A drain on grain elevators: SD's facility count continues decades-long shrinking
South Dakota's small-town grain elevator count is shrinking, with fewer elevators and more pressure on cooperatives to keep pace with larger amounts of grain and a competitive marketing landscape.
MENNO, S.D. — Del Edelman has always hauled his soybeans to town.
For almost 40 years, the crop was brought to Farmers Grain and Stock and, later, Hansen-Mueller’s elevator in Menno, S.D.
Those soybeans will be delivered elsewhere this fall. The elevator closed at the start of 2020 and now sits dormant.
“Everybody wishes it was open,” Edelman said. “It puts a bind on us farmers. I’ve always taken all my beans to town, right out of the field. Now, there’s nowhere to go.”
Edelman is part of Menno’s strong ag community. He’s owned Edelman Feed and Supply for the past 21 years, selling animal feeds and supplements, veterinary and pet supplies and cattle equipment. Menno also has an implement dealer, a livestock auction barn, other businesses like Edelman’s and a robust FFA chapter.
But the physical loss of the elevator hits home in the town of 600 people.
“Every time there’s a truck in town, they are making a stop somewhere else to pick up what they need,” he said. “Someone might get a flat tire fixed at Klaudt’s (Service Station) or swing by the feed store. The whole town benefits from that. … It’s just a bad deal.”
The loss of the community grain elevator in Menno has also taken place in other South Dakota communities such as Alexandria, Scotland and White Lake. The state’s small-town grain elevator count is shrinking, with fewer elevators and more pressure on cooperatives to keep pace with larger amounts of grain and a competitive marketing landscape.
Grain handlers are also challenged to handle more corn, soybeans and wheat than ever, as farmers around the region contribute to yet another expected record crop this year. And truckers are responding with semi trucks with 40-foot trailers to carry up to 1,500 bushels of grain out of the field and to market, with tractors carrying smaller-scale pup trailers becoming more rare.
But none of those issues are new to South Dakota agriculture, as the consolidation and closures of the state’s elevators dates back 60 years.
According to the South Dakota Public Utilities Commission, which has overseen grain handling operators in South Dakota for 130 years, the state has 257 licensed locations that are either certified as state or federal warehouses or as processors. In 1960, South Dakota had twice as many locations, with 533 companies in 368 locations. Twenty-five years ago, the state’s count was still above 400, with 429 locations around the state.
It’s a sign of how quickly things change, but it is the state’s agricultural reality, said PUC Commission Vice Chairman Chris Nelson, who has served in the PUC role since 2011.
“It means a job loss for that community,” Nelson said. “It means producers might have to travel further to get their crops to market. It’s less people coming into town in the other businesses. It’s not a healthy development for local communities but that’s what we’re seeing, and smaller elevators can’t compete as grain marketing changes and gets more competitive.”
'A super-competitive environment'
“Larger, more mechanized elevator operations have been replacing smaller, less efficient elevator businesses in South Dakota and the trend is expected to continue.”
Those were the opening words of a 1970 report from South Dakota State University’s Agricultural Experiment Station on the status of grain elevators in the state, a testament that South Dakota has replaced smaller, less-efficient elevator businesses throughout the decades. The report indicated that South Dakota lost 83 elevators in an eight-year span from 1960 to 1968, dropping from 533 elevator companies in 368 locations to 450 companies in 345 locations.
“Some elevators are keeping up with this rapidly changing industry, while others have failed to adopt and implement new ideas that would keep them competitive with profitable operations,” the report said. “Elevators with fewer than 100,000 bushels of storage capacity have experienced the greatest decline.”
Similar decisions are being made today. Nelson said elevators and co-ops might be working with aging equipment and infrastructure and if an elevator is too expensive to improve, it could be a sign to close the doors.
“If their infrastructure is getting to the point where it might need a major capital infusion, business owners have to consider how much that’s worth,” Nelson said. “And if they can’t answer that, it might be why they cease operations.”
Chad Dylla, the general manager of Prairie Ag Partners, which has seven locations in east-central South Dakota, said the pressure to improve grain handling facilities increases every year.
“You try to make enough margin and make enough money in a super-competitive environment, while at the same time make huge improvements to keep up with demand,” Dylla said. “You’re trying to balance everything with modern equipment and the margins and the business.”
Dylla has worked for the co-op for 22 years and been general manager for eight years. He said there’s no comparison from when he started to now.
“Everything is much faster and much more streamlined,” he said. “There’s been a lot of investments in facilities and it looks a lot different. It’s evolved into a bigger, faster and bigger capacity business.”
In Stickney, S.D., the improvements started on the scale. For many years, the Stickney Co-op Elevator had an old, outdated truck scale. Even on the co-op’s website had a joking message to “Mr. Truck Driver” as if it was written by Buford, the elevator’s “Creaky Old Scale,” warning about being easy on the scale, to drive slowly and not jerk the clutch.
In 2012, the elevator built a new 117-foot scale that can hold up to 200,000 pounds. It is one of the largest grain scales around, manager Jim Holter said.
This year’s improvements include a speaker system at the scale and a new ticket printer. He said there was a previous era when the elevator was on the brink of going out of business, but community support and good management by the local board improved the elevator's outlook. The facility now has 1 million bushels of on-site storage, more than double where it was a decade ago.
“The customers want us,” Holter said. “They appreciate what the elevator brings to town.”
Many of the areas without a local elevator still have options to take grain. For example, Alexandria area farmers can travel 10 miles down the road, to the nearby town of Emery, where a nearly $20 million grain and storage facility was completed by Cargill in late 2014. CHS Farmers Alliance, which owned the elevator in Alexandria, has its cornerstone elevator on the edge of Mitchell, S.D., 17 miles away.
Hanson County Commission Chairman Richard Graves is a retired farmer who lives in the Ethan area. He said semis or a tandem grain trucks make traveling 15 or 20 miles to sell grain a more realistic option and he said farmers are flexible about getting the best price.
“It’s not hard for farmers to get to a terminal or the ethanol plant,” Graves said. “The price is usually better at the terminals, if they can justify the freight. It’s evolved into that type of market.”
The Menno elevator was purchased at the end of 2016 by Hansen-Mueller, an Omaha-based firm, along with elevators in Colome, Gregory, White Lake and Witten. According to the state’s listing of licensed grain handlers, Hansen-Mueller’s White Lake and Witten sites have closed since then as well.
Interstate Commodities, the company Hansen-Mueller bought those elevators from, has proven to be an example of how quickly consolidation can occur in agribusiness. Interstate was bought out by Lansing Trade Group in 2017, but Lansing was then purchased by minority investor Ohio-based ag conglomerate The Andersons.
The changes hit close to home for Nelson, who grew up near White Lake. He said the area is evidence as to how business has changed, with the multi-million Gavilon Grain facility opening along Interstate 90 in 2012 between Kimball and White Lake taking advantage of railroad upgrades to move grain via rail cars.
“It’s designed for the modern marketing and the modern shipping of grain,” Nelson said. “And within the last year, the elevator in White Lake has closed, and it was not set up for that type of modern marketing.”
The decreasing count of grain elevators is an issue across the Northern Plains. In North Dakota, according to research from the Upper Great Plains Transportation Institute at North Dakota State University, elevators are bigger than ever, even if there are fewer in quantity.
According to the Institute, there were 301 elevators with the capacity to hold 277 million bushels of grain in 2009 in North Dakota. Ten years later, there were 258 elevators with the capacity to store 401 million bushels of grain.
Nelson said South Dakota’s grain inspectors are diligent in finding any issues that might arise, and that has protected farmers against potential losses from grain elevators.
“That doesn’t mean we haven’t had elevators go out of business, but they’re done it in a responsible way and they’ve paid farmers what they’re owed. That’s our No. 1 priority,” said Nelson, adding that farmers should make sure they are selling to a licensed buyer and should contact the PUC if they have issues getting paid promptly.
In Plankinton, S.D., there has been an elevator and grain handling in some form or fashion almost from Day One. The community was incorporated in 1882 and Farmers Cooperative Elevator was organized in 1885.
It has changed names over the years, going from Plankinton Elevator Company to now being known as Ag Kota Grain. The privately owned elevator has a handful of employees, including Travis Weich, who has managed the business for the past 10 years.
“I think just the customer service and friendliness is what is important,” Weich said of the business’s approach. “That’s what we try to emphasize. We’re really trying to keep the small-town values.”
Weich said there’s pressure to keep improving the business and maintain the pace with the yields of farming, which seems to improve every year and predictions of a record corn crop are mostly an annual occasion.
Just over a decade ago, in 2009, South Dakota’s record corn crop yield was an average of 151 bushels per acre. Last week, the U.S. Department of Agriculture’s National Agricultural Statistics Service forecasted the average yield at 167 bushels per acre, another record.
An estimated 822 million bushels of corn is expected to be harvested, as planted over 4.9 million acres. Soybean production is forecasted at a record 258 million bushels in the state for 2020, as well.
“Farmers always want faster service, and we do what we can to keep up,” Weich said.
Ag Kota has storage for about 1 million bushels at its complex. Based on the current state of the fields, Weich expects to be as busy as ever.
“This could be potentially really the best year we’ve ever had,” he said. “Corn and beans look that good.”
There is still an elevator in Carthage, South Dakota (population 144). The town has Prairie Ag Partners to thank for that. The co-op has seven grain handling locations, including Badger, Bancroft and Oldham, which each have less than 150 residents. Bancroft has just 19 residents in rural Kingsbury County.
In the case of Carthage, whose location includes tire and light repair and feed sales, the Carthage Farmers Elevator had been owned by the Dillon family until Nov. 1, 2018, when they sold to Prairie Ag Partners in part because Dylla, general manager of Prairie Ag Partners, had a long-time grain selling relationship with the family.
There is a certain amount of pride in keeping those elevators running for Dylla and Prairie Ag Partners. But it’s business, Dylla said, and the pressure is on for small cooperatives to be competitive.
“It has to make sense for the business to stay going and keep it running,” he said. “You can’t just subsidize it for the fun of it.”