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A new lease: Cargill strikes 10-year 'renewal' with ProGold

FARGO, N.D. - Cargill Inc. of Minneapolis and owners of ProGold L.L.C. of Fargo, N.D., have struck a 10-year lease renewal for Cargill to continue operating the high-fructose corn sweetener plant in Wahpeton, N.D.

FARGO, N.D. - Cargill Inc. of Minneapolis and owners of ProGold L.L.C. of Fargo, N.D., have struck a 10-year lease renewal for Cargill to continue operating the high-fructose corn sweetener plant in Wahpeton, N.D.

Approved by respective company boards Nov. 6, and effective Jan. 1, the new lease specifies fixed payments of $21.5 million a year, whether the plant makes money or not. The first year payment will add $4 million related issues leftover from the previous lease.

Although similar leases in many respects, the expiring 10-year lease was different because it was had a "profit-share" element, which never in fact offered any profit payments to the co-op owners.

History

ProGold was completed November 1996 for

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$260 million. At the time, it was the largest investment in any single agricultural processing facility in the state of North Dakota. After quickly going into debt because of plummeting fructose prices, the then-three co-ops that owned it entered into a 10-year lease with Cargill.

Cargill's operation is said to grind roughly

30 million bushels of corn per year, and is credited for providing a demand point for the price of corn in the area. The plant has operated almost nonstop since it started, although it hasn't spun off profits to owners as it originally planned. Most corn comes from 1,700 Golden Growers members, but nonmembers also deliver there.

"It's going to be a real good deal for the Golden Growers, in that we'll have the plant paid off early next year," says Carl Larson Sr. of Fullerton, N.D., chairman of the board of both ProGold L.L.C. and the Golden Growers Cooperative, a corn farmers cooperative that owns 49 percent of the plant.

The deal

In the beginning, American Crystal Sugar Co., owned 46 percent of the shares, but eventually bought out the 5 percent that were owned by another sugar cooperative, Minn-Dak Farmers Cooperative of Wahpeton. Now, Crystal is the majority shareholder with 51 percent.

Consequently, Joe Talley, Crystal's chief operating officer, was the lead negotiator for the ProGold team on the new lease.

"Joe is a real numbers man," Larson says. "He put a value on everything and was the right guy to be leading our charge."

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Talley says negotiations on the lease renewal intensified over the past six months. "The process went very well," Talley says. "Cargill is very good to work with, although we're both looking out for our shareholders."

He says the deal offers ongoing stability with a reputable company.

He says both parties recognized that the market "is going to be very volatile" and 10 years is a long time.

"There is a fair share of risks and opportunities," Talley says.

Red Geurts, assistant vice president and general manager for Cargill Corn Milling in Wahpeton, had worked in the same capacity for ProGold before the original lease, says he looks forward to "another decade of solid partnership" with ProGold and the corn growers in the region.

"We're happy to report that we've come to an agreement with Pro-Gold to renew our lease on the Wahpeton corn milling plant through December of 2017," Geurts says. "This continues a 10-year relationship that has been good for Cargill and, we believe, good for the farmers of eastern North Dakota and western Minnesota. The work force here is absolutely top notch, and the facility itself remains one of the most modern in the country."

In any negotiations, there were a number of ways it could go, he says.

"The results we got meet the needs of all parties in the negotiations and I think we're all happy with the way it turned out."

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Larson, who was on the Golden Growers board from the beginning, says the initial agreement with Cargill was also a good deal that was managed well. Golden Growers received its part of the rent and put it into repayment of the debt, rather than distributing income to members. This allowed the co-op to enter lease negotiations with less pressure.

"When you can negotiate from a position of strength, without worrying about where you're going get your next payment, you're able to cut a better deal."

Larson says the timing for an agreement "couldn't be better" because the sweetener prices have increased recently. According to industry analysts, prices are about 50 percent higher today than they were three years ago.

Larson goes off the 15-member Golden Growers board at the end of the year, after serving his maximum terms. The original board drew straws for staggered terms.

Patrick Benedict of Sabin, Minn., the original Golden Growers chairman, remains on the board for another two years, but previously moved to treasurer and remains on the executive committee.

Mark Dillon, executive vice president of Golden Growers, acknowledges that across the co-op's history, members have had "cause for disappointment" as they haven't received returns on their investment, except for paying off debt.

The lease

The new lease, coming as the original of about $155 million loan is paid off in the first quarter of 2008. Assuming ProGold's board releases funds to the two owner co-ops, Golden Growers will have "actual cash flow going to the bottom line," which is the first since the November 1995 equity drives.

"From that perspective, our members would be feeling relatively optimistic," he says.

Crystal has annual revenue of about $1.2 billion. Crystal's share of any proceeds from the renewed ProGold/Cargill lease likely will go back to general corporate funds at Crystal, Talley says.

Dillon says Golden Growers will have "decisions to make regarding business opportunities, and investment opportunities," but yet will be "very sensitive to the fact that our members have waited a long time to see a cash return."

Larson says the new lease allows "all kinds of opportunity for expansion without jeopardizing what we have in place."

At Golden Growers' most recent annual meeting, the co-op said it would look at converting to another business entity - possibly to a limited liability corporation, which would allow nonfarmers to own shares.

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