Bismarck Tribune - North Dakota News - State flour mill records a loss of $12 million in first quarter

State flour mill records a loss of $12 million in first quarter

Nov 25, 2008 - 06:43:07 CST

By DALE WETZEL
Associated Press Writer

North Dakota's Mill and Elevator reported a $12 million loss during July, August and September, which its manager said was the largest quarterly loss in the 86-year history of the state-owned mill.

Vance Taylor, the mill's general manager, blamed the loss on large price swings for hard red spring wheat last spring, along with turbulence in the futures markets - which the mill has used to limit its financial risks - and a decline in flour demand.

In its last budget year, which ended June 30, the mill lost $821,607. It was the flour mill's first annual loss since 1994.

William Wilson, a North Dakota State University economics professor, told the state Industrial Commission on Monday that grain market volatility is likely to continue for three to five years. Wilson has been hired to advise the mill on possible changes to its risk management policies, and his report is expected next month.

The mill was whipsawed by rapidly rising prices for hard red spring wheat, which it uses to make bakery flour, and an unexpected decline in flour demand, Wilson said. Some of the mill's customers, put off by higher flour prices, switched to suppliers that used less expensive winter wheat for milling.

The mill was among a large group of food companies that were slammed by a confluence of extreme events in the grain market, the NDSU professor said. General Mills Inc. reported hedging losses of $111 million and ConAgra Foods Inc. reported losses of $33 million, he said.

Gov. John Hoeven, Attorney General Wayne Stenehjem and Agriculture Commissioner Roger Johnson make up the Industrial Commission, which is the board of directors for the mill and the state-owned Bank of North Dakota.

The commission asked Monday for a more detailed report on the mill's business decisions and their effects on its finances. Johnson said he did not believe the loss resulted from inept management.

"It was not something unique to the mill. It was a market failure that is now pretty well known, and is becoming pretty dramatically documented," Johnson said. "The real question is, now that you've figured that out, what are the series of recommendations that we need to consider to avoid finding ourselves back in this situation again?"

Wilson and Taylor said a "short squeeze" in the futures markets, prompted last spring by shortages and rising prices for hard red spring wheat, worsened the mill's losses. Strategies the mill normally follows in the futures markets ended up limiting only about 37 percent of its risk, Wilson said.

In February, the Industrial Commission gave Taylor permission to buy hard red spring wheat from Canada if U.S. supplies ran out. The commission reversed itself in March after Taylor said domestic supplies were sufficient.

Taylor said the futures contracts that have caused the mill's financial woes have worked themselves through its books.

"As of today, the costs incurred with those losses are behind us," he said. "Going forward, I expect our results to improve substantially ... We do expect the mill to bounce back. It's still a strong company."

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Comments

My Opinion wrote on Dec 2, 2008 5:13 PM:

" To "a banker": I have to say that there are numerous companies that can do the services of BND at competitive rates. Smaller banks do not have to depend on BND to do what it has done in the past. If a bank has a "computer network" and is able to connect outside of it's company, it has the capabilities to do all the networking, checking, and clearing needed. Some companies will do the interface for very low fees and provide software, training, and hardware if necessary at low to no cost. BND is not needed anymore. It should go the way the rest of the State Banks have gone - to the graveyard. "

Economic Conservative wrote on Dec 2, 2008 12:37 PM:

" Ok, I give up "a banker, tell us, how many subprime mortgages were made in ND? I do know this, a majority of the credit unions will only write variable rate mortgages that reset every 5 years, why is that? In any event, the fact remains, your profession has put this country in the worst economic disater that has ever been seen, so please spare us your "expert" rhetoric. "

a banker wrote on Dec 2, 2008 12:04 PM:

" Economic Conservative, what are you even talking about? Do you have any idea how many sub-prime mortgages were made in ND? I challenge you to find that information and put it on here. Nobody is arguing that sub-prime loans are a major factor in our current economy but there were hardly ANY made in ND. It's not hard to understand that but obviously you missed that point earlier. "

Economic Conservative wrote on Dec 1, 2008 11:56 AM:

" Tommy, you can't argue with "a banker", he is one of the profession that used the subprime mortages to turn this country upside down. Check out this article before you starting giving any creedence to anyone in the banking profession: http://money.cnn.com/2008/12/01/news/ignored_warnings.ap/index.htm?postversion=2008120106
Another day, another disaterous economic dollar, thanks to the bankers. "

a banker wrote on Dec 1, 2008 10:22 AM:

" Tommy, the big thing you are not mentioning is that a LOT of small town local banks in ND don't have the capability to do all the fancy Check 21 on their own. Are you aware of all the services some of the smaller banks can't afford to do on their own? BND does it for them so they didn't have to spend all the money on new equipment. Big difference! "

West wrote on Dec 1, 2008 8:43 AM:

" Tommy - you're going to spoil it for everyone who thinks that North Dakota has a special golden goose or magic money box that creates 'profits'. One that only North Dakota has discovered. As if all the state's revenues and other funds would just be put in a drawer instead of being invested to earn a return if there was no 'state-owned bank'. "

Tommy wrote on Nov 30, 2008 8:53 PM:

" The bank of ND was a test at state run banks... it never made it,,, but for some reason it never went away either... With the check clearing act of the 21st century the bank of nd is no longer needed as a clearing house... electronic funds transfers have eliminated funds availability reasons and geography doesn't come in to play anymore... the federal deposit can cover our local banks just fine. I heard they are even considering closing the Federal deposit in Helena for the same reason... the last thing we needed to do was build a new one... people just dont know the real story... State owned mill is just as bad of an idea... the state should stay out of private business.... its not right.. "

GG wrote on Nov 28, 2008 7:02 PM:

" Oh great!! Now we have to have a flour mill bail out!! Everyone wants free money, as with the loan co.'s,&banks ,& the auto industry,&the airlines!! By free I mean,there is no way in H they will ever pay it back!! "

West wrote on Nov 28, 2008 9:49 AM:

" Every other state has the same or similar sources of revenue that North Dakota does. Revenues from oil, gas and minerals, taxes, licenses and fees, etc. Every other state invests those funds or uses or turns that money around in programs just like North Dakota does. Every other state earns interest and fees or some other return on those invested or loaned funds just like North Dakota does. Every other state takes the earnings from those investments and programs and uses them within their state just like North Dakota does.

We just happen to call it a 'state-owned bank' in North Dakota. "

a banker wrote on Nov 28, 2008 8:23 AM:

" economic conservative: how many banks in ND are responsible for the economic mess the country is in?

and for the record, other states have tried state banks. Colorado is one that comes to mind that wanted to do it but they couldn't make it work, I don't remember the reason why though.

This story isn't about the bank anyway. If you see a story about the bank losing millions of dollars, then feel free to come on here and post your radical comments and play on words. "

Economic Conservative wrote on Nov 26, 2008 11:02 AM:

" Wow, I am growing very weary of folks like you who don't understand the English language. My post stated "the Bank of North Dakota is seriously under capitalized by over $100 million. ", which it is. That is a fact. Where you get that I stated it was "in trouble" is beyond me. Try using a dictionary when you don't understand a word, it might help keep you from twisting the truth around. The fact remains that undercapitaliztion does not represent a "healthy" bank. "

Economic Conservative wrote on Nov 26, 2008 10:55 AM:

" Wow, I have posted my sources, perhaps you should check them out. Quotes from the BND President and the quaterly reports at the BND website. "

wow wrote on Nov 26, 2008 10:21 AM:

" Again economic conservative, you need to explain where you found that the bank is in trouble. you are speaking but don't seem to have proof. "

Branch Banks wrote on Nov 25, 2008 8:50 PM:

" This article is not about the Bank of ND but......in my opinion, there should be a Bank of North Dakota branch bank on every corner in every town and city in North Dakota. Can you imagine the amount of money they would then make for the State of North Dakota? It would be big, very big.

The law does not allow them to now but with the legislature meeting this winter maybe it could be changed to let this happen. "

Hmmmm wrote on Nov 25, 2008 7:54 PM:

" If these state-owned combo government/businesses are such a great idea, how come North Dakota is the only state to have figured that out after all this time? No one else in any of the other 49 states is smart enough to make it work? All the other states already have too much money? Something doesn't make sense. "

Economic Conservative wrote on Nov 25, 2008 5:29 PM:

" I can't argue with an expert like you "a banker", can I? After all, it is those in your profession that have put us in the economic mess we are in. "So", please don't misquote the article." Hardmeyer says capital is a measure of a bank`s strength. He says it`s increasingly important to have adequate reserves during times of trouble in the banking industry." is what the story quotes and I can't find anything in it about "the bank would like to increase it's capital". "

a banker wrote on Nov 25, 2008 4:30 PM:

" first of I don't work for BND but I do work for another bank. If people had any clue how many businesses would not be here if it wasn't for the loan programs BND has through the state, they would be amazed. go ahead and say what you want but unless you know all the facts you shouldn't say anything. oh and Economic Conservative, I think you need to re-calculate your figures. the bank is in good financial position and has had record profits for years. where do those profits go? right into the state general fund so we all have to pay less taxes! as far as the state mill goes, the markets have messed up a lot of businesses beyond their control. "

so wrote on Nov 25, 2008 4:13 PM:

" Economic conservative, so the article states the bank would like to increase its capital over the next 2.5 years. That is a plan, so at this time it doesn't seem to me that it is undercapitalized like you state. "

bill wrote on Nov 25, 2008 4:08 PM:

" We as tax payers better bail them out "

Economic Conservative wrote on Nov 25, 2008 1:59 PM:

" The link to the KFYR stort is: http://kfyrtv.com/news_stories.asp?news=22973. I find it interesting that according to the quater ending June 30, the capital to assets ratio was almost 12-1. So what is happening to the Bank? You can get the figures at the Bank of ND website. "

resident wrote on Nov 25, 2008 11:59 AM:

" In a recent interview on KFYR, the bank president said the bank was in good shape. I don't see how they could be in trouble with the interest rates they charge for student loans. "

prove it wrote on Nov 25, 2008 11:46 AM:

" To Economic Conservative, where do you get your information that the bank is under capitalized by 100 million? "

Economic Conservative wrote on Nov 25, 2008 10:28 AM:

" Tommy writes, " why does the state own a flower mill... why does the state own a bank.... ??? "? It's simple Tommy, it's immopssible to have corporate and farm welfare in the amounts that North Dakota needs without them. The Mill is in trouble and according to a report made several weeks ago, a report the Tribune failed to run a story on, the Bank of North Dakota is seriously under capitalized by over $100 million. And we keep being told how North Dakota is not experiencing the economic downturn of the country. "

Internet Bully wrote on Nov 25, 2008 9:43 AM:

" Time to axe the mill. Keep the bank for a little while longer once it is no longer profitable time to sell that to the private sector as well. "

middle class wrote on Nov 25, 2008 8:31 AM:

" Why doesn't the state own an oil refinery? Why doesn't the state own a pipeline?
Maybe the tribune should report the profits of the mill and elevator over the last couple of years. "

to tommy wrote on Nov 25, 2008 8:23 AM:

" check out https://www.ndmill.com/ndmill/new/history.cfm for the state mill mission. I read it and I think its a good think. I am from Grand Forks and it provides many good jobs - jobs that may have left the state if it was privately owned. "

BabyT wrote on Nov 25, 2008 7:40 AM:

" Because a long time ago the people of ND wanted stable banking and farming industries. They both have been HUGE cash cows for the state, as well as providing extremely good loans to the residents of ND. (and flour != flower) "

Tommy wrote on Nov 25, 2008 5:24 AM:

" why does the state own a flower mill... why does the state own a bank.... ??? "

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