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COVER STORY: Red River Commodities adapts to global markets

FARGO, N.D. -- In March 2009, Bob Majkrzak quietly marked 20 years at the helm of Red River Commodities Inc., one of the premier and pioneering sunflower processing companies in the region and nation.

FARGO, N.D. -- In March 2009, Bob Majkrzak quietly marked 20 years at the helm of Red River Commodities Inc., one of the premier and pioneering sunflower processing companies in the region and nation.

The home office is in Fargo, N.D. -- a green elevator complex, dominating in the city's industrial complex horizon to the west from Interstate 29 as motorists pass through town. It is both a major processing center for the company and a home office for key parts of each of its three major divisions -- general processing, bird food and the SunGold Foods division. Significantly, this is where the company makes SunButter, a new product since 2003 that is growing by 40 percent annually.

All this makes Majkrzak very happy.

"What has happened with sunflower over the past 25 years is nothing short of amazing," he says. "It's not over, as far as the changes. It has nutritional aspects that are still yet untapped."

Evolving crop

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Majkrzak, 53, has had a front-row seat on the region's sunflower industry through its relatively brief history as a commercialized crop.

Growing up on a farm near Thompson, N.D., Majkrzak's was the middle son in a large, Polish farming family. His father was primarily in wheat and barley production. The family grew potatoes and shifted to beets.

Bob and his brothers at times hired out on neighboring farms. Bob remembers one of those neighbors had him cultivate a field of sunflowers in 1968.

"We referred to them as 'bird food' -- nothing more than stripes," he says. "It was a strange new crop. I'd never seen a flowering crop like that for sure."

His father grew sunflowers in the late 1970s and early 1980s, but like most Red River Valley farmers, he switched out of the crop for a lot of reasons.

"The main reason was he needed more beet acres. Sunflower conflicted with the harvest period for sugar beets," Majkrzak says.

As production developed in the 1970s, processors tended to locate here, which later would create "logistics issues" when production moved westward.

When Majkrzak got involved in the sunflower industry in 1985, the sunflower market was far simpler than today.

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"There were oils and confections, and sometimes bird food," Majkrzak says.

Today's oil-type sunflowers -- traditionals (linoeics), NuSun (mid-oleic) and high-oleic; and confections -- small and hulling types, traditional in-shell, and extra-long in-shell.

"This has allowed a lot of growers to find different opportunities within sunflowers with different companies," Majkrzak says. "Certain companies want to contract a specific type or hybrid. That's a market opportunity for people -- which market they want to be involved with and which companies they want to be involved with."

At home and abroad

The Red River Commodities company in Fargo was established in 1973 by Todd Gunkelman, a member of one of the region's pioneer families in sunflowers. In the late 1970s, Gunkelman entered the hybrid seed planting business and sought out new capital sources.

Gunkelman came into contact with NV Deli Maattschappij, a Netherlands-based company invested in the hybrid seed business. The so-called "Deli Group" has been around for 150 years and had its roots in the spice and tobacco trade, originating products in the Deli region of Indonesia.

In 1981, the Deli Group became an 80 percent shareholder with Red River Commodities in a new confection sunflower processing business, building the facility in Fargo. In 1983, Deli Group bought out Gunkelman's shares.

In 1986, the Deli Group merged with Universal Leaf Tobacco of Richmond, Va., and formed Universal Corp. In 2006, Universal Corp. separated off the Deli Group. While the Universal Corp. stayed listed on the New York Stock Exchange, it sold the Deli Group to Dutch private equity groups, which own it today.

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Today, the Deli Group has annual sales of about $2.4 billion, some 3,000 employees and 22 operating entities.

It is a major trading and distribution company, especially in lumber construction and retail areas and building supplies. The agricultural side is active in tea, rubber, canned fruit and meat, as well as the activities of Red River Commodities.

"Surprisingly, throughout all this time, our relationship with our Dutch management in Rotterdam has always been the same -- the same group," Majkrzak says.

Red River Commodities today has six operating units in the United States and one in the Netherlands.

n Confection: Confection products are handled at the Fargo center and in Colby, Kan., to take advantage of southern growing areas.

n Bird food: Operations in Fargo and in Lubbock, Texas.

n Human food: The company has its subsidiary SunGold Foods in Horace, N.D., about 10 miles to the south. Another operations center in the Netherlands handles specialty products, such as poppy and caraway seeds. A major new brand is SunButter.

'Sub-categorization'

Majkrzak acknowledges many companies have come and gone in the sunflower industry.

"The competitors that are left are all very good," he says.

CHS Sunflower, Dahlgren and SunOpta Sunflower are the main confection competitors, especially in the northern growing region.

"I think that what's happened over the years because there's subdivisions in the crop -- especially in confections -- each one of us has carved out our own uniqueness," he says.

Red River Commodities thought there would be a movement to the High Plains of Kansas, Colorado and Texas -- and it would provide the company with geographic risk management.

"Our company is the only one that put assets and people for contracting in all of the Midwest growing regions -- north to south, noting contracting agents are in North Dakota, Kansas and Texas.

Red River Commodities focused early on with in-shell products. This grew out of Majkrzak's conviction that "the only true confection seed was one that remained in the shell."

"Once you strip the shell off, you don't know what type of stripe, what type of solid black that it came from," he says. "You don't know if it came from China or Argentina. The kernel business was just too much of a 'commodity' for me."

The in-shell focus depends heavily on the ability of farmers to produce an excellent crop. The company manages its exposure to weather issues by geographic diversity.

"As a group, we're either planting or harvesting sunflowers every month of the year," he says. "We plant from January to July and harvest from June to December."

The company contracts about 95 percent of its confection needs and 50 percent of its needs for oils, which only go for bird food.

Several hundred farmers contract with the company for the Fargo operation needs.

"It's been slower this year," he says. "Growers are more undecided and are still adjusting for the new pricing in the market -- costs for chemical, fertilizer, seed, petroleum inputs. They're trying to determine what's going to work and what's not going to work."

At the end of the first week in May, Majkrzak typically likes to be at 95 percent contracted, but estimates that this year about 75 percent of the needs have been covered.

"We're not in harm's way yet," he says. "What's nice about sunflower is that the planting window is nearly to the middle of June for North Dakota and Minnesota. As you move south, you can still plant in the middle of July and produce a crop."

Processing division

The "processing" division of Red River Commodities takes in all contracted raw products -- an elevator and cleaning operation that sells directly to customers and processors, but also feeds the company's other divisions.

The plant brings in confectionary sunflowers direct from individual farmers. They also hull millet and clean flax for human uses.

"We are organically certified and will do some of the organic grains that will match up with what we can process," Majkrzak says.

In Fargo, the bird food plant is located right next door to the processing plant.

For the bird food mixes, the highest volume usage is for oil-type sunflowers.

Among the products handled at the processing division are millet, acquired in North Dakota South Dakota, Nebraska, Kansas and Colorado, and milo, much of which comes from South Dakota and Nebraska.

"For bird food alone, we also buy a lot of corn, and luckily, we can source that corn pretty local," Majkrzak says. "Most of the corn we roller-mill to different sizes of cracked corn, which is used in different types of bird food.

About 15 percent of the processing division's production is sold to other divisions in Red River Commodities' group. About half of the total goes abroad, and the rest is sold domestically.

Bird food's buoyancy

Majkrzak says there were some who had predicted that bird food products was a luxury item and would face difficulties with a faltering economy.

Turns out, that's not true.

"Most people assumed bird food would take a substantial hit," Majkrzak says, but says this year's pace is ahead of last year. "We never saw a setback in any month. People seem to be enjoying their backyards more -- doing simple things like backyard barbecuing, gardening. Bird-watching. All of these activities have indicated there's resistance to a downturn."

Bird food in general retails in the 50-cents-per-pound general range.

"It's a simple pleasure you can give yourself," he says. "Maybe you're not going to buy a new car, but you can still enjoy this pastime. Things that make your family happy."

There are "hundreds of competitors" in bird food manufacturing, and it's available from almost any kind of merchant these days.

"There is a group of about 10 manufactures nationwide that are the major suppliers in North America, but there are literally hundreds in the smaller markets," he says.

For many blends, oil-type sunflowers are used in equal amounts with confection seed in bird food, although there are hundreds of products and blends. Red River Commodities does some of its own branding, but primarily does private label products in about 300 packages. Besides its own manufacturing, the company regularly deals with another 10 or so co-manufacturers.

"We provide secondary market for oil-sunflower growers who have -- maybe -- a crop with a little lower oil content," Majkrzak says. "We can buy them for birdseed. Typically, we give them just as good or a better price as what they'd otherwise get in the crush market."

He says the bird food market complements the oilseed market, even though oil crushers sometimes don't see it that way.

"What we need is nice-looking seed, but not necessarily the highest oil content," he says.

"We buy 20 commodities on a nearly everyday basis for bird food," he says. "I think the most unusual thing is that we use a lot of high-valued human food products -- some dried fruit. Everything from cherries to raisins, or even high-value nuts like almonds or pistachios. And obviously peanuts are used in birdseed mixes."

At times, Red River Commodities has been able to sell birdseed constituents -- things like sunflower kernels -- for more money than they would have been able to get for it in the human food market.

Among the interesting bird food constituents is the "nyger seed" -- a specialized black thistle seed that is imported for small birds, such as finches, from countries like Ethiopia and India. It must be sterilized before it enters into the country.

"That can be a large mover at times -- large volumes," Majkrzak says.

Red River Commodities has worked to introduce small sunflower chips in that market, with some research that concludes it is preferred to the thistle.

The bird food retail market is "highlyfractionalized," and recipes for various areas vary on individual preference and regional differences.

"Bird watchers are a dedicated group. They understand which birds they want to see and know what will attract them."

Packing for snacks

At SunGold Foods in Horace, employees do roasting salting and flavoring for in-shell sunflowers, kernels and soybeans, as well as chickpeas and pumpkin seeds and kernels.

"We focus on things that are not related to peanuts or tree nuts," Majkjrzak says.

This, of course, is a major processing emphasis for confection seeds.

"In the past seven or eight years, we've contracted very hullable type -- a 'conoil' (confection-oil) hybrid," he says. "Almost all of these seeds are the size for hulling."

Red River Commodities contracts a "regular" type of confection seed and a "long-type."

"We purchase varieties from our breeders and have the parent seedstock made for our company. Then we go to other places in the U.S. or the world to have the planting seed made for us. We bring that back and sell it to the farmers," he says.

For the in-shell products, Red River may choose to size them differently for different markets, all with a round hole screen. In the "cleaning" process for confection snack seeds, the company sorts by size, length, shape, density, color and friction separation.

"That's how you get cockleburs out," he notes. "We can improve and enhance it, but the basic quality comes from a farm. It's one of those rare products where a farmer can look in his combine and see the material that is going to look like that in a finished bag. There's not many products like that out there like that. It gives farmers a lot of pride."

One piece of the snackfood pie is pumpkin seeds.

"Pumpkin seeds typically come in from China," he says.

There have been some U.S. efforts to grow and process them, but the hard part is that seeds have to be handled very quickly after they are removed from the pumpkin fruits In China, the pumpkins typically are harvested by hand by farmers with wheelbarrows to their homes to be washed, dried, and then taken to market.

"The economies of scaling up for pumpkin seed here is a limiting factor," Majkrzak says. "Once you split a pumpkin open, the timeline has no forgiveness. A lot of labor."

SunButter leap

The European marketplace for confection sunflower was built by Americans since the 1980s and 1990s, primarily for the bread-baking business in Germany and other countries.

In October 2000, Majkrzak was on an international trade mission to China with North Dakota's then-Gov. Ed Schafer. Majkrzak discovered that China was developing a plan that said -- regardless of American pricing -- they were going to be cheaper.

"It doesn't take long, and competition like that becomes a problem," Majkrzak says in understatement. "The biggest thing is that the Chinese have lower-cost labor. The value of the raw material is virtually the same as ours, but their cost of collecting and converting it is minuscule to the American costs, and the standards are different."

On the plane ride back from China, Majkrzak wrote down a list of countermoves for his company to stay competitive.

"The No. 2 project I wrote down was SunButter," Majkrzak says.

In 2003, Red River Commodities took a "real leap of faith" by introducing SunButter, a project with the same name as a product that was trotted out by another company in the early 1980s.

Majkrzak credits Dan Hofland, vice president of marketing, for leading this effort.

One key was when Hofland found a U.S. Department of Agriculture researcher in New Orleans who knew how to "naturally neutralize the chlorogenic acids that caused the original attempt at SunButter to be so green-colored," which made consumers reject the product.

"About the same time, peanut allergies were really becoming more noted in the U.S. The Centers for Disease Control listed it as an epidemic," Majkrzak says.

For good measure, the company financed studies at the Agricultural Research Service lab in New Orleans to verify that sunflower contained no proteins in common with peanuts or any tree nut, which also are associated with allergies.

"We are peanut- and tree nut-free -- that's critical," Majkrzak says.

In 2003, the first SunButter product was a standard, creamy product -- a one-for-one substitute for peanut butter in most recipes.

Since 2005, the company has added four more products and combinations-- "natural," which is unstabilized, so that the oils separate out; and "crunchy," which includes some whole sunflower kernels; "Omega," which incorporates toasted flax; and finally, there has been the "organic" version. Packages range from 1-ounce cups to 525-pound drums, but most is sold in 1-pound jars.

"This is probably our lineup that we're going to stick with," Majkrzak says. "We did have a 'honey-crunch' but discontinued that due to the commitment of keeping SunButter gluten-free. The 'tack coating' for the honey-roasted kernels carried a trace amount of gluten. We couldn't find a gluten-free supplier, so we dropped it."

The advantage of SunButter in the marketplace is that sunflower is widely seen as a healthy food, a healthy oil and has a positive image. About the only confusion is whether SunButter is some kind of margarine substitute.

"We have to explain that it's an alternative to a peanut spread," Majkrzak says.

Taste test preferences "typically always" favor SunButter to peanut butter, Majkrzak says, adding, that most people in blind tests think it is peanut butter.

The product trades at a premium to peanut butter in the marketplace, but part of that is because it doesn't have the economies of scale, especially in the packaging product area.

"Sunflower kernel, years ago, was cheaper than peanuts," he adds. "But because of the change in the farm program, peanuts have now lowered their domestic price and we find that sunflower kernel has been at or above peanuts every year since 2002."

There is no doubt that the product is on the grow.

SunButter is in 8,500 retail outlets through the U.S. and the market is growing at an eye-popping 40 percent per year. The product also is shipped to seven other countries in the world.

"After going through all of these large confection seed buyers throughout the world, our largest kernel buyer in the world is our own division because of SunButter."

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