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Fast train to China

KIMBALL -- Chuck Jepson is always in search of his next big project.

"When we go into an area, we say this is going to change the skyline for 50 years," he said.

Jepson, of Fort Pierre, is behind the construction of a $32 million grain-loading facility known as Liberty Grain located between Kimball and White Lake. The project is just one of several such facilities being developed in South Dakota. Once constructed, the facility will take in grain from farmers and load it on 110-car shuttle trains, mostly bound for West Coast ports.

As construction continues to progress, Jepson spends most of his workdays seeking other opportunities to build similar facilities.

"You just have to have a little bit of vision and a little bit of courage," he said. "The decision to build them is easy. The building is the hard part."

The large amount of capital needed to build and maintain these facilities can be hard to come by in rural areas.

"When you start looking at $20 million to $30 million projects, it becomes extremely difficult," he said.

Much of the money for Jepson's future projects will come directly from the profits made from facilities already in operation. He also works with BankWest, of Pierre, and Gavilon, a multinational commodity management firm based in Omaha, Neb.

"There is a lot of cash out there right now looking for a home, but it has to be a good project," he said.

Gavilon also provides Jepson with access to buyers overseas -- mainly in the Pacific Rim -- and facilitates the transportation of grain and other commodities once they leave the facility.

"It's very difficult to do business in China," he said. "Gavilon is kind of a go-between on that end of it."

Jepson said the driving force behind the growth of the grain-loading facilities in South Dakota has been the emergence of a middle class in countries such as China and India, and a resulting growth in demand for corn, which forms the basis of sweeteners, starch and alcohol as well as feed for livestock. That means big business for little, agricultural places like Kimball, population 703.

"We have a direct link to China out of Kimball," he said. "We're looking at some golden years coming up. Hopefully, it takes some of the peaks and valleys out of agriculture for the producer."

'Stars are all aligning'

Jepson estimated each of his facilities could have as much as a $300 million economic impact each year.

Because the facilities would only be needed for grain loading several months out of the year, Jepson said he would like to open them to other businesses as well.

"If somebody has a business idea and they need first-class rail infrastructure, all they need to do is pick up the phone and call and we'll work with them," he said.

He said these larger facilities are able to fully load a 110-car shuttle train with grain in about eight hours.

"We're able to do in eight hours what used to take three weeks," Jepson said. "They can bring us a train and we can have it loaded and going to the West Coast in 24 hours."

He added that the state's farmers will benefit from higher grain prices because of the capabilities of these new facilities.

"It's all about efficiency and speed," he said.

The Liberty Grain facility will have an upright storage capacity of about 2.2 million bushels of grain and will include three dumping pits that will handle about 60,000 bushels of grain per hour. The site will also feature a fertilizer plant capable of handling 40,000 tons of fertilizer.

Jepson said Liberty Grain's fertilizer plant will be the largest in the state.

"We should be able to bring in 80 to 100 train cars of fertilizer, which should keep the cost down in the marketplace," he said.

Liberty Grain is scheduled to open for business in October.

There are several other multimillion-dollar grain-loading facilities in the planning stages in the area by other companies -- Dakota Mill and Grain has floated a plan to build near Kimball, on the other side of town from Jepson's plant; Dakota Plains Ag Center hopes to build at Napa Junction, northwest of Yankton; and Harrold Terminal LLC has purchased land options near Miller for a facility estimated to cost more than $20 million.

Central Farmers Cooperative, based in Marion, began construction in June on a $23 million grain-loading facility near Lyons. The facility will be the first of its kind in Minnehaha County.

Jepson started Harrold Terminal in Harrold -- the same company now planning to build a facility near Miller without Jepson -- as his first grain elevator after working for three different fertilizer and chemical companies outside South Dakota.

Originally from Tea, Jepson graduated from the University of Sioux Falls in 1979 before beginning his agribusiness career.

He was appointed to the state Value Added Finance Authority board by Gov. Dennis Daugaard in July. The board provides financial assistance to the state's farmers and ranchers. It also administers a direct loan program for small agricultural processing businesses.

When Jepson began work in Harrold, he said he quickly realized if his elevator was going to compete, he needed to get into the export business.

"We knew right away it was going to work," Jepson said. "You could just tell right away farmers wanted to grow corn. It was obviously the most profitable crop they could grow."

In the Harrold area, farmers were transporting their crop more than 70 miles for export and more than 100 miles to the nearest ethanol plant before Jepson opened his grain elevator.

"The cost of transporting it was so high they weren't getting the economic benefit," he said. "By building these shuttle-loaders, we're bringing the economic benefit to the farmers."

Despite a lingering uncertainty in the national economy, Jepson said he is not worried about investing in the South Dakota agriculture industry. Commodity prices have been at historic highs, which is another factor driving development.

"The stars are all aligning in South Dakota right now," he said. "Now what we need is the infrastructure, and that's where we feel we can come in."

'Positive momentum'

Jack Davis, economics field specialist at the South Dakota State University Extension's regional office in Mitchell, said new grain-loading facilities capable of loading trains should help increase grain prices in South Dakota even higher.

He said the newer facilities could add as much as 20 cents per bushel of grain over older facilities only capable of loading trucks.

Davis said advances in farming technology allowing farmers to grow corn farther west than ever before have created the need for more of these types of facilities in South Dakota.

His only concern is the risk of overbuilding, which could result in these facilities not taking in what they need to survive if crop production declines.

"If normal weather patterns hold, I would say corn will continue to be king here for a while," Davis said.

Jepson is overtly optimistic about his work, but also recognizes the risk involved if the agriculture market hits a downturn.

"It would be a huge risk," he said of a market decline. "When you look at it, that is the risk and reward of the market that you take."

The benefits of these new grain-loading facilities could reach beyond their investors and local farmers.

Bruce Lindholm, the rail program manager for the state Department of Transportation, said the additional revenue generated by the buildup of these facilities could allow South Dakota's rail companies to fund repairs and improvements to their rail lines. The east-west line that will serve Liberty Grain is being upgraded now, thanks in large part to a $16 million federal grant.

"As the traffic increases, there will have to be solutions to some of the congestion issues," Lindholm said.

He added that traffic congestion on the rail lines has already become a problem at a few rail junctions in the state.

Jepson traced the start of modern rail development in South Dakota back to the early 1980s when the state purchased more than 1,300 miles of rail line after the lines were abandoned by the bankrupt Milwaukee Road rail company.

The purchase of the rail line was spearheaded by the late Bill Janklow, who was governor of South Dakota at the time.

"If (Janklow) hadn't saved the railroad, we wouldn't be doing this," Jepson said. "If we didn't have the base rail we do, we wouldn't have the opportunity to get the benefit we are now."

According to Lindholm, if the state had not purchased Milwaukee Road's rail line, it would have been abandoned.

The 189-mile stretch of railroad that runs past the Liberty Grain facility is still owned by the state and is operated by the Dakota Southern railway.

Standing in the way of even greater agricultural development is South Dakota's low unemployment rate -- 4.2 percent in December, seasonally adjusted, according to the state Department of Labor and Regulation. That makes workers harder to come by than in other parts of the country as a whole, which has an unemployment rate of 8.5 percent.

The search for suitable employees has been a hindrance to Jepson and other developers looking for the skilled workers needed to build and staff new grain-loading facilities.

"The employee thing is getting to be pretty tough," Jepson said. "I know a lot of people in the industry and they're having a tough time."

He said the skill-set required of workers at these modern facilities is not just manual labor, but can be quite sophisticated both logistically and technologically.

"We have employees who are handling contracting and origination from growers, and are merchandising to China," Jepson said. "There are jobs if you have the skill."

Jepson said he hopes the workforce initiative proposed by Gov. Daugaard in his State of the State speech earlier this month will bring more skilled agricultural workers to South Dakota and encourage more residents to get training in the industry.

"I would rather have them from South Dakota," he said. "If they've never worked here, it can be a tough transition."

In spite of the challenges faced when building such large and complex facilities in rural areas of South Dakota, Jepson is positive the results will speak for themselves.

"It's just good," he said. "I think you get some positive momentum going in these areas."