Ag innovator summer 2014

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Summer 2014

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Ag Innovator

Taking Stock of Animal Agriculture’s Financial HealthCalifornia Farmers Seek Allies in Fighting ‘Political Drought’

Product Liability Ruling Weakens Substantial Modification Defense

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Contents

6 Legal Focus

Does Your Company’s Spousal Health Insurance Policy Need a Check-up? by Careen Martin and David A. James

18 Product Liability Ruling Weakens Substantial Modification Defense

by Kenneth Ross

14 Taking Stock of Animal Agriculture’s

Financial Health by Matthew Ernst

10 California Farmers Seek Allies in

Fighting “Political Drought” by Laura Pires

4 Executive Vice President’s Message

The Association’s Board of Directors Keeps Us Moving Forward

by Vernon Schmidt

22 Legal Focus

5 More Things Never to Say (or Email) to Your Distributors

by Trent Johnson

24 Member Focus

Landoll Corp. Celebrates 50 Years of Innovation

FarmEquip.org

Summer 2014 Volume 4 • Issue 3

Ag Innovator

4 Farm Equipment Manufacturers Association | Summer 2014

AGI Executive Vice President’s Message

The Association’s Board of Directors recently met and reviewed where we stand as an Association and how we can best position ourselves to continue effectively representing the interests of our membership. Here I would like to address a few of the issues on which we agreed over several days of meetings.

First, I am pleased to report that this Association remains strong, both financially and with a growing and active membership, supported by a staff dedicated to our continued success.

During our Spring Conference in San Antonio, I appointed a committee to review the Association’s bylaws and recommend any needed changes. The committee completed their work and your Board of Directors voted to recommend that the changes be approved by the membership during our annual business meeting at the Fall Convention in Las Vegas. To see a copy of the proposed changes, visit FarmEquip.org/Bylaws2014. While some of the changes were “housekeeping” in nature, if we adopt them, the new governing document will prove useful to future leadership.

Our Board also approved filling a senior staff position that has been vacant for several years. This will allow us to better address new areas of service to our membership and respond quickly to matters that need urgent action, without shifting resources away from other mission-critical objectives.

For the next year, we have committed to continue to fund work, in cooperation with other industry associations, on issues dealing with the movement of farm equipment on public roadways. We seek to protect

the rights of farmers to purchase new and efficient equipment, and to use that equipment without obtaining excessive permitting. We will count on technical input from a broad range of affected member companies to guide our efforts in a direction that benefits all of our members. If your company manufactures equipment that is moved on public roadways, you will want to keep abreast of pending developments. If your equipment is large, has a high axle weight, or runs on tracks, please contact our St. Louis office today and weigh in.

As we look to the future, we also want to remember and honor our industry’s leaders. This will come to fruition when we induct 5-10 charter members into our newly established Hall of Fame during our November meeting in Las Vegas.

All of the areas I’ve touched on above will be addressed during our annual Fall Marketing & Distribution Convention in Las Vegas this November. From approval of bylaws and election of directors to the election of leadership for our product councils, this annual meeting presents a great opportunity not only for members to meet with distributors but also to make their voices heard.

Please plan now to attend and become—or remain—involved in your Association. AGI

Association Board Of Directors

President: Marc McConnellArt’s Way Manufacturing Co.

1st Vice President: Mike KlosterWorksaver Inc.

2nd Vice President: Richard KirbyKirby Manufacturing Inc.

Treasurer: Robert AtkinsonW & A Manufacturing Co.

Secretary: Paul JeffreyMacDon, Inc.

Ex Officio: Andrew CummingsT. G. Schmeiser Company, Inc.

Tony BakkerMonosem Inc.

Nick JensenThurston Mfg. Co./Blu-Jet Products, Circle R Side

Donny JonesBelltec Industries, Inc.

Mike LessiterFarm Equipment/Ag Equipment Intelligence

Stanley McFarlaneMcFarlane Manufacturing Co., Inc.

Arlon RahnA&R Marketing

Ron RoglisHCC, Inc.

Bob SonntagRem Enterprises Inc.

Tom TaylorAlamo Group

Jacqueline VassarVassar Manufacturing Company

Ag Innovator Staff

Executive Vice PresidentVernon Schmidt

Publications EditorMarlene Weeks

Ag Innovator is published quarterly, edited and copyrighted by the Farm Equipment Manufacturers

Association to serve and promote the interests of its members who bring choice, value

and innovation to the world’s farmers.

Unsolicited manuscripts and photographs are welcome. The editor reserves the right to edit all items.

Address all mail to Ag Innovator, 1000 Executive Parkway, Suite 100, St. Louis, MO 63141-6369 and

emails to [email protected].

Submit advertising inquires to [email protected].

Vernon SchmidtExecutive Vice [email protected]

THE ASSOCIATION’S BOARD OF DIRECTORS KEEPS US MOVING FORWARD

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Legal Focus AGI

Most employers are familiar with

new health insurance requirements under the Patient Protection and Affordable Care Act (PPACA), including the employer-shared responsibility

provision, which imposes a penalty on large employers that fail to offer employees affordable health insurance coverage. Many employers are also aware of the requirement that health insurance plans cover employees’ children through age 26. But one area that may be less familiar is spousal health benefits.

Historically, many employers have opted to offer health insurance coverage to employees’ spouses, a byproduct of the era when single-income families included two spouses who both needed insurance coverage. However, many families now have two income-earning spouses, both eligible for health insurance coverage through their respective employers. In fact, now that the PPACA essentially mandates that large employers offer health insurance coverage, nearly all full-time employees will be eligible for employer-provided health insurance coverage. But one result of increased coverage is rising health insurance-related costs, which has many employers reassessing the coverage offered to employees’ working spouses.

The PPACA requires employers to offer medical insurance for employees and dependent children, but it does not require them to provide coverage for spouses or domestic partners. Furthermore, the PPACA’s affordability provisions apply to employees, but they do not require that spousal coverage be affordable. As a result, some employers are modifying or terminating spousal coverage. For example, an employer may

charge an employee for 100% of the spouse’s premium, add a surcharge or penalty in addition to the cost of the spouse’s coverage, or cease offering working spouse coverage.

In addition to addressing rising health insurance premiums now, some employers may modify or eliminate working spouse coverage to reduce overall costs before 2018, when the so-called Cadillac tax—a 40% tax imposed on health care premiums above a certain threshold—goes into effect. In 2018,

the threshold is $10,200 for individual coverage and $27,500 for family coverage. Thus, if an employer can reduce overall costs, it can potentially lower its premiums, thereby reducing the possibility that they will exceed the threshold.

Employers who contemplate modifying working spouse coverage to address current or future health insurance costs and premiums should consider the following:

• Work with your insurer or insurance broker. They can best advise you when and how to implement the spousal

coverage changes, provide legally necessary notices and plan amendments, and provide available plan structures and pricing. These types of benefits structure changes will likely need to be made during open enrollment for an effective date of January 1, 2015.

• Develop a good communication plan. Employers who change or eliminate the working spouse coverage benefit must take care to communicate this decision effectively and explain the cost factors, potential benefits to all plan participants, and impact on spouses. For example, plan changes may reduce premiums, and employers can share

CAREEN MARTIN DAVID A. JAMES

DOES YOUR COMPANY’S SPOUSAL HEALTH INSURANCE POLICY NEED A CHECK-UP?By Careen Martin & David A. James

One result of increased coverage is rising insurance-related costs, which have prompted many employers to reassess the health care coverage they offer to their employees’ working spouses.


Legal Focus AGILegal Focus AGI

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this cost savings with employees. Or, if an employer opts not to offer spousal coverage, the spouse may enroll in a health plan through the health insurance exchange. Depending on the spouse’s income, he or she may be eligible for tax credits and cost-sharing reductions to defray the cost of premiums and health care. In cases such as these, an employer would be wise to clearly outline any changes that will be made, the employee’s and spouse’s options, and the likely outcomes and/or benefits of each one.

• Interference, discrimination or retaliation is prohibited. Employers cannot interfere, discriminate or retaliate with respect to benefits to which an employee is entitled, including health insurance. Therefore, an employer should make changes to benefits structure on a company-wide basis. Reducing coverage should result from a fact-based decision to reduce costs for the benefit of all participants, rather than to exclude a particular individual from coverage.

• Verify the spouse’s eligibility. The decision to modify or terminate working spouse coverage will require an employer to verify which spouses are eligible for coverage through their own employer. If your insurer or broker does not verify eligibility for spousal coverage, consider asking the employee to sign an affidavit affirming that his/her spouse is not offered health coverage by his/her employer.

• Factor in other benefits. Consider whether the working spouse exclusion is only for medical coverage, or also for prescription drug, dental, vision and life insurance (if the employer offers these and they are not available to spouse through his/her employer).

• Revise your employee handbook. Address working spousal coverage with language such as, “If your spouse works and is eligible for medical coverage from his/her own employer, regardless of whether s/he is actually enrolled in that coverage, your spouse is not eligible to participate in [employer’s] group health insurance plan.”

• Beware of union contracts. Existing union contracts may prevent an employer from making spousal coverage changes for union employees.

While not all employers will need to reassess working spouse coverage, those who do so should consider modification or termination only in light of these guidelines and with the involvement of their insurer or insurance broker. AGI

Careen Martin practices in the health law group at Nilan Johnson Lewis. David James is a shareholder in the labor and employment group. As a benefit of FEMA membership, FEMA members are eligible for 30 minutes of free advice from David regarding labor and employment issues. For more information, visit FarmEquip.org.

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Feature Story AGI

Drought is nothing new to California farmers. They have become adept

at battling Mother Nature and prevailing during previous periods of drought. However, the current drought is unusual and severe due to the unprecedented number and impact of environmental regulations that have exacerbated it, including some that limit food growers’ access to surface water that is in drastically short supply. With over

half of the nation’s food supply and thousands of jobs in danger, local farmers ask stakeholders across the country to monitor the crisis and look for ways to help.

When the wells run dryCalifornia uses a complex and elaborate system to capture,

store and deliver water to consumers. This system has allowed California to transform the semi-arid desert of the Central Valley into productive farmland and become an agricultural powerhouse. Farmers and ranchers rely on two key projects in that water system: the State Water Project (SWP) and the Central Valley Project (CVP), which is managed by the federal government. Both the SWP and the CVP provide water to contracted public agencies and irrigation districts. Each year, those contractors request the amount of water they anticipate they will need, and the projects respond with the percentage they will be able to allocate.

In 2013, California saw a new record low rainfall of only seven inches for the state, leading Governor Brown to declare a statewide drought emergency on January 17. Following this declaration, both state and federal water projects announced “zero” allocations for the majority of their customers, including those who own and manage more than 3.75 million acres of farmland.

Blake Wilbur is just one of the many Tulare County farmers being affected by the zero-water allocations from the projects. Wilbur, his father and his brother-in-law are partners in SBS Ag. Their farming operation consists of a 1,800-head jersey dairy and over 1,800 acres of farmland, growing everything from alfalfa, corn and cotton to walnuts and pistachios.

“We have to use 100% well water this year,” said Wilbur. “It increases the time it takes to irrigate the whole ranch, and that changes everything for us.” With the increased irrigation time,

Wilbur has to choose his crops and varieties more carefully than ever. He is pumping water from 165 feet down, and with problems already occurring, he worries that the wells will fail half-way through the growing season. Still, Wilbur is more fortunate than some of his neighbors to the near west who must dig wells 800-1,000 feet deep...and the deeper they go, the more expensive the undertaking gets.

With pumps breaking and wells going dry all over the Central Valley, farmers who need to have wells drilled find themselves on waiting lists of up to six months. Wilbur invested in increased levels of crop insurance, including revenue protection for the first time, on crops such as cotton. “If our wells fail, we need a way to protect our operating costs,” he explained.

At 31, and the youngest partner in his operation, he is responsible for taking care of the land farmed by his father and grandfather—land he hopes to one day pass on to his children. He knows running his operation this way is not sustainable, but it’s one way to buy time until someone can solve the problem that he and many others call a “political drought.”

“The state doesn’t manage water correctly,” observed Wilbur. “2010 was one of the wettest years we’ve had in a long time, and the state didn’t store the maximum they could have. A lot of water went out to the ocean, and now nine of the top ten ag-producing counties in the nation are not getting water.

“We know drought years are going to come, so the state should make investments to better prepare for these situations,” said Wilbur, who is frustrated by the lack of action over the past 20-plus years.

Fighting an uphill battleFarmers like Wilbur know how important and precious a

resource water is, which is why they’ve personally invested in such technologies as high-efficiency irrigation systems, including drip, micro sprinklers and high-efficiency pumps. Those investments have paid off. Over the last 40 years, California farmers have decreased water usage 14.5%, while increasing crop production per acre-foot 85.4%.

Still, these farmers now face more environmental regulations and less access to the water they need to feed a growing global population that is expected to reach 9.3 billion by 2050.

“Many people are so removed from the farm that they’ve lost sight of where food comes from, and what it takes to grow that

By Laura Pires

LAURA PIRES

CALIFORNIA FARMERS SEEK ALLIES IN FIGHTING ‘POLITICAL DROUGHT’

Summer 2014 | FarmEquip.org 11

AGI Feature Story

food,” said Wilbur. “When we can’t get the water we need, we don’t hire employees and we don’t buy equipment. That all has a ripple effect.”

Many Central Valley farmers consider President Obama to be far removed from agriculture and its importance to the nation. On February 14, the President appeared in Fresno to announce a drought relief package that Wilbur calls “a drop in the bucket” for the problem the state is facing.

The drought relief package points out funding in the 2014 Farm Bill, such as $100 million for livestock disaster assistance and $60 million available for food banks to help families economically impacted by the drought. It also dictates that water usage at federal facilities be reduced and water use efficiency in agriculture be improved 20%.

“Where’s that money going?” asked Wilbur. “Farmers don’t know. Money isn’t going to fix the water problems in California anyway. What’s needed is better management of the water and snow we get, and fewer environmental regulations prioritizing fish, like the smelt, over growing food for people.”

Wilbur knows that his generation must do more than just farm. “If we want to pass on this lifestyle to our family, we have to tell the story of agriculture and “agvocate” for the things we need, like reliable access to water.”

Friends and foes One of Wilbur’s neighbors, Mark Watte, a long-time Central

Valley grower, was featured in a Wall Street Journal article titled “How the Other California Lives.” In it, Watte discussed California’s complicated water system and the impact it has on farmers and the nation’s food supply. To date, the article has drawn over 550 online comments. Unfortunately, many of them illustrate the huge disconnect between farmers and the people for whom they provide food and fiber. Some accuse farmers of trying to dictate the quantity and price of food available in stores, while others suggest that small family farms—especially those that rely on “extensive irrigation systems”—represent a “lifestyle” that simply may not be feasible, so some farmers

should throw in the towel and find other employment.

With farmers only making up 2% of the U.S. population, and California farmers constituting a small fraction of that, Wilbur knows it will take more than just their voices to change the onslaught of environmental regulations affecting their access to water.

“We need the people and companies who do business with us to help us fight for more water,” stressed Wilbur. “They are going to feel it in their pockets if we can’t to make purchases, and the ripple effect of this drought is going to be felt everywhere.”

One of the organizations leading the charge to protect grower’s water rights is the California Farm Bureau, led by Paul Wenger, President of the California Farm Bureau Federation (CFBF) and a third-generation farmer.

Wenger recalls the drought of 1976-1977, when “you could walk down the Stanislaus River bed without getting your feet wet. When it did get wet again, the fish and wildlife returned.” He added that Mother Nature has produced droughts before, and once they ended, life always returned to normal. “We could probably get through this one like we have before, if we didn’t have all this regulatory fiat getting in the way,” said Wenger.

One of the ways Wenger and CFBF fight back is by meeting with the governor and state agencies to educate them on the drought’s immediate and long-term impacts. Wenger wants them to understand the dangers of making long-term policies that effect water and property rights.

“One of our biggest concerns is that the environmental elitists will use this drought to increase regulations on farmers, particularly regarding our access to groundwater,” said Wenger. California is a public trust state, which means that certain resources, such as surface water in lakes and rivers, are considered the property of all citizens. As California became increasingly liberal, environmentalists and their allies successfully lobbied for the passage of legislation such as the Endangered Species Act, making it more difficult for agriculture and municipalities to access surface water. Now, some seek to


Feature Story AGI

link surface water rights to groundwater, which currently is generally unregulated in California.

“If that happens, water-rights history could change, affecting land prices,” Wenger explained. “When farmers take out bank loans, groundwater rights factor into the property valuation, and so do the crops they will grow. Farmers with water rights whose land is currently valued at $30,000 could see its value decrease to $10,000 because they can no longer grow the crops that served as the basis for the valuation. A lot of people could go bankrupt,” stressed Wenger.

Historically, farmers and ranchers have avoided the political arena, Wenger observed, choosing instead to keep their heads down and persevere. When new regulations affecting agriculture have been passed, he said, farmers protested somewhat but ultimately found ways to make things work. But now, he believes that time has come to an end.

“If farmers lose access to groundwater, that will be the final checkmate, and California agriculture will change forever,” Wenger predicted.

And those changes will be felt by Americans across the country, not just in higher prices at the grocery store, but in jobs as well. Many raw products, including almonds and tomatoes, are shipped to processors outside of California, and Wenger meets with them, too. If food manufacturers don’t receive the raw materials they need, Wenger pointed out, they won’t be able to hire employees or purchase equipment.

A call to armsSo how did the environmentalists gain so much control over

California water? They lobbied for legislation, and in 1992, the Central Valley Project Improvement Act was passed, beginning the first environmental reform of water projects in the west. One of the act’s main purposes is to protect, restore and enhance fish, wildlife and associated habitats and address impacts of the CVP

in these areas. It has prompted several court battles, the most notable of which is the battle over the Delta Smelt, which began in 2005.

The Delta Smelt are unique to the Sacramento-San Joaquin Delta ecosystem. Environmentalists have argued the fish’s existence is threatened by the pumping of fresh water from the delta to farms in the Central Valley, and therefore pumping should be decreased. In March 2014, a federal appeals court sided with environmentalists again. “We recognize the enormous practical implications of this decision,” 9th Circuit Judge Jay Bybee wrote in the ruling, “but the consequences were prescribed when Congress determined that ‘these species of fish, wildlife, and plants are of esthetic, ecological, educational, historical, recreational, and scientific value to the Nation and its people.’”

For agriculture to survive in California and across the U.S., it must get better at the political game.

“It takes dollars to fight a political battle,” said Wenger, who would like to see more support from agriculture supply companies not yet engaged politically. “Companies like Google write million-dollar checks to environmental groups, but we haven’t seen equipment companies writing big checks to farm bureau organizations.” While donations to nonprofit groups do not have to be disclosed, lobbying efforts do. In 2013 alone, Google spent over $10 million to ensure its best interests were protected on everything from online advertising to immigration and renewable energy policies. In comparison, the American Farm Bureau Federation spent a little over $2.5 million on lobbying.

California farmers depend on state and federal water sources, and on their own groundwater when those sources are not available. This dependency has contributed to a pivotal showdown between the agricultural and environmental communities. The effects of a “waterless” California would be devastating to consumers, farmers and allied industries. The sustainability of California agriculture is imperative to the nation, and each of us must become an advocate for agriculture, because a safe, reliable food supply benefits us all.

Wenger invites people to join the water fight in California and says everyone can help.

“Support agriculture advocacy groups such as your farm bureau. Write your Congressmen and urge them to ensure California farmers get access to the water they need.” AGI

Laura Pires is a marketing and communications professional with over eight years’ experience in the agriculture industry. Born and raised in the heart of California’s Central Valley, she has worked with companies based in New York, Kentucky and Wisconsin, as well as with farm families across the country. Laura can be reached at 559-331-7348 or at [email protected].

Blake Wilbur and other Central Valley farmers have invested billions of dollars in high-efficiency irrigation systems like this one.

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Feature Story AGI

TAKING STOCK OF ANIMAL AGRICULTURE’S FINANCIAL HEALTHBy Matthew Ernst, Independent Agriculture Analyst

Steaks, bacon, hamburger or chops—meat prices are at record levels, and

thus far Americans appear willing to pay more for their beef, pork and chicken. To catch up with demand, cattle farms and ranches are increasing cow numbers from a 60-year low, while pork and poultry producers are expanding. But as meat producers increase spending on breeding

stock and facilities, will they have cash left over to upgrade machinery and equipment? Each farm business is distinct, with important regional differences, but there are signs of good financial health on livestock and poultry farms—and signs that higher meat prices are stoking producer optimism.

BeefIt is a good year to sell beef replacement heifers. The May

“Show-Me-Select” graded heifer sale at Joplin Regional Stockyards in southwest Missouri saw record prices for fall-calving bred heifers; 228 heifers averaged $2,444, $300 more than last year. With record-setting feeder cattle prices, and the country’s cow numbers at the lowest levels since the 1950s, beef producers are eager to expand.

Cattle farms are expanding, and they are spending more to do so as high cattle prices bump up the price of replacements. Both cow-calf and stocker producers are rebuilding herds in Texas, the country’s largest beef state, where beef numbers declined by more than a million cows after earlier drought. Cow numbers are noticeably increasing in East Texas, which is ahead of West Texas in drought recovery.

“With high cattle prices, our producers seem more willing to put money into their herds,” said Jason Cleere, Texas A&M Extension Beef Specialist. He said spending seems to be focused on inputs protecting a herd’s production value, like nutrition and animal health expenses.

Cow-calf producers in Texas, as elsewhere, are riding an unprecedented wave of high feeder cattle prices, and feed and forage costs are moderating in most places. “August through November feeder cattle futures have all exceeded the $200 per hundredweight mark which was largely thought of as a resistance point,” said Andrew Griffith, University of Tennessee economist. Lower grain prices help keep feeder prices high. “It appears feedlots are willing to pay to fill up the pens,” said Griffith.

Cattle futures prices reached records during the week of June

10. Also that week, the USDA bumped down its already low 2014-15 beef production forecast to 24.48 billion pounds, a slight decline from the previous 24.63 billion pounds. Tight feeder cattle supplies should combine with cheaper feed to keep feedlots paying high prices for stocker cattle. The leading wild card for a softening cattle market is grain yields. “It would likely require a decimation of corn yields similar to 2012 to cause any significant decline in feeder cattle prices, since cattle numbers are the tightest since 1951,” said Tennessee’s Griffith. Producer expansion is also cinching the supply of feeder cattle headed to feedlots; as producers retain replacement heifers, those animals are excluded from the meat supply chain.

Regional differences are important; cattle industry analysts expect more aggressive expansion of cow-calf herds in the Plains than in the Southeast. The key factor between regions is the same as ever: the weather.

“We were dealing with widespread drought in 2012, and that led to higher hay costs, trucking in water, and other factors reducing net farm income,” said Jared Hofer, director of the South Dakota Center for Farm and Ranch Management. Cow-calf producers enrolled in the center’s Farm Management Program lost an average of $27.05 per cow in 2012, after direct and overhead expenses. Lower feed costs and higher cattle prices saw that average loss turn into a gain of $35.63 per cow in 2013. “And 2014 looks like it’s going to be a very good year,” said Hofer.

Farm finance experts note an important factor that could restrict more cash flow for some cattle farmers—especially on combination livestock/grain operations. “We saw a lot of new (grain) equipment purchases the last few years,” said Jared Hofer. “Loan payments are going to come due, a lot of people took early depreciation, and we anticipate some liquidity problems,” he said.

Still, anecdotes abound about cattle farmers finding it easier to spend, even this summer. “One dealer told me he is happy about these cattle prices, as some farms are already replacing equipment,” said Jason Holmes, Louisiana State University AgCenter Regional Livestock Specialist, based in Farmerville.

MATTHEW ERNST

“There are signs of good financial health on livestock and poultry farms—and signs that higher meat prices are stoking producer optimism.”


AGI Feature Story

PoultryPoultry is the segment of

the meat industry in which expansion is slower than expected. It is also where farm financial conditions may least reflect retail meat market trends. “The broiler industry is vertically integrated, so increased prices for chicken meat don’t automatically trickle down to increased prices received by the owners of chicken houses,” said Ross Pruitt, Extension economist at Louisiana State University AgCenter. Raises in the base prices paid to broiler contractors have been rare over the past 8 to 12 years, according to industry watchers.

This year, pullet availability has limited poultry expansion. “Weekly broiler egg sets continue to run slightly above last year’s numbers, but breeder placements remain constrained,” said Joe F. Sanderson, Jr., chairman and CEO of Sanderson Farms, Inc., ranked by WATT Poultry USA as the country’s third-largest chicken company. “It appears the reduced size of the breeder flock will constrain production over the short term, despite higher industry returns,” said Sanderson, in his May report to investors.

Processors will need either for current contract feeders to expand capacity or to recruit new contractors. Some farms with older, idle chicken houses have been asked to consider making upgrades; others are being recruited to build new houses. Sanderson Farms is moving forward with a new processing plant in Palestine, TX, and the company reports “sufficient interest from independent contract producers to provide housing for our flocks.” Another prominent southern poultry company, Peco Foods, will begin construction on a processing plant in northeastern Arkansas this summer. At least two other processors plan expansion, in the Carolinas and the Delmarva Peninsula, by next year.

As with pork and beef, meat trade and global trends are important gauges of poultry’s economic health. International demand for U.S. dark meat has reduced somewhat, but that has not noticeably affected profits as U.S. and North American demand support strong margins for U.S. poultry processors. In fact, a recent analysis by Rabobank International was bearish on all major global poultry

producers in the near term—except the U.S., whose poultry sector Rabobank gave a bullish outlook.

Since higher poultry processor margins may not quickly reach the farm level, poultry producer willingness to spend may hinge more on other farm enterprises. “Most of our chicken farmers near the Louisiana-Arkansas line are also cattlemen,” said Jason Holmes. “If it wasn’t for these high cattle prices, we wouldn’t see near the improvement (in farm financial conditions) that we’ve had.”

PorkThe headline-grabbing Porcine Epidemic Diarrhea virus

(PEDv) dominated pork media reports, overshadowing another story—record hog and pork prices, driven by domestic and international demand.

“April domestic demand for pork was up 6.7% compared to April 2013,” said Ron Plain of the University of Missouri in a June report. “On average, pork demand over the last 12 months was up 5.0%. Export demand for U.S. pork was up a whopping 37.6% in April, compared to a year ago.”

Strong demand and record prices created record pork profits during 2014. “The pork industry is in the midst of record profits in the second and third quarter of this year, with profits for those not strongly impacted by PED-V over $70 per head on average for the


Feature Story AGI

six month period,” wrote Chris Hurt, Purdue University livestock economist, in the University of Illinois’ farmdocdaily blog.

PEDv losses are real; the USDA’s pig inventories for March, April and May showed a 3.6% decline in pigs 50 pounds and heavier with a 5.5% drop in slaughter numbers. But the industry compensated by sending heavier pigs to slaughter, so much so that first-quarter pork supply increased by 0.2%, according to USDA. That will not hold up through the year; USDA forecasts a 2.3% drop in pork production for 2014.

Purdue’s Hurt expects profits to decline to $40 per head in the final quarter 2014, with a $20-per-head profit estimated through September 2015. Lower feed prices aid pork profitability, and bumper corn and soybean production could further reduce costs. Some pork industry analysts warn overexpansion could result in excess supply in late 2015, especially as the poultry industry expands. And some uncertainty lingers regarding potential long-term effects, including recurrence, of PEDv.

Meat market round-upCattle and hog farmers are making money, and farms are

recovering from drought and disease to capture profits. Meanwhile, both pork and beef sectors watch the poultry industry as it poises for expansion. At the risk of sounding overly simplistic, for the rest of this year, the best predictors of livestock

producer moods and willingness to spend may be the same as ever: grain markets and the weather.

At press time, analysts project record U.S. corn yields. That can only be good for livestock production, where profits can rise and fall on corn costs. Soybean stocks remain tight globally; a robust U.S. soybean season, with any steadying to lower meal prices, also bodes well for meat industry profitability.

Forage production and hay quality, important for cow-calf and stocker cattle producers, also turn on the weather. Heavy rains in some regions worried farmers in June, but optimism prevailed in most of corn country. In the West, precipitation came too late for much of the wheat crop but soon enough for improved early summer pasture quality. Still, pockets of severe drought remain, which will affect some cattle ranchers in the Southwest, in Colorado and on the West Coast. Even in the age of instant information and market analysis, this winter’s livestock farm spending may best be gauged by local conditions in the field and from the sky. AGI

Matthew D. Ernst is a writer and analyst who focuses on agricultural and horticultural issues. Currently based near St. Louis, MO, he has written for several land grant universities, Farm World, and other national and regional agriculture, gardening and business publications. To reach Mr. Ernst, call him at (636) 751-0231 or email him at [email protected].

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Feature Story AGI

PRODUCT LIABILITY RULING WEAKENS SUBSTANTIAL MODIFICATION DEFENSE

In product liability litigation, one of the strongest defenses a manufacturer

can offer is that the plaintiff, or someone else, substantially modified the product after it left the manufacturer’s control and that this modification proximately caused the accident. However, the strength of this defense is affected by whether the modification was “reasonably foreseeable.”

Many courts have held manufacturers not liable for employee injuries caused by an employer’s alteration of safety devices on the grounds that it constitutes a “substantial change.” Other courts have concluded that the change was foreseeable and refused to relieve the manufacturer of liability.

Robinson v. Reed-Prentice

In 1980, the New York Court of Appeals issued one of the best decisions for manufacturers on this subject. Reed-Prentice sold the plastic molding machine to the plaintiff ’s employer, Plastic Jewel, with a safety gate installed. If it had been intact at the time of the accident, the gate would have prevented plaintiff ’s injury. But Plastic Jewel cut a hole in the safety gate which “destroyed the practical utility of the safety features incorporated into the design of the machine…”

The appeals court said that the record contained evidence that Reed-Prentice knew, or should have known, that the employer could not use the machine for the purposes intended with the safety gate in place. In fact, Reed-Prentice visited the plant and saw two identical machines with holes cut in the safety gates. And, the employer asked Reed-Prentice to modify the gates and they refused.

At trial, plaintiff ’s expert opined that there were two modifications that the manufacturer could have made that would allow the employer to use the machine as intended without making the machine dangerous. In holding that the plaintiff ’s complaint should be dismissed, the court concluded:

Material alterations at the hands of a third party which work a substantial change in the condition in which the product was sold by destroying the functional utility of a key safety feature, however foreseeable that modification may have been, are not within the ambit of a manufacturer’s responsibility.

Since Robinson was issued in 1980, many courts, especially in New York, have ruled for manufacturers in cases in which the products were altered. Unfortunately, this favorable law was somewhat weakened by the same court in April 2014.

Hoover v. New Holland North America

The New York Court of Appeals, on April 1, 2014, decided the case of Hoover v. New Holland North America, Inc. In this case, the court was asked to decide whether defendants were entitled to summary judgment in dismissing plaintiff ’s design defect claims. This dismissal would have been based on the substantial modification defense articulated in Robinson. The court concluded that the plaintiff raised triable issues of fact concerning defective design and that these were sufficient to defeat summary judgment based on this defense.

The product involved a post-hole digger connected to a tractor driveline. The digger had several safety guards and shields made of durable high density polyethylene. It also displayed numerous warning labels advising users to keep all shields in place and in good condition. Likewise, the manual contains many

warnings to keep shields in place.

The digger’s owner testified that when he used the device, the shield and driveline would contact the ground, allowing the entire auger and part of the gearbox assembly to submerge into the ground. The manual instructed operators not to submerge the auger beyond the flighting because doing so could cause binding and overloading. Two to three years after the owner purchased the digger, the safety shield broke and was torn off due to regular wear and tear. The owner would continually reattach it to the gearbox. After four years of use, the owner decided to remove the broken shield from the digger and not replace it.

By Kenneth Ross

KENNETH ROSS


Feature Story AGI

On the day of the injury that triggered the lawsuit, the owner’s friend was using the device, and the friend’s 16-year-old stepdaughter was helping him. The digger’s rotating driveline snagged the girl’s coat and dragged her into the mechanism, severing her right arm above the elbow. All parties in the case agreed that the safety plate would have prevented the accident, had it been in place.

Defendant’s employees testified that it is a misuse to operate the digger without all of the shields installed and the farmer should have replaced the shield when it broke. However, the employees also acknowledged under oath that it was possible a user would not reattach the shield after it was removed. Of course, that could be said about any safety device—even one fully integrated into the product.

The post-hole digger manufacturer testified that, at first, it intended to use a metal shield around the gearbox but instead used a plastic shield. In addition, it testified that it never tested the plastic shield to see whether it could withstand contact with the ground because this was not considered normal operation. The manufacturer did not conduct field tests to determine how many times the shield could contact the ground before becoming damaged, nor did it perform any durability testing on the shield.

Defendants argued that they could not be held liable as a matter of law because the owner made post-sale modifications to the digger and that these modifications proximately caused plaintiff ’s injuries. The basis of this argument was the rationale in Robinson, too.

Plaintiff argued that the digger had two design defects and that the substantial-modification defense could not be the basis of a summary judgment motion. To support this argument, the plaintiff ’s expert argued that a safety shield must be designed to last the life of the product and to withstand foreseeable use and misuse and its environment of use. On that basis, the plaintiffs argued that the plastic shield was “inadequately tested” and “not reasonably safe.”

Plaintiff ’s expert also argued that it was foreseeable that the average farmer would not replace a broken shield, and therefore, the manufacturer should have implemented an alternative design, such as a metal shield, which was less likely to break.

At trial, the jury returned a verdict in favor of the plaintiff in the amount of $8.8 million. The defendant appealed verdict, and the Appellate Division affirmed the trial court decision. This case was then appealed to the New York Court of Appeals.

After reviewing the facts and holding in Robinson, the appeals court stated that a defendant will not automatically prevail on summary judgment “simply because that safety feature was modified post-sale.” Summary judgment is not warranted under Robinson, where the product was dangerous “because of a defectively designed safety feature and notwithstanding the modification by the third party.”

Differentiating the Robinson facts from Hoover, the court said that the owner in Hoover removed the shield because its functional utility had been destroyed, whereas in Robinson the modification was meant to adapt the product to meet the customer’s own needs.

The court said that, although they disagree with the argument that all safety devices must be designed to last the lifetime of a product on which they are installed, they do believe that defendants did not adequately refute plaintiff ’s claims that the shield failed prematurely.

The court summarized one of the defendant’s arguments by stating that:

Defendants urge that the owner of a machine is responsible for replacing all parts that become damaged or worn, including safety devices, and that a contrary rule would place an onerous burden on manufacturers to design accident-proof products that are incapable of wearing out.

The court responded by ruling that a manufacturer should not automatically avoid liability when the safety device is removed post-sale and not replaced because it would lessen the manufacturer’s duty to design effective safety devices that make products safe for their intended use and unintended, yet reasonably foreseeable, use.

According to the court, plaintiffs raised a question of fact as to whether the owner’s habit of driving the shield into the ground was foreseeable. Therefore, the question was whether this was truly abuse of the product which ultimately resulted in the shield breaking and being removed. The court affirmed the lower court ruling and upheld the $8.8 million verdict.

The dissent in this case referred to the majority’s opinion as a kind of “soak-the-rich fact-finding” and argued that, if the farmer who removed the guard had deep pockets, the jury probably would have held the farmer liable for the plaintiff ’s injuries. The dissent asserted that the holding in Robinson was clear and that the manufacturer should not be liable for dangers created by substantial alterations to the product after sale.

Reducing product liability risk

Manufacturers are not liable for misuse, alteration or modification of their products, unless these are “reasonably foreseeable.” But what is “reasonably foreseeable,” and what can a manufacturer do to mitigate its product liability risk?

While I can imagine a product user removing all of the safety guards and not reading the instruction manual and warnings, that doesn’t make it reasonably foreseeable. If it did, then no

Manufacturers are not liable for misuse, alteration or modification of their products, unless these are “reasonably foreseeable.” But what is “reasonably foreseeable”? And what can manufacturers do to mitigate their product liability risk?


AGI Feature Story

product could be reasonably safe if it relied on guards and warnings and instructions for safe use. Unfortunately, each jury and judge gets to decide what is reasonably foreseeable.

Manufacturers must anticipate some of these unintended actions and do what they can to create defensible evidence. An easy first step is to provide instructions and warnings to avoid misuse and operating without the guards. Next, if possible and practical, the safety devices need to be attached so they cannot easily be removed. The harder they are to remove, the less likely it is that someone will remove them.

In Hoover, the court didn’t like the fact that the shield manufacturer didn’t test the durability of a plastic guard versus a metal guard and selected the plastic guard because it did not consider submerging the shield as a normal operation.

If the manufacturer had considered contact with the ground as a real possibility and tested the plastic shield for such contact, I suspect that they would have sold the product with a metal shield. The owner still could have removed the shield if it got in the way of normal operation, but if it didn’t get in the way, and the guard was still operable, then the plaintiff ’s argument would have been significantly diminished.

In addition, safety shields, as well as virtually all parts of most products, don’t have to last the life of the product. The law clearly acknowledges that parts can wear out, either during normal use or under reasonably foreseeable circumstances.

Manufacturers need to design, manufacture and sell products that meet the needs of the vast majority of their customers. Adding unnecessary safety devices at significant extra cost does a disservice to careful customers and users.

Unfortunately, you must also consider and, within reason, protect the few users who will misuse, abuse and modify your equipment. How far manufacturers go to accomplish that is a critical decision, and they certainly should consult a lawyer when making that decision. In addition, manufacturers should document their rationale for the decision and any supporting analysis and testing they perform.

As with design decisions, you do your best to produce a reasonably safe product and then create evidence that will help defense counsel prove it to litigants and possibly to a jury. Then you hope that a judge and jury will agree with your position and hold you not liable. That’s all you can do, and, in most situations, that should be enough. AGI

Kenneth Ross is a former partner, and now Of Counsel, in the Minneapolis, MN, office of Bowman and Brooke LLP, where he provides legal and practical advice to manufacturers and other product sellers in the area of design, warnings, instructions, safety communications, recalls and all areas of product safety and product liability prevention. Mr. Ross can be reached at 952-933-1195 or at [email protected]. Other articles on these subjects can be accessed at www.productliabilityprevention.com.

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Legal Focus AGI

FIVE MORE THINGS NEVER TO SAY (OR EMAIL) TO YOUR DISTRIBUTORSTrent M. Johnson, Foley & Lardner LLP

In the Winter 2014 issue of Ag Innovator, I listed five statements that

manufacturers should never make—not orally, and certainly not in writing—to their distributors. Bringing the list to an even 10, here are five more things that manufacturers should never say to distributors, and the reasons why.

1. Your neighboring distributors will keep their prices up; I’ll see to that.

Making this statement could land you behind bars and incur a hefty fine for your company. The Sherman Antitrust Act makes illegal any “contract, combination . . . or conspiracy in restraint of trade,” and statements far more ambiguous than this one have triggered investigations by the United States Department of Justice. Sales people should be educated on this issue so that the alarm bell sounds loud and clear before they make statements such as this one. While complaints about discounters are a reality of the business, responding to them in writing is a bad idea. Even if you are concerned about discounters free-riding or cherry-picking, there are legal ways to deal with them.

2. All of the business in the territory will be yours.

This kind of statement touches on the issue of geographic exclusivity—i.e., whether the contract prohibits the manufacturer from appointing another distributor in a territory (an issue I plan to discuss at the Association’s Fall Convention). While geographic exclusivity still exists, many distribution contracts are non-exclusive and either contain a list of house accounts or allow the manufacturer to sell to anyone in the territory. More and more, OEMs insist upon dealing directly with manufacturers, which can result in a loss of profits for the distributor. If your sales managers make promises like this, you could be responsible for lost profits on the direct sales.

3. Why don’t you just stick to our prices. As long as you do, we won’t terminate you.

If your managers say this, you are “teetering on the edge” of illegality. The law allows a manufacturer to announce that it will not deal with distributors who do not follow the manufacturer’s suggested prices. However, it prohibits the manufacturer from attempting to induce a distributor to comply with those prices by agreement. If you have a discounting distributor whose

relationship you’d like to terminate, and your contract and the state law allow for no-cause termination, then go ahead and terminate, but do not coax, cajole or entice a distributor to keep prices at your suggested level.

4. Don’t worry— I’ll make sure you get all of our newest products.

Your distribution contract should contain a list of the products that you and your distributor agree comprise their product offering. The more specific you can be, the better. Ideally, you should identify specific product lines, series and/or models. But, if your sales managers make this promise, it could preclude you from selling cutting-edge or state-of-the-art products that manufacturers often desire to sell on a completely direct basis, or through some new distribution system.

5. Sure, that’s our official policy, but don’t worry—we never enforce it.

This is very bad. If something is important enough to be a stated policy, or otherwise included in the distribution agreement, then it should never be trivialized. If there are particular circumstances under which a policy need not be followed, then put the reasons why and those circumstances in writing, and make sure your sales people understand them.

The point of this article is to stress the importance of training your sales managers and other people in the field on the meaning of your distribution contract, how to communicate it, and how not to. If you haven’t done this recently, then do it soon. Ask in-house or outside counsel to present on these issues, to review the contract with your staff, and to caution them not to make any promises outside of the contract and your established policies. Doing this will help keep your company out of a courtroom. AGI

Trent M. Johnson is senior counsel with Foley & Lardner LLP in Milwaukee, WI. Members are entitled to 30 minutes of free advice with Trent Johnson on any mater dealing with distribution agreements, state buyback and warranty laws. For more information, contact the Association office at 314.878.2304.

TRENT JOHNSON

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LANDOLL CORP. CELEBRATES 50 YEARS OF INNOVATION

If Frank Capra were alive today, he might make a film about Don Landoll, the company he built from scratch, and the

positive impact that both have had on their community and industry. It’s an American success story that undoubtedly would have appealed to the director, who achieved cinematic acclaim, propelled primarily by his work ethic, determination and vision—much as Landoll has done within his own field.

At the age of 20, Landoll joined a partner in launching Quick Service Welding and began to design and build farm equipment, including a chisel plow and a livestock liquid supplement feeder, and hone other business skills, such as customer service and innovation. Three and a half years later, Landoll bought his partner’s half of the business, and the enterprise became the Landoll Corporation. There, at the facility near Marysville, KS. Don built farm implements for Case, introduced the SoilMaster, and invented and patented the traveling-axle semi-trailer and other parts and equipment.

The company grew and diversified, acquiring other entities and adding forklifts, scrapers, graders and seeders to its line of products. It also secured large, lucrative contracts with John Deere, Ford Motor Company and the U.S. government to make a wide range of products for agriculture, construction, transportation, defense, manufacturing and material hauling.

“We have not been without some type of government order or contract since 1984,” Landoll said. “Once we were approved as a General Services Administration (GSA) contractor, we discovered there is a demand for a wide variety of equipment and machines within the various branches of the government and military.” The company’s GSA customers have included the Department of Homeland Security, the U.S. Navy, the U.S. Forest Service and the FBI.

Securing such contracts allowed Landoll Corp. to invest in cutting-edge technology and brought Don closer to his goal of building the

country’s most advanced tillage factory. He installed plate laser cutters, tube lasers, CNC machining centers, a water jet cutting table, a fiber optic laser cutting machine, and more than 30 robotic welders.

“When you know you have a four-year government contract, you can justify buying new technology,” he explained. “You can use it for building tillage equipment, forklifts or what have you.” So when the time came to expand operations, “I set out to build the most modern manufacturing plant in America.”

Today, Landoll Corp. is a multi-million dollar manufacturing company and global supplier that employs nearly 1,000 workers

in 800,000 square feet of manufacturing space and markets products from five sales divisions. In 2013 alone, it served customers in 39 countries. Don Landoll continues to preside as the company’s owner and CEO.

Not content to rest on his laurels, Don also invested in the community that is home to his company and to much of its workforce. He and his company have contributed millions of dollars to various projects, including renovations to the Marysville airport, construction of a library reading park, renovation of a school and playground, renovations and additions to a church, and upgrading and expanding the local bowling center. Landoll made a substantial contribution to the city’s new hospital, and his airplanes transport patients to medical facilities for treatment.

Both Landoll and his company have won a number of awards for their contributions to the industry, the region and the nation. In 1991 the Defense Contract Management District North Central awarded Landoll Corp. a Certificate for Outstanding Performance as an Operation Desert Shield/Desert Storm contractor. In 1998 the Department of Defense Contract Management Command presented the company with a Quality System Qualification Certificate for its ISO 9001. Also in 1998, Don received the Ernst & Young Master Entrepreneur of the Year Award. The state of Kansas recognized the corporation’s marketing prowess outside the

Don Landoll stands next to the sign from his first business venture, which later became Landoll Corp.

Association president Marc McConnell presents Landoll Corp. with an award honoring its many years of innovation and its support of the Association.

Member Focus AGI


U.S. with the 2001 Kansas Governor’s Exporter of the Year Award.

Besides operating a successful business, Landoll became active in the Farm Equipment Manufacturer’s Association in the 1970s and served as its president from 1990-91. Ed Elstun, Association president from 1981-82, was treasurer when Landoll joined the Board of Directors, and the two men became acquainted at Association conferences and related functions.

“He’s a very friendly fellow, a humble person and a good pilot,” Elstun said. “He’s done a lot for Marysville, and the whole town respects him.” Elstun related how Landoll applied for a bank loan years ago to open the welding shop and was turned down. “Later, he became chairman of the same bank. But success hasn’t gone to his head.”

On May 30, to mark 50 years of innovation, growth, service and success, Landoll Corporation hosted a celebration at its facilities and at the Marysville Municipal Airport. The company invited employees, their families, business associates and area residents to an afternoon and evening of festivities that included a tour of its new parts distribution center, live music, modern and antique equipment displays, aircraft displays, stage coach and carriage rides, food and beverages, a variety of activities and prize giveaways, all culminating with a fireworks display.

Association president Marc McConnell presented Landoll with an award recognizing the company’s 50 years in business and 40+ years of membership in, and support of, the Association.

Other former Association presidents also paid their respects.

“As many shortliners know, operating a farm equipment manufacturing business in an isolated rural area and marketing to dealers and farmers far away, in equally isolated rural areas, presents a logistics challenge to providing a personal touch, “ observed John Tye of Lubbock Fastener Supply. “Early on, Don attacked the problem by using his own business aircraft to allow him and his key people to travel to many places quickly. As the business has grown, so has Don’s fleet of aircraft, still providing the ability to stay in touch.”

Tom Burenga, CEO of Worksaver, Inc., said, “Don’s been a great supporter of FEMA and an all-around good guy.” John McCoy, President of Orthman Manufacturing, said, “It is evident that Don’s understanding of design and passion for manufacturing have created something special here in Marysville. The Landoll Corporation story is one of greatness resulting from Don Landoll’s ingenuity, fortitude and vision.”

So don’t be surprised if Hollywood comes calling. AGI

On many pieces of equipment throughout Landoll Corp. facilities, signs such as this one attest to the owner’s commitment to investing in technology.

As part of the company’s 50th anniversary celebration, CEO Don Landoll leads guests on a tour of its new parts distribution facility near Marysville, Kansas.

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