50/50 Joint Venture Delivers MN Grain to Global Markets

Back in his days as a sales manager for Land O’ Lakes, Nielsen often found himself at the aforementioned intersection and had made a mental note about a particular plot of land on the northwest side of the crossing. Needless to say, he seized this opportunity to recommend it.

“It just seemed like a logical location because of its proximity to the rail and access to these two major thoroughfares,” Nielsen says. “I suggested we look at it and take a quantum leap. From there, the conversation shifted from a $4 million expansion toward a $30 million state-of-the-art project with rail access.”

Planning pays off

While Nielsen had been eyeing the 200-acre plot of land for nearly 10 years, UFC spent two years working to purchase the holding from its previous owners before it actually had the option to buy.

“The landowners saw the value in what we were trying to do so the project was really helped along with their cooperation,” Nielsen explains. Once the property was secured, the co-op prepared to begin negotiations with the railroads.

It was obvious whatever direction the new facility would take it was crucial for the investment to leverage access to secure marketing opportunities now and in the future, Nielsen says. Accessing global markets was only half the challenge because as the scope of the Brownton project continued to grow so did its price tag.

The solution to both challenges: Find a partner who could mitigate the risk and cover the cooperative’s logistical and merchandising shortcomings.

“Before we sat down with potential partners, it was important to demonstrate that we were serious about this project and we had done our homework,” Nielsen says.

From the inception of its plan to “go big,” UFC had two objectives: To be relevant long-term and to build the facility right. To aid in the strategic planning process, it hired Dr. William Wilson, a professor at North Dakota State University who consults on grain marketing, transportation and logistics, to create a “draw analysis” of grain flow patterns. The objective of the study was to make the case for the demand for and the sustainability of a facility of this scale in south-central Minnesota.

Traditionally, much of the market and surplus grain was being trafficked through barge loading facilities on the Mississippi River in Savage, MN. Wilson’s study found that while the barge operations in Savage will always be important, they had grown less relevant in recent years.

Nielsen explains: “In my tenure, corn used to be sent to Savage to travel down the river and fertilizer would come back up — the barges were always full both ways. Now, however, with the need to get fertilizer in the ground so quickly in the spring, more and more large-scale hub plant facilities have been built to receive fertilizer by rail. If the fertilizer isn’t coming up in the barges, it makes freight more expensive to go down with grain — combine this with significant shortcomings in the upper Mississippi locks and dams system … The draw analysis enforced our beliefs and really brought out these short-term and long-term trends.”

Once the validity of the location was backed by thorough research and favorable market conditions, UFC began shopping its refined business plan around to every major grain player in the upper Midwest.

Partnership established

UFC spent a year and a half courting the large multinational grain houses.

“As we approached these organizations we explained that we could originate the grain — and we can prove there is a demand for this — but we needed help delivering our grain to the best markets in the world,” Nielsen says.

In the end, the co-op selected ADM as its 50/50 partner, and United Grain Systems was born.

“People wondered if we could co-exist with a major global partner like ADM,” Nielsen says. “We’ve been working with them for a year now and it has been an outstanding partnership.

“We’ve been able to focus on what we can do well, which is working with producers to provide the best local service. ADM has brought an outstanding understanding of infrastructure and sophistication in delivering grain to global markets.”