Pendleton Grain Growers Inc.

views updated

Pendleton Grain Growers Inc.

1000 S.W. Dorion Avenue
Pendleton, Oregon 97802-2938
Telephone: (541) 276-7611
Toll Free: (800) 422-7611
Fax: (541) 276-4839
Web site:

Incorporated: 1930
Employees: 205
Sales: $71.67 million (2003)
NAIC: 422510 Grain and Bean Wholesalers; 422910 Farm Supplies Wholesalers; 444220 Nursery and Garden Centers; 421710 Hardware Wholesalers; 444130 Hardware Stores; 422720 Petroleum and Petroleum Products Wholesalers (Except Bulk Stations and Terminals); 424910 Agricultural Chemicals Merchant Wholesalers

Pendleton Grain Growers Inc. is an agricultural cooperative formed in 1929 in response to an initiative by the Federal Farm Board. Its Grain Division provides marketing, storage, transportation of grain and other commodities, and grain storage facilities at approximately 30 locations in Umatilla, Union, and Wallowa counties in Oregon. PGG's five stores in its Retail Division sell hardware, fencing, feed, lawn and garden, pump and irrigation products, and livestock supplies.

1930s: Steady Growth Through Collaborative Action

In the late 1920s and early 1930s, in response to sliding wheat prices, hard economic times, and the Agricultural Marketing Act of 1929, the Federal Farm Board introduced a system designed to empower farmers to own their own businesses and marketing facilities. This form of farm relief employed a hierarchy of cooperatives: The Farmers National Grain Corporation (FNGC) worked with the North Pacific Grain Growers (NPGG) as its regional arm and purchasing agent in the Northwest. The NPGG purchased wheat in turn from a network of 30 local Oregon-based cooperatives.

Pendleton Grain Growers (PGG), one such local cooperative, was organized in late 1929 by a group of about 70 farmers in Umatilla County, Oregon. According to PGG's first president and manager from 1934 to 1970, James Hill, Jr., in PGG: The Growth of a Cooperative, "The existing grain marketing structure was unstable. Some trade practices were questionable, and the farmer was at the mercy of the trade." With speculation causing daily price swings, PGG formed "to protect the farmer against these surges and also raise the price of wheat."

Those who joined the new cooperative signed up 500,000 bushels of wheat for initial production. They purchased stock in PGG at $30 a share, with one share allowed for each 1,000 bushels they produced. Farmers put 10 percent of their stock purchase down in cash and signed a note for the balance. PGG used this money and notes to buy stock in NPGG. The new cooperative incorporated in early 1930 and elected its first board of directors. It had 71 members, who put up a total of $2,248.50 in cash, pledging another $20,416.50.

PGG's members had a vision that included bulk handling of grain, using the Columbia River to transport grain, developing a feed mill, and building bulk grain storage facilities. Bit by bit, they began to put this vision into practice: buying and selling grain; acting as an agent for grain stabilization advances for farmers from federal funds; making loans for seed and sacks; providing a dependable, low-cost source of supplies. The cooperative's directors asked the Federal Farm Board to seek guarantees that farmers would not be asked for a margin if wheat prices fell below the loan value on crops. It provided competition in grain buying sufficient to begin to raise the price of wheat. By the end of its first year of operation, PGG had made a profit of close to $5,000 and paid an 8 percent cash dividend on subscribed stock. In its second year, the cooperative earned a net profit of almost $7,500.

According to a retrospective view expressed in PGG's 20th annual report, "The obvious trend was to bulk facilities. As rapidly as our financial status would allow, we bought, built and acquired facilities with which to handle our growers' crops." During the 1930s, the cooperative engaged in acquisitions, new ventures, and mergers that enabled it to realize this objective. In 1931, PGG negotiated a contract with FNGC to handle all grain buying at Pendleton through the local cooperative's offices. In 1932, it merged with Helix Grain Growers Inc., another local cooperative, and thus increased its capital stock to almost $100,000; in 1936, it merged with Athena Grain Growers. In 1934, PGG leased a warehouse as the cooperative's first storage facility and joined with other local cooperatives to organize Pacific Supply Cooperative (PSC) as a means of pooling petroleum purchases to obtain lower gas prices. It also took out a loan from Spokane Bank for Cooperatives for funds to build its first grain elevator, a 220,000-bushel bulk facility, which it readied for the 1935 crop. In 1936, in a big step forward, PGG obtained a lease on additional grain elevators and sack warehouses owned by the Farmers National Warehouse Corporation (later the Farm Credit Administration), and in 1938, it purchased a second grain elevator from the Farmers National Warehouse Corporation.

PGG also began to acquire ancillary businesses in the 1930s. In 1934, it merged with Umatilla Oil Company, and in 1935, it bought Pendleton Flour and Feed Mill. Owning the petroleum business offered the advantage of smoothing out the grain business's surges in income. In 1938, as farmers were selling horses and mules in a switch to diesel crawler tractors, PGG bought an International Harvester machinery franchise. According to PGG's 1949 annual report, the move into the machinery business was intended to "save the farmer on his purchases, and in order to establish standards of service." It also helped the cooperative's "other lines such as grain and petroleum because [the cooperative] had more and frequent contacts with a larger number of farmers." Along with its petroleum, sack warehouse, and grain elevator ventures, the machinery business began making money for the cooperative, which by 1935 had earned about $11,500 for the year.

1940s50s: Expanding Facilities and Diversification

Spring 1940 saw another step forward for PGG with the opening of its Columbia River terminal at Umatilla. According to Hill in PGG: The Growth of a Cooperative, "Our hope was to develop sufficient river traffic to be a factor on rail rates." By fall, 350,000 bushels of grain had been shipped by barge from the new terminal, which was already too small. In 1941, the cooperative initiated its Feed and Seed Division with the opening of its first seed cleaning plant, which handled wheat and winter peas. The year 1942 was the cooperative's best financially with net profits of close to $200,000.

PGG's growth slowed during World War II, although earnings remained good; the cooperative made no new plans but carried out plans already begun. It built new grain elevators and expanded old ones, as well as expanding its seed cleaning plant. A rail spur serving the Umatilla terminal debuted in 1943, accommodating the move to river transportation of grain and the use of the cooperative's network of elevators. According to Hill in PGG: The Growth of a Cooperative, "Via river, barge and truck, grain transportation literally moved into our farmer's barnyard Before we started moving grain on the river, farmers had to haul their grain to rail points. Then the light turned ongo build elevators in the heart of the grain area and tie them into our main operation. These highway plants were possible only because of the Umatilla elevator and the use of barges and bulk grain trucks which we used to haul grain from the elevators to the river."

Up until the war ended, the cooperative focused on gradually developing its major lines of businessgrain, warehousing, petroleum, machinery, and feed and seed. After the war, it spent time improving its facilities and enhancing its work force. In the mid-1940s, PGG's membership increased to 680 stockholders. In 1947, the best year in cooperative's history to that point, the cooperative doubled the amount of wheat it moved by river to two million bushels. In response to a need for more long-term capital to expand facilities, stockholders voted to issue $500,000 in debenture bonds at interest of four percent.

In the second half of the 1940s PGG expanded its feed business as part of a move toward diversification. The Feed and Seed division, which had taken on the Purina line, made plans to expand its cleaning plant for wheat, oats, and barley. In 1949, the cooperative took over the Hermiston Farm Bureau Cooperative, organized in 1926 as a purchasing cooperative for feed. PGG also made organizational changes, shifting the business's capital structure by giving up the cooperative's income tax exemption and moving into a new administration and farm machinery building in 1951.

Beginning in the early 1950s and continuing for the next decade and a half, agriculture as an industry lost its profitability throughout the nation. Farmers produced more volume, but earnings reached a plateau. The main growth in Umatilla County during this period occurred in livestock. In 1952, in an attempt to control the livestock feeding industry in its area, and create outlets for its members' booming grain production, the Hermiston feed mill increased production to 250 tons a month; by 1958, it was producing 100 tons a day. In the mid-1950s, while farmers elsewhere were forced to liquidate crops at 30 to 60 cents below loan levels, PGG enjoyed a net profit$441,000 in 1954. The co-op had 14 elevators with a total capacity of four million bushels and still needed additional storage space.

Company Perspectives:

This is a co-operative business; our shareholders are also our customers. Customers who choose to do business with us provide our reason for existence; we will treat everyone as though they are the owner of the business. Employee involvement is our way of life. We are a team and must treat each other with trust and respect. Management's role is to mentor. We will provide training opportunities to every employee and provide an open and approachable presence in the workplace. Listening will be our greatest skill. Our health is beyond value; we will always take the time and give the extra effort to be safe. Profits are the ultimate measure of how efficiently we perform our mission. Our goal is to share profits between our shareholders and our employees.

PGG formed the Federated Livestock Corporation in 1955 and offered 4,500 shares at $100 a piece. With the Northwest importing more meat than it raised, and the Pacific Coast producing only 6 percent of the nation's meat (for 10 percent of the U.S. population), members reasoned that raising livestock would be a sound new investment. The business dissolved, however, in 1963 after years of losses. Even so, Federated Livestock helped increase the volume of the Hermiston feed mill and doubled the income from livestock marketing in Umatilla County. By 1959, the feed mill was running seven days a week around the clock and using almost a million bushels of local grain annually. In response to the need for larger facilities, Feedville USA began operations in 1960.

1960s80s: The Struggle for Additional Capital

The 1960s witnessed another change of direction for PGG. Losses for the cooperative as a whole in the early 1960s led to management's appeal to local farmers to patronize their own business. The need for a larger capital base became evident in the second half of the 1960s in response to national firms taking over local business outlets. In a report on PGG completed by Oregon State University, experts opined that "the [co-op's] key problem is inadequate member investment to support the volume of business. Members' share of ownership is too low relative to the amount of service the business provides."

Don Cook, who had been with PGG since 1950, succeeded Jim Hill as general manager of the co-op in 1970. Cook implemented the board's decision not to develop any major new service. Profits, which had sometimes been elusive, began to improve in the early 1970s, and by 1972, the cooperative has its best financial year in its history.

PGG continued to focus and consolidate throughout the early seventies. In 1973, it joined a trucking cooperative, Northwest Agricultural Cooperative Association. In 1974, it opened a new seed cleaning plant and acquired Farmers Mutual Warehouse Company, a new grain storage facility, and a new bulk plant. It also closed its Athena feed store and relocated its hardware store. Profits rose steadilyfrom 1.5 million in 1973 to almost $2 million in 1974, about one-quarter of which came from affiliated cooperatives.

In the second half of the 1970s, PGG created a new division, its retail division, which included hardware, feed stores, petroleum products, the Pendleton tire center, and its Twin City and Athena branches. It joined CENEX, a regional farm supply cooperative, in 1977, the same year CENEX merged with Pacific Supply Cooperative. Still the co-op continued to struggle with the problem of accumulating sufficient capital. Despite having more than 2,000 members as it entered its 50th year, PGG's long-term debt was $6 million.

The 1980s were challenging for PGG, given the high interest rates, competitive supply markets, and increased expenses of the times. In order to cut back on its borrowing, PGG closed its machinery division in 1981 and consolidated its tire shop and irrigation department into its remodeled hardware and feed stores in Pendleton. To handle larger volumes of grain faster, the co-op improved its grain elevators, increasing its storage capacity to 12.3 million bushels. PGG also decided to undertake construction of an additional warehouse at McKennon Station to properly store chemicals whose use in agriculture was expanding dramatically.

By mid-decade, most farm commodities were selling below the cost of production, and the value of farm land and farmer's net worth were both declining. PGG continued to upgrade its grain handling capability by developing increased storage capacity, but while the additional grain storage generated a large volume of income for the coop, the borrowed capital used to make the additions increased its debt. PGG's retail stores also showed a definite turnaround beginning in 1985; still, profits for the division were poor. Toward the end of the decade, sales increased in the co-op's petrol business, and Feedville showed profits after several years of losses. By 1987, PGG enjoyed record earnings of $2.3 million.

The 1990s and Beyond

However, the next four years were hard ones for PGG because of a dry weather cycle that lasted until 1991. This cycle contributed to very weak wheat harvests and reduced dry land fertilizer rates. In addition, the co-op suffered the loss of storage revenue once the government's stock surplus came to an end. PGG looked again to its retail division to offset its losses, and beginning in 1988, it remodeled one retail store, built a second new one, and built a second petroleum facility. In 1994, it formed PGG/HSC Feed Company LLC with Harvest States Cooperative to operate Feedville. After Ed Balsiger replaced Don Cook as general manager in 1991, the co-op oversaw an environmental cleanup project at the McKennon Station that it completed in 1993.

Key Dates:

Wheat farmers vote to form Pendleton Grain Growers.
Cooperative negotiates with the Farmers National Grain Corporation to handle all grain buying at Pendleton through the local cooperative's offices.
Pendleton Grain Growers leases its first storage facility and joins with other local cooperatives to organize Pacific Supply Cooperative.
The cooperative opens its Columbia River terminal at Umatilla.
Pendleton Grain Growers forms the Federated Livestock Corporation.
Feedville USA begins operations.
PGG joins Northwest Agricultural Cooperative Association.
PGG joins farm supply co-op CENEX.
PGG forms PGG/HSC Feed Company LLC with Harvest States Cooperative to operate Feedville.
Al Gosiak is named CEO and leads PGG through a period of economic challenge and upheaval.

Albert Gosiak, who joined PGG in 1995 as chief financial officer, took over leadership of the cooperative in 1998, becoming president and CEO. Gosiak would preside over an era of change and challenge at PGG. First, in 1996, the so-called Freedom to Farm Act was passed by Congress. While farmers were now allowed to produce as many crops as they chose, the minimum price for those crops would no longer be guaranteed by the government. Production and prices rapidly escalated. Shortly thereafter, foreign markets, particularly in Asia and Russia, collapsed. As PGG members and others in the Pacific Northwest exported some 90 percent of their wheat to foreign markets, a surplus ensued, driving wheat prices down dramatically. By the close of the 1990s, the U.S. government had stepped in to offer the industry some relief, but their solution sparked competition that adversely affected the growers in Pendleton, Oregon. PGG's future seemed shaky. In an interview for Oregon Business, Gosiak admitted that "In 1999 we did not know if the company was going to make it. All we had to rely on was each other. We started by creating a vision, values and mission statement, and we started to make big changes."

Among the big changes were job cuts and store closings. The co-op sought to shutter some of its non-core activities (tire and hardware retail outlets, for example), while combining other divisions in order to realize operating efficiencies. Finally, management slashed its administrative and operating expenses; managers even accepted salary cuts in order to help turn the co-op around.

As PGG entered the 2000s, the economic climate remained difficult. Overseas sales continued to slump, and another long local drought cycle negatively affected all of PGG's holdings in 2002. After all of its cutbacks, however, the co-op had a little room to explore different opportunities for generating income. For example, it began supplying Washington's grape growers with trellis equipment. By 2003, management was cautiously optimistic about the co-op's future. PGG had weathered tough times and seemed prepared in spirit to do so again; the real challenge, according to Gosiak, would be in adapting to meet the needs of its members, whose ever larger and more technologically advanced farms would "demand better prices and a higher level of service."

Further Reading

"Grain Growers Are Organized, Saturday Meet," Oregonian, December 23, 1929, p. 1.

Green Stacy, "Up and Down on the Farm," Oregon Business, September 2001, p. 34.

Rupp, Virgil, PGG: The Growth of a Cooperative, Pendleton, Ore.: PGG, 1996.

Carrie Rothburd