November, 2014 - Chippewa Valley Ethanol Company

Chippewa Valley
Ethanol Company
270 20th St. NW • Benson, MN 56215 • 320-843-4813
Website: http://www.cvec.com • E-Mail: cvec@willmarnet.com
Volume 21, No. 2
November, 2014
CVEC - 2014 In Review
What can happen in 12 months? A year in review. If we
look back to the newsletter this time last year, we see that
EPA was looking at a change in outlook on Biofuels including ethanol, which would have the potential to change the
future outlook of the Biofuels industry. That change is still
on the docket and has been for almost 12 months now with
no clarity as to what the final numbers or impact of such
may be. Yet with this looming over the biofuels market, the
demand for biofuels continued and perhaps aided by some
transportation issues (creating some demand spikes) that
arose has been one of the most successful years in the history
of ethanol. A history that CVEC has been a part of since near
the beginning. CVEC had to overcome many challenges in the
last year other than just the
proposed change to the RFS.
The winter was a brutal
one with history being made
as to overall cold temperature averages being set for
many locations throughout
the US. CVEC overcame some
of these challenges by using
alternatives energy sources
that we had never used before. Natural Gas is a form
of heating fuel that many
of you are familiar with for
home heating, and a standard
fuel for energy used at CVEC.
Liquefied Natural Gas (LNG) is a compressed NG. LNG is a
super chilled liquid, to make it denser and more efficient to
transport by truck, which can be shipped and then vaporized
back into the fuel we are familiar with. With the LP shortages that existed and LP being our normal curtailment fuel
CVEC was very fast to act and get additional alternatives
that kept the plant running during a very profitable season.
The LNG probably only made sense to use for that very
short window, but the staff of CVEC was able to identify the
potential problem and consider an alternative that many in
the industry did not and CVEC’s cost was greatly mitigated
by the fast action and thinking of the staff.
CVEC also had some staffing changes, we had a few
retirements, and had some turnover of employees seeking
alternative employment. This brought on some new faces
at CVEC and some advancement of existing staff. With
regard to the management staff we had a change in the
Health and Safety Coordinator, and CVEC brought on Klysta
Barrie. We also had a change of General Manager as Mike
Jerke moved to a new position at Guardian Energy as the
new CEO of Guardian Energy. I was very honored after the
extensive search process to receive notice from the Board
that I had been selected as the new General Manager of
CVEC. This then created an open position of Commodities
Manger and after several months of searching and a few starts
and stops CVEC was able to hire Brody Padgett as the new
CVEC Commodities Manager. Thank you Klysta and Brody for
your excellent work since joining the Staff at CVEC. These
changes along with an office relocation into the new CVEC
office space gave the staff plenty of challenges to handle.
The last change took place in June as after many
discussions it was decided
that CVEC needed to move
forward and utilize the new
Grain handling facility to its
fullest. CVEC and GPC have
had many discussions over the
years, and have been unable
to come to terms or definition
as to how to move forward together in an equally equitable
and productive way. CVEC
provided cancellation notice
to GPC in June regarding the
handling of CVEC’s corn and
in exchange CVEC received a
lawsuit from GPC in July. I
understand that this relationship has been a frustration for
many as time has progressed, but I can assure the members
that CVEC has and will continue to try to put these disagreements and distractions behind us through fair and conscientious discussions or through the court system if that is the
only remaining alternative. The unfettered access that CVEC
has through their Grain handling system has streamlined
much of the daily financial transactions and clarified position reporting for the members. It has also allowed CVEC to
move in different directions with regard to corn technologies
available to the market specific to ethanol efficiencies. The
grain handling facility itself has gotten great reviews by those
utilizing it and we encourage all members and customers of
CVEC to bring a few loads through and give us honest feedback so that we may continue forward with information that
will allow CVEC to support your businesses while also being
a competitive market for your corn and a place that can add
value to your bottom-line through pricing or distributions.
Looking ahead to the next 12 months, there appear to be
plenty of challenges still available to the ethanol industry. We
await the EPA’s- renewable volume obligation (RVO) that has
had us all scratching our heads for the last 12 months. The
numbers have been submitted to the Office of Budget and
Management (OMB), where it could be released any day, or
maybe is getting withheld till elections? There should be an
additional release of next year’s RVO or maybe it’s this year’s
volumes I’m starting to get confused. We can only speculate
at this time what any of this may mean to the markets of
corn and ethanol, but I can’t imagine it is a helpful scenario
for investors into cellulosic technologies.
CVEC moves forward, and has set its budget and targets
for this market year and though politics, and other unknowns
may have an impact we look to continue to be a successful
company. The “know how” and dedication of the staff at CVEC
is amazing and their ability to overcome challenges cannot be
overestimated. This along with CVEC’s investment in diversity
through Glacial Grain Spirits (GGS), the cooperative base of
the company, and investments in other successful companies
such as Guardian Energy put CVEC in a very competitive position. CVEC continues to move forward with goals focused on
energy and yield efficiencies at the plant. One of the capital
projects on queue for this next year is the replacement of
a 17 year old boiler, which will give us much greater steam
volumes, pressure and efficiencies for operations.
After much struggle with AAA and their negative views of
Brody Padgett
Commodities Manager
bpadgett@cvec.com
As I am writing this, the nation is
almost half way done harvesting what
is expected to be a record corn crop
at a production of 14.5 billion bushels,
on the heels of what has been near
ideal growing weather for most of the
Corn Belt. It would appear that the
harvest lows were established at the beginning of October, as
the December corn futures contract traded 318.25 on strong
early harvest yields, combined with already comfortable world
supplies. Since then, grain markets have been on a steady
climb as the tremendous early yields seen in the south have
not been showing up in the Northwestern Corn Belt. Add in a
very strong demand for soybeans, combined with slow harvest
and farmer selling, and we quickly found ourselves almost 60
cents off of the lows.
Harvest corn receiving at our new bin site has gone very
well this fall. We have been able to remain flexible by extending weekday and weekend hours to accommodate contracted
and spot grain at our location. Producers have also had the
option to deliver high moisture corn to GPC and apply them
to CVEC or CVAC contracts, for a handling fee. As always, I
would welcome any feedback you may have about delivery
processes and harvest hours this year.
Locally, and in much of Minnesota, cash markets have
remained firm into harvest as we unfortunately have not
seen the record yields other states have, and the farmer
has been reluctant to sell corn at a loss (as he should be).
On-farm storage is a great asset for an operation, but it will
be important to have a plan in place to sell the bushels that
go home. Spreads have strengthened to this point, with the
December to July at +30 today. However, if selling continues
to be slow this may begin to narrow, as we saw last year.
Typically you can expect the market to take the carry out as
a deferred month becomes the nearby contract, so the best
way to guarantee that a carry is captured is to sell it. If you
anticipate a basis improvement then a futures fixed contract
Chad Friese
General Manager
the ethanol industry, our partners
at American Coalition for Ethanol
(ACE) have found an alternative.
Included as an insert, is a brochure for a similar company that
ACE has vetted and found to be
a competitive alternative to AAA
and is supportive of rural America
and the ethanol industry.
Please also review the insert on “Nomination Procedures”
for the CVAC Board of Director elections. After careful consideration CVEC has moved away from “write ins”, or floor
nominations as they don’t give the membership an equal
assessment of candidates. We would like to see “Members”
put forward as representatives for the company and give everyone an opportunity to evaluate those candidates and make
an informed decision. Please carefully consider yourself or
others as a CVAC Director and submit a nomination.
Please make plans to attend the 2014 annual meeting to be
held on Saturday January 24th, 2015 at McKinney’s in Benson.
We look forward to a review of 2014, and a discussion of the
challenges and opportunities ahead for 2015.
Commodities Update
is a great tool to capture the board carry and wait for basis
to improve. The fact that cash values have been strong this
fall should be indication that the bins at home are filling up
with corn that will eventually need to move so be cautious
about waiting too long for a strong basis as we move ahead,
and be prepared to take advantage of good levels when they
are present.
If you’re one that wishes they would have had more storage this fall, remember that we still have ADA space available
for purchase. This can provide a great alternative to consistently putting bushels on price later programs at harvest, or
provide the flexibility to deliver throughout the year and use
the bushels to fill trimester commitments or other CVEC contracts. Please give us a call if you are interested in learning
more about the ADA options.
Looking ahead there will be several unknowns that will
impact the grain markets and provide opportunity. South
America saw some planting issues this fall that added to the
recent soybean support, and we can expect the market to
continue to watch this closely. Private estimates for the US
2015 crop are anticipating even more domestic soybean acres
next year, largely at the expense of corn acres. The size of
the current US crop has yet to be determined, with opinions
on both sides of the USDA’s current 14.5 billion bushel corn
production estimate. In the end, consider taking a disciplined
and diverse approach to marketing as we move forward. A
combination of basis contracts, trimester averages, futures
fixed, and cash sales will help to reduce some of the risk associated with volatile markets. Utilizing the Dynamic Pricing
Platform (DPP) on our website is another great way for you
to make and monitor offers to sell corn to CVEC. There is
also a DPP mobile app that allows you to see cash bids, make
and manage offers, and receive market commentary all from
your mobile device.
I’d like to wish everyone a happy holiday season, and
please feel free to call or stop in if you have any questions
about marketing grain to CVEC, ADA availability, DPP accounts,
or anything else you may have questions about. Delayed cash
bids and corn receiving hours can be viewed anytime on our
homepage, www.cvec.com, or call for live quotes.
David Thompson
CVAC Chairman
It’s a great time to be in the
ethanol industry! This is the same
statement I started my last column
with and I haven’t changed my mind.
It was a year of record earnings at
CVEC! We ended the year September
30th with net income of well over 40
million dollars. The auditors are currently going through
the audit process to determine the final numbers. When the
audit process has been completed the finance committee
will review the numbers and the board will declare a
distribution at the November board meeting and checks
will be mailed out the last week in November.
While it’s exciting to have record earnings, we are
all well aware that the major contributing factor to the
record earnings is the substantially lower corn prices we
have had this past year. As corn farmers this is exactly why
you invested in CVAC, as a hedge against low corn prices.
As I indicated at our member meeting in September, I was
equally impressed with our earnings in 2012 & 2013 (6
million & 12 million) when we had average corn price in
$6.50/bushel range.
The capital expenses we have made in recent years to
increase energy efficiency, extract corn oil, improve yield,
and add gallons at GGS along with the performance of our
excellent management and staff helped us achieve record
earnings this year and more importantly have a significant
impact on the bottom line every year, and are especially
important in years when the industry has a more challenging
margin environment.
Our investment in the Guardian plants (Janesville, MN;
Hankinson, ND & Lima, OH) made a major contribution to
income of more than 15 million dollars. Our investment in
these plants has provided a great return for CVAC and should
continue to provide excellent returns going forward. The
Janesville and Hankinson plants are newer facilities with
production capacities more than double our CVEC plant,
and have operating efficiencies that we cannot match.
As we begin our new year we are seeing lower ethanol
prices. (I’m sure you have noted the difference at the
pumps). Lower prices for fuel ethanol provides additional
earning potential for our industrial products division,
Glacial Grain Spirits. Our earnings at GGS are in a large
part determined by the value we can add beyond the price
of fuel ethanol. While the volume of gallons is not large,
GGS continues to be an important part of our business at
times we need it the most, during lower margin environment
for fuel ethanol.
Overall we are optimistic about the future of the
ethanol industry and the 2015 year at CVEC. Ethanol has
established itself as an important part of our fuel supply
with important environmental benefits.
We look forward to seeing you at our annual meeting,
January 24, 2015 to review the results of the past year and
look ahead to next year.
Have a safe harvest season!
Shareholder News:
1st TRIMESTER PRICE ANNOUNCED. The price for the
first trimester of FY 2015 will be $3.25 per bushel plus
freight and equalization.
DELIVERY NOTICES START WITH THE LETTER “C” FOR
1ST TRIMESTER. Delivery notices will begin with the
letter “C” for the period beginning October 1, 2014.
CVEC will be calling in 35% of corn deliveries on 100% of
your shares for 1st trimester of FY 2015. Open delivery
will continue in place with a maximum sign up of 50,000
bushels weekly. Any shareholders who own 50,000
bushels or more will continue to have two weeks in
which to deliver your corn.
CUSTOMER PORTAL. Reminder to contact the CVEC
office to sign up for your registration so you will be able
to access your shareholder account on our website.
THE TAX PLANNING LETTER will be sent out to
Shareholders the first part of December.
NOVEMBER 2014 DISTRIBUTION. Will be declared at
the November 21st board meeting. The payment will be
mailed out to shareholders the last week of November.
THE BENSON CORN POOL has shown a loss of $.00/
bushel for FY 2014. Thus, no funding will be needed by
BCP members for FY 2015.
None at this time
CHIPPEWA VALLEY AGRAFUELS
SHARES SOLD
SHARES
SOLD
DATE SOLD
5000
$3.00
12/13
720
$3.00
01/14
15,600
$3.00
01/14
720
$3.25
01/14
2880 $3.25
02/14
21,960
$3.25
02/14
5000
$3.25
03/14
11,124 $3.40
03/14
6480
$3.25
04/14
6480
$3.25
04/14
1440
$3.25
05/14
16,000 (Pool)
$4.00
06/14
36,000
$3.50
07/14
36,000
$5.00
07/14
14,850
$5.00
07/14
19,998
$4.95
09/14
960
$5.00
09/14
New Employee:
Brody Padgett - Commodities Manager
I grew up in Fairmont, MN, and attended South Dakota State University
where I earned a Master’s Degree in
Economics. I joined Cargill after college as a Grain Farm Marketer at their
Litchfield, MN facility before moving to the Alberta, MN
location. I met my wife, Melissa, while in college and we
currently live in Glenwood. She is originally from Tyler,
MN and is a 1st grade teacher in the New London-Spicer
school district. In my spare time I enjoy golfing, fishing,
and trapshooting. I’ve had the pleasure of meeting many
of you already, but for those that I haven’t been able to
meet yet, please feel free to call or stop in any time!
22nd Annual Meeting Date
has been set for Saturday,
January 24, 2015, at
1:00 pm at McKinney’s on
Southside, Benson, MN.
270 20th St. NW
Benson, MN 56215
CHIPPEWA VALLEY AGRAFUELS
SHARES FOR SALE
DIRECTOR NOMINATION PROCEDURES
FOR FISCAL YEAR 2015
ALL NOMINATIONS OF PERSONS TO STAND FOR ELECTION AS DIRECTORS WHICH ARE MADE BY
MEMBERS OF CHIPPEWA VALLEY AGRAFUELS COOPERATIVE MUST COMPLY WITH THE BELOW REQUIREMENTS.
IMPORTANT DEADLINE: NOMINATION NOTICES MUST BE RECEIVED BY DENISE BAKKEN NO LATER
THAN 4:30 PM ON DECEMBER 12, 2014.
One or more nominees for director positions up for election may be named by a nominating committee established by the directors. Additionally, nominations for people to stand for election
as a director may also be made by any member (each a “Member”) of Chippewa Valley Agrafuels
Cooperative (the “Cooperative”) who is entitled to vote generally in the election of directors.
Any Member who is entitled to vote in the election of directors may nominate one or more persons for election as directors only if written notice of nomination or nominations (a “Nomination
Notice”) has been given, either by personal delivery, email or by United States mail, postage
prepaid, to Denise Bakken at the Cooperative not earlier than, or later than, the time set forth
by nominating committee. A nominee shall only be duly and validly nominated if such nominee
qualifies for election to the seat to which such nominee is nominated, were such person elected.
All Nomination Notices must be delivered to Denise Bakken at the Cooperative on or before the
end of the day 4:30 pm on December 12, 2014. Nomination Notices which are mailed to Denise
should be post-marked on or before this deadline. Denise’s contact information is below:
Denise Bakken
270 20th St NW
Benson, MN 56215
dbakken@cvec.com
If you would like to nominate someone to stand for election as a director for the upcoming fiscal year 2015 please comply with the above requirements. The nominating committee of the
Cooperative shall decide whether any Nomination Notice complies with the above requirements
in its sole discretion. Additionally, the nominating committee may change any and all rules and
procedures for the nomination of directors at any time and in its sole discretion.
Director seats up for re-election for FY 2015 are:
District #1: David Thompson
District #2: Kent Evenson
District #3: Chuck DeGrote