Head of CHS looks to expand global marketing efforts

By DALE HILDEBRANT, Farm & Ranch Guide
Friday, March 12, 2010 12:40 PM CST

CHS president John Johnson

GRAND FORKS, N.D. - The expansion of CHS export markets has been one of the main focuses of the Minneapolis-based farm cooperative for the past five or six years, according to CHS president John Johnson.

Johnson recently addressed the members of the Agri-Valley cooperative at their annual meeting that as held in Grand Forks on Feb. 18.

“We've always been in the grain business; we've always shipped grain all over the world,” Johnson said. “But basically we would buy the grain and then sell it to a major grain marketing complex, and that was really limiting our access to the better margins on this grain. So we decided we needed to go on a direct basis. In other words, we needed to be selling to our customers overseas, rather than going through a third party.”

This has led to CHS establishing offices in Brazil, Argentina, Ukraine, Russia, Spain, Geneva, Hong Kong, and Shanghai, China.

Johnson noted that when this expansion project was started there was controversy over the fact that CHS, a cooperative owned by U.S. grain producers, was buying grain from Russian, Brazilian or Ukraine farmers.

He explained that China is their biggest customer, followed by Japan and South Korea, and that all three buy these grains 365 days a year. That's unlike North America where CHS could supply the grain six to seven months out of the year, but in the off months those companies will access the grain from other markets.

“So do we sit back and say to Group 93, which runs six soybean crushing plants in China, ‘Our beans are gone, go and buy from the other players and by the way we will be back again next fall,'? It doesn't work that way,” he said. “You need to keep your customers supplied year round. So we needed to make sure we had access to grain on a global basis for these customers 365 days a year.”

Johnson also said that by having this expanded trade network they have limited some of the risk involved with international shipping. This gives them some flexibility to move ships around when situations develop that prevent a ship from being loaded in one port, which usually costs the shipper $150,000 a day to have a ship tied up in a port waiting to be loaded.

Instead, with this network, that ship can be diverted to another port and loaded with a similar commodity.

But even with this lessened risk for CHS, if you are one of those who are looking for tranquility to return to the market place, you may have a long wait ahead of you, according to Johnson.

“I've been in this business for 30 years and I have never seen the kind of volatility we have seen in the last three years,” he said. “All of you on the farm side and we, as handlers of grain and farm inputs, have lived this world in a three-year window.”

Some of that volatility may be just a few months away in the fertilizer industry. He doesn't feel the fertilizer industry is prepared for this spring, since inventories are at record low levels on the retail and wholesale sides and the manufacturers aren't stockpiling product.

“They are either making it and shipping it off-shore or they will make it when the demand is there,” he said. “I think there will be plenty of product, but it will be a logistical problem. You just can't fire up the plants, fire up the railroads and the barges and get it in place quick enough. So I expect there will be some logistical problems this spring.”

CHS AgServices spring fertilizer

supplies appear adequate.

Fertilizer supplies, at least for the CHS AgService organization, should be adequate for this spring. Because of the predictions for another wet spring, manager Gary Halvorson will have his spring fertilizer supply in place before potential flood waters hit.

“We are going to have all of our plant food in place so that when bridges close and things get ugly we'll be in good shape,” he said. “We're doing our best to get as much inventory in place on this side of the river so we will be able to supply you when you begin your spring work and get this crop in as timely as we can.”

He also noted that fertilizer prices appear to have stabilized, at least for the time being, and that in the future any price changes will follow the more traditional price cycles, such as being lower in the fall to promote fall fertilization programs.

Touching on glyphosate prices, Hal-vorson thinks they have bottomed out, due to Chinese exports of the product, and will probably remain at the present low levels for a couple more years, since the Chinese are still ramping up production.

Finally, looking at the soybean seed situation for the northern Red River Valley, he said the wet soybean harvest last fall has had a negative impact on the seed quality.

“It's an ongoing challenge, since we don't know how many lots of seed we are going to lose between now and spring,” Halvorson said. “But we think we have a good plan and a good relationship with the right suppliers. We are filling our supply channel now and we are going to work our tails off to make sure you have what you need when we get to planting season.”

He expects soybean acres will be up in his marketing area in 2010.

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