Southern States Cooperative Incorporated Business Information, Profile, and History

Company Perspectives:

'Analysts come and analysts go. When times are good in agriculture, there are analysts who predict that population growth has overtaken our ability to produce, and thus agriculture will always be good.

Then when favorable weather in the major producing regions results in two or three bin-busting crops at the same time that export demand slows and prices drop, analysts have a tendency toward doomsday predictions for farming.

The fact of the matter is that neither analysis is true. The demand for food globally is growing at about the same rate as productivity. This means that in years of good weather and slow demand growth, prices will be low and stocks will build. During periods of lower yields and stronger demand, prices will be high.

In this regard, agriculture has not changed over the years; it's still a volatile industry. We at Southern States continue to look for ways to help farmers through the peaks and valleys.' --Wayne Boutwell, president and CEO

History of Southern States Cooperative Incorporated

Southern States Cooperative Incorporated is one of the largest farmer cooperatives in the United States and operates the largest livestock exchange in the country. Owned by 307,000 farmers, the cooperative offers its farmer-members high-quality products at discounted prices and also sells its products to the general public through its own retail stores and through independent dealers. Southern States manufactures, sells, and processes seed, fertilizer, and fuel. It also sells farm, lawn, garden, and animal health supplies. The company gins cotton and markets livestock, corn, peanuts, soybeans, and grains. Through its Turf Division, it offers turf management products and services. Other services include specialty catalogs, sales financing, and an aquaculture program. Based in Richmond, Virginia, Southern States was founded by agronomist W.G. Wysor to provide quality seed to Virginia farmers at an affordable price. Southern States has stores in 17 states from Michigan to Florida and west to Texas. In 2000 the company entered into a joint venture with Agway, a cooperative of 71,000 farmers in 12 northeastern states. Its partnership with Agway will extend its reach into the northern United States. In its fiscal year ending June 30, 2000, Southern States had sales nearing $1.5 billion.

A Need for Good Seed in 1923

Southern States Cooperative Incorporated began in 1923 when Virginia farmers tried to fill the need for good quality, disease-resistant clover and alfalfa seed that would grow in Virginia's soil and climate. About 150 farmers gathered in Richmond, pledged $11,000 in capital, and called themselves the Virginia Seed Service. The farmers hired W.G. Wysor, the man who had called the meeting, as general manager. Wysor, called 'Bud Wysor' by friends, was an extension agronomist (field crop specialist) at Virginia Tech. Friends and colleagues described Wysor as being 'sharp and shrewd' and 'a visionary.' Wysor's vision for the Virginia Seed Service was to turn it into a multi-state, full-service cooperative. With the help of his fellow farmer-members, Wysor's vision became a reality.

The Virginia Seed Service grew slowly at first--its first order for a few pounds of clover seed totaled less than $10. The company struggled through the Depression, droughts, world wars, and 'wide swings in the farm economy.' The Virginia Seed Service gradually added to its product line. In 1926 it began selling its first farm supply item: binder twine, and a decade later purchased its first fertilizer plant. In 1933 the company changed its name to Southern States Cooperative Incorporated. A year later, Southern States expanded outside of Virginia into Delaware and Maryland.

Fuel in the Mid-1930s

In 1938 Southern States' board of directors approved a proposal to add the sale of petroleum to the company's list of products. The move was significant for Southern States. In the late 1930s and early 1940s only very large farms had storage sites that could store petroleum products, which were used to fuel farming equipment. The vast majority of farmers had to lug fuel drums to gas stations and pay retail or only slightly discounted prices for fuel. Southern States offered its members petroleum at wholesale prices. The company also moved aggressively into farm delivery. Its aim was to deliver fuel and other products to its members. By the end of World War II Southern States had established a fuel delivery system.

The first Southern States cooperative opened in West Virginia in 1941, and in 1945 the company established a cooperative in Kentucky. Southern States operated in five states--Virginia, Delaware, Maryland, West Virginia, and Kentucky--for the next four decades. However, while it had stopped extending its territories, Southern States continued to expand and diversify its product line.

During this time, Southern States' focus was on fuel. Terry Ragsdale explained in Foodstuffs that fuel has always been critical to Southern States' success: 'Petroleum is important from the standpoint of off-season business,' explained Ragsdale, executive vice-president and COO of Southern States. 'We're heavily into farm supplies and, therefore, the spring and fall are big times for us. But we need business in winter months, and that's where products like propane and heating oil fit in.'

Southern States purchased the Kentucky Oil Marketers at Owensboro in 1946. Two years later Southern States entered into a joint venture with GLF, later renamed Agway Inc. Together the two cooperatives purchased a 75 percent interest in Petrol Refining Company, based in Texas City, Texas. Southern States and Agway eventually gained 100 percent control of Petrol Refining and renamed it Texas City Refining. While the new company was profitable in the 1960s and 1970s, it floundered in the 1980s. Southern States sold Texas City Refining in 1988.

New Direction in the 1980s and 1990s

In February 1997 Southern States President and CEO Gene A. James formally retired and Wayne Boutwell took his place. Boutwell was the first president and CEO of Southern States hired from outside of the company. Southern States believed Boutwell's shrewd business sense and extensive farming experience would take Southern States in a new direction. Having grown up on his family's farm, Boutwell knew all about the trials of agriculture. He had served as a staff member for the U.S. Department of Economic Research Services and received his Ph.D. in agricultural economics. Boutwell had also served as Mississippi Republican Senator Thad Cochran's legislative assistant for agriculture and natural resources.

At the beginning of his tenure with Southern States, Boutwell noted that the company surpassed other farming cooperatives in terms of its product diversity and geographic location. Southern States offered more products than other cooperatives and its retail stores were located close to high-income suburbs, which Boutwell felt gave the cooperative a competitive advantage. In an article on Insidebiz.com, Boutwell said, 'Every morning we wake up, there's a new subdivision that used to be a farm. We understand that,' he said. 'We don't fight it, we just simply say `As the customer base changes, we're going to change.'

While Boutwell was impressed with Southern States, he realized the company lagged behind other cooperatives in the area of meats. Boutwell met with Michigan Livestock Exchange in 1997 with the hopes of acquiring the company. Michigan Livestock Exchange was a livestock cooperative that helped farmers raise and sell cattle, hogs, and sheep. Michigan also helped form alliances between farmers and beef processors and cattle feedlots. On April 1, 1998, Boutwell reached his goal and Southern States acquired Michigan Livestock Exchange. The acquisition made Southern States the largest livestock exchange in the United States. Once the deal was final, Michigan Livestock Exchange moved its headquarters from Lansing to Richmond and became the livestock division of Southern States.

In 1997 Southern States purchased the retail stores and other assets of FCX, a Raleigh-based cooperative formerly called the Central Carolina Farmers, and expanded into North Carolina. With the purchase of the farming supply assets of Gold Kist, Inc. in 1998, the company moved into South Carolina, Georgia, Florida, Alabama, Mississippi, Arkansas, Louisiana, and Texas. Under the terms of the acquisition, Southern States assumed Gold Kist's 100 retail farm supply stores in addition to the company's peanut and grain buying stations, cotton gins, fertilizer plants and terminals, crop protection product distribution centers, feed mills, and other operations. The acquisition was amicable on both sides: with Southern States taking over the farming sector of its business, Gold Kist was free to concentrate on poultry processing. As of 2000 Gold Kist processed 14.5 million chickens per week, making it the second largest poultry processor in the United States, behind Tyson Foods. Southern States hoped the new territories it gained through the Gold Kist acquisition would boost its sales.

Heading North in 1999 and 2000

Near the turn of the century Southern States became part owner of a new soybean research company 'dedicated to the development of elite soybean varieties.' The company, called Soygenetics LLC, was owned by FFR Cooperative (a cooperative in which Southern States had a stake), Limagrain Genetics, and Land O'Lakes. Soygenetics was the third largest soybean company in North America. 'We must offer our soybean growers products that compete both in cost of production and value to the world market. We are now in a much stronger position to provide new opportunities while protecting the interest of our soybean producers,' said Greg Adlich, vice-president of Southern States Crops Division and acting chairman of the board for FFR Cooperative.

Southern States also continued to expand its territories. In 1990 the company purchased Wetsel Seed Co., a horticultural supplier. In addition to serving much of Southern States' territory, Wetsel served businesses in Indiana, New York, Ohio, and Pennsylvania. As of 2000 Wetsel operated as a subsidiary of Southern States.

In July 2000 Southern States finalized an agreement with Agway, Inc. in which the two cooperatives pooled their resources in product marketing, distribution, and retailing. According to a Southern States company press release, 'Southern States would supply farm, lawn, home and garden, vegetable seed and bird food products for 500-plus Agway consumer dealers in Ohio, Maryland, Delaware, Pennsylvania, New York, New Jersey, New Hampshire, Rhode Island, Connecticut, Vermont, Massachusetts, and Maine.' By combining their resources, the cooperatives were able to offer dealers more products at lower prices and better compete in a marketplace undergoing a trend toward consolidation. Together, Southern States and Agway serviced 1,300 dealers in 26 states, including many states in the northeastern United States, an area of potential growth for Southern States. 'We are very excited about this relationship and very comfortable serving this type of dealer base and their product lines,' said Carl Cromwell, vice-president of the farm and home business unit, in a Southern States company press release. 'At Southern States, we are excited about the growth opportunities this presents for us and for the Agway dealers.'

The partnership was not the first between Southern States and Agway. The two companies co-owned a bulk and bagged feed plant in Gettysburg, Pennsylvania, and were also co-manufacturers of Legends, a popular line of horse feed. In addition, Southern States and Agway, along with four other companies, manufactured Pro-Pet LLC pet food.

Around the time it finalized the Agway deal, the Farmer's Catch Division of Southern States received a $10 million loan for aquaculture development from the National Marines Fisheries Service (NMSF), an agency of the Department of Commerce's National Oceanic and Atmospheric Administration. Aquaculture is the cultivation of finfish, shellfish, and aquatic plants. NMFS estimates that about 30 percent of the seafood the world consumes is produced through aquaculture. However, since many fish are over-harvested, this percentage is expected to rise significantly in the future to meet the demand for seafood.

According to a company press release, Southern States planned to use the loan to help farmers finance state-of-the-art closed systems for tilapia fish production, a fingerling nursery, and a processing plant.

A Vulnerable Future

While Southern States' sales continued to rise throughout the late 1990s, the company posted a net loss of $2.1 million in 1999, as compared with net incomes of $10.7 million in 1998 and $27.5 million in 1997. In its 1999 annual report, the company attributed much of the loss to 'badly depressed crop and livestock prices' and 'the most damaging drought since the dust-bowl days.' The company also cited the cost of integrating and relocating the headquarters of the Michigan Livestock Exchange as contributing to the loss.

While Southern States would always remain vulnerable to forces of nature such as drought, with 307,000 farmer-members, (up from about 215,000 in 1999), and its new partnership with Agway, Inc., analysts believed in 2000 that Southern States would continue to be a valuable and viable cooperative for its farmer-members in the years to come.

Principal Competitors: Archer Daniels Midland Company; Cenex Harvest States Cooperatives; The Scoular Company.

Chronology

• Key Dates:

• 1923: One hundred and fifty Virginia farmers organize to form the Virginia Feed Service.
• 1933: Virginia Feed Services changes its name to Southern States Cooperative Incorporated.
• 1938: The company adds petroleum to its product line.
• 1941: Southern States opens its first cooperative in West Virginia.
• 1945: The company opens its first cooperative in Kentucky.
• 1946: With Agway, the company purchases Kentucky Oil Marketers.
• 1948: Founder and General Manager W.G. Wysor retires.
• 1953: Southern States Insurance Exchange is chartered.
• 1967: The company introduces catalog service.
• 1990: Southern States purchases Wetsel Seed Company.
• 1995: The company's sales reach $1 billion for the first time.
• 1997: Wayne Boutwell is hired as president and CEO; the company purchases FCX.
• 1998: Southern States acquires Michigan Livestock Exchange.
• 2000: The company forms a partnership with Agway; receives $10 million government loan for aquaculture development.