlier this year. “If we were to get large, private industries in these facilities it would make it tough for the cooperatives to compete and that’s not in the best interests of farmers.”

Schlueter disagrees. He says cooperative and private companies serve farmers equally well. The difference, he says, is that cooperatives sometimes get too comfortable with their built-in roster of farmer-members. They forget that they are in a competitive, international business.

Officials with the cooperatives that collapsed this summer - United Grain Growers Inc. in Harrington, Wash., and Rockford Grain - declined to answer questions about why they failed.

But a banker who specializes in cooperatives and loaned money to Rockford said he believes the changes are healthy for an industry in the throes of restructuring.

“Deep water covers a lot of stumps and as that water starts to recede, a lot of stumps start to show up,” said Ron Gascho, Spokane vice president of the CoBank for Cooperatives. “What we’ve seen here is what I’d call a natural shakeout.”

But farmers such as Hauschild are more cautious. They believe that the future of the grain elevators will depend on the service provided to the customer - the farmer.

“Larger doesn’t necessarily mean better service,” he says. “These companies got to find time for the people who keep them going.”