This episode of Outstanding in the Field welcomes John Christianson and Bruce Lichty of Christianson PLLP to focus on the area of profits slipping through the cracks.
John is both a farmer and founder of Christianson PLLP, an accounting and consulting firm based in Minnesota that was founded just over 30 years ago on the principle of solving problems for rural businesses and farmers. Bruce is the Systems Solutions Lead with Christianson, PLLP. His department focuses on selling and supporting software into the renewable fuels market, predominately. Prior to joining Christianson PLLP, Lichty also lead the effort to develop CINCH and Intellego.
Listen in as Christianson and Lichty share thoughts on future trends in the biofuels industry, from energy efficiency and the importance of CI (carbon index) scores, to the value of gaining a more lucrative type of RIN (renewable identification number) and the ever-expanding market for coal products. They also discuss the dynamic of their annual customer conference and the key services and products their current customers are taking advantage of in order to keep their profits from slipping through the cracks.
Mike Terning: Welcome to another episode of Outstanding in the Field. My name is Mike Terning. I’m the Head of Product with Greenstone Systems. In today’s episode, we’ll be talking about is your profit slipping through the cracks. In it, there are segments from my visits with a couple of different organizations that are in the grain processing area. One is a representative from a seed production company, and another set of interviews is with two individuals who specialize in renewable energy customers and clients. One of those individuals is the founder of Christianson, LLC, which is a service provider and software solution provider in central Minnesota. As well as the person who leads that software and services business, Bruce Lichty. So, I hope you enjoy this episode.
John Christianson: You know, how we’ve got involved and progressed in the renewable fuels industry and the ag industry is really by listening. Trying to listen to our customers because everything we do has come from our customers. They were telling us that they needed that. I’m not a software guy. I understand the importance of it, but as far as if we weren’t hearing that from our customers, we would probably never have initiated Intellego. We were hearing the need and the demand. Benchmarking, same thing. We have these customers out there in the middle of Iowa by themselves and thinking they were doing pretty good, but not really understanding how they were doing in relation to the industry. So that started the benchmarking. We thought, “Well, can we do this?”
We certainly had some bumps along the road as far as trying to get it going and initiated, but now we’re learning from the customers as far as refining it in accordance to what they’re looking for. That’s what we were talking about. Listening and that’s why we were at the user group is because our whole team was there to listen to them as well as far as hearing from them what they’re needing and what we can do and how we can improve the product or improve our service and respond to what they need.
Mike: Did you share any sort of future focus trends that you’re seeing within the biofuel industry?
John: The things we’re seeing right now is, and part of where I’m seeing this is we had the opportunity to do strategic planning sessions with boards of directors. So, we will have done a couple dozen of them over the last two years with boards and what they’re looking at. The industry is at somewhat of an apex where most of the debts are paid off in the processing plant themselves. They’re looking at where did we go from here. The industry as a whole is progressing, improving, big push on efficiency improvements within the processing plants. Increasing yield. Companies are committing capital to that so they’re committing capital to be more efficient, increase their yields.
There’s many projects working on energy efficiency and improving the energy efficiency on two accounts. One from just the economics of being more energy efficient, but secondly looking at their CI score, their carbon index, with the reduction of greenhouse gas emissions. Because that’s going to take them and that’s going to impact them on what markets they have access to with their carbon index score of their fuel. That’s something that because of what our clients were telling us—we do a lot of consulting with the EPA associated with RINs—renewable identification numbers—and helping them manage those and get to a more lucrative type of RIN that they could potentially get if they have a lower CI score.
Then also the low carbon fuel standard and access to those markets by reducing their CI score. So, there’s a lot of analysis around that side of the market and how do they get to those markets and does it make sense for them. Efficiency gains that are analyzed and worked on in the market at this point in time, and then that’s the efficiency side. Then there’s also the expansion of their markets. We’re probably seeing more of that in the coal products associated with the DDGs—distillers, dried grains, and solubles—where they’re going through different processes to end up with a high protein product that’s an end product for them. Or they’re pelletizing it into an aquaculture meal or some type of product that they’re going further up the value chain and creating more value with their coal products. And actually, developing markets with those different coal products. So, again, it’s expanding their breadth of the market.
Mike: Are there any certain areas where you see the capital investments being made to improve the efficiencies in particular? Or is it just kind of they’re looking at anything that can help them become more?
John: Efficiency gains are—And part of efficiency gains in particular, one is we do see where those gains are happening. One of the things, again that’s the outreach of this transition in the industry is that we are… I think we have four or five people right now that work full time on helping companies find funding. Whether it’s grant funding, different types of economic advantaged of financing for these types of projects through the Department of Energy, USDA. Fermentation technology as far as improving related to efficiency gains, we’re seeing the yeast and chemical technology changing. So just increasing efficiencies by the type of yeast that are being used and that’s progressed a long way in the industry in the last 15 years.
So, adding fermenters, adding—really de-bottlenecking plants. So, looking where’s our restricting factor. They’re just going through and adding technology associated with it when it comes to efficiency gains. The other part is that we’re at a point in the industry when a lot of the boilers are in that 15-20-year range. So, there’s a need for replacement of some of the major boilers that these plants have. Some of them are looking at combining heat and power. They’re looking at taking a lot of reducing—reducing their CI score and trying to add efficiency gains associated with those types of projects as well.
Jamey Cline could probably get more into the detail on the operations side and some of the things that—you know because he’s heading up a lot of the grant work that we do with plants and feasibility studies that they’re helping him analyze the economic impact of their efficiency gains. We’re starting to see… There’re a couple plants that have put wind turbines behind the meter. So, they’re using the wind turbines and they’re looking at solar. I don’t know if we have any that have done a solar project behind the meter where they’re just utilizing the solar. Again, the cost of solar coming down has made it worth looking at now at this point in time. The reduction of electrical cost is one thing, but the lowering of the CI score is probably as important when it comes to looking at those.
Mike: Yeah. That’s something that we hadn’t even talked about before is your grant writing service. As well as the RIN attestation service. So that’s another couple of key services you provide.
John: That’s true. We do a significant amount of RIN attestation work where they have to have an actual attestation associated with the RINs that they’ve used. It’s coming more we’re finding the need for the consulting services on plants looking for a… Give me a path to how do I maximize the benefit of this low carbon fuel standard? What do I need to do to get us into the position where our carbon index scoring is at such that we can monopolize on the markets with the low carbon fuel standard in some of those areas?
So that’s where we try to provide a pathway for them. Or if there’s a cellulosic portion that can come off. That’s some of the newer technology that come out where they end up with a stream of cellulosic. We’ve taken some of the germ from the corn and it ends up being cellulosic, which creates a D3 RIN, which is more valuable RIN that they can utilize. So those are some areas that they’re looking as far as how do we get through the technical aspects of making this happen.
Mike: So, in helping your clients make these decisions, what sort of impact does the information have on these decisions that might come from their existing, say, Intellego system or ERP system? What sort of impact does that have on that?
John: There is certainly a combination of that. It all starts with the data. We have to be able to understand where the level of plant is at. We do this all the time when we do a strategic planning session. Is it one of the things we say we can’t start looking at where we want to go until we understand where you are. So, the good data from Intellego, which is financial but also operational data that’s included, associated with it that we can pull out. The key is having the data, but can we get it out in a way that allows us to turn data into information. So, we’re looking at turning data into information that we make decisions off of. Otherwise it’s just data. So, if we can make decisions off of it, then we look at utilizing it. If we take that and we have it in our benchmarking system, now we can say how do you compare with your information to the industry and look where the opportunities are.
We sometimes run into issue or CEOs or general managers that are thinking I’m going to compare them. The only thing they can imagine is something bad is going to happen because we’re going to compare them against the industry. We really try to push the idea that no this is for you to see where the opportunities are with your plan. We want to make sure that you, as CEO, now you know the areas that you can work on and we want to help you get there and improve those areas. You can now have the data and the history here to show these great things you’ve done.
Mike: What sort of time do you spend personally on addressing these board of directors and the ethanol or biofuel market with your expertise? Speaking and consulting with boards.
John:Well some people think that’s all I do is talk. But I do more than that, Bruce. No. I spend actually, that’s one of my transition areas is I’m bringing other people into this strategic planning area. Now I don’t do all of the analysis when we have this done because the majority of the work that’s done with the strategic planning session with the board of directors is the work ahead of time. The questions that we’re asking the board and management and the analysis that’s done and the presentation and the data that’s put together, that work is done with the number of business analysts we have in the office. There’s two of us that come and deliver and facilitate a couple day session. I spend a good portion of my time on that type of work.
Then we do a number of presentations at industry conferences. Where we’ll take topics and we will talk about them at industry conferences. So, there are more people in our office that are a lot smarter than me that are presenting on specific areas and these other areas in particular.
Mike: So, John, when did you start your firm? How many years ago?
John: Well, it was 1987. So just over 30 years now. I have an ag background. I live on a farm. I'm actually active in a farming operation at this time. So that just was a natural place to focus the accounting firm was in the ag industry. I feel like most of the people here relate to the ag industry or relate to people in agriculture or relate to people who are growing things and was involved in the ag processing. One of the things that was a real excitement for me was to see a lot of economic development that happened in a rural area. There was all of the development that, I think the vast majority of the development that we are involved with. We’ve been involved in a lot of development of projects. That’s one of the things that we do. We help projects start from a green field and help them from a financial perspective work through the equity and the financing and get to operations. That’s our goal. To see that in a non-metro setting and to see in the rural development and the impact it’s had is very rewarding.
Mike: Yeah, we were driving here last night. I think we arrived in Wilmer about 11:00. Just to see all of the facilities with lights on.
John: Yeah, exactly.
Mike: Ethanol plants. You name it. It’s pretty exciting to see. Then you go south and there’s a lot of wind turbine farms down there now and solar farms are coming up. It’s fun to the see the rural investments being made. Is there anything else you’d like to leave our audience with today John before we let you get back to your day?
John: Some people look at the challenges in the ag industry, the challenges in the renewable fuels industry, and I think that the opportunities and the way those industries are going to evolve. Our best days are ahead and there’s all kinds of opportunities that we have yet to see and imagine in those industries. So, I am very optimistic about the future of ag, the future of renewable energy as we go forward.
Mike: Well, that’s great to hear. Well thank you very much for your time today John. I appreciate it.
John: Well, thank you.
Mike: Today I have the privilege of being out in Wilmer, Minnesota meeting with one of our key partners, Christianson CPA and Consultants. They’re headquartered here in Wilmer and with me is Bruce Lichty and our general manager Pat Mahapatra. Today we’ll be speaking with Bruce about trends that he is seeing in the ethanol market and other processing areas within the ag food industry.
Bruce, if you wouldn’t mind introducing yourself to the audience. They’d love to learn more about who you are and what you do here.
Bruce Lichty: Good morning. Bruce Lichty. Christianson, PLLP. I’m systems solutions lead for Christianson’s. That is a department that focuses on selling and supporting software into predominately the renewable fuels market. The base of that is ethanol. But we’re also now just venturing into ag software as well with the product Intellego for renewable fuels and CINCH for the general ag world.
Mike: You’ve been a long-term partner with us since the CINCH product was pretty much conceived. You helped conceive the product I believe.
Bruce: Correct. We were on the design team. At that time, I wasn’t with Christianson. I was with a previous company. The company that came together to develop CINCH and Intellego. I lead that effort.
Mike: Great. I think the last time that we visited was back in February. We talked a little bit about the customer conference you were going to have. I believe you had one in April with your Intellego customer base. Can you give us an overview of what happened there? What you learned and an overview of your agenda and such.
Bruce: The agenda really pretty much is very similar every year. We go over what’s new in the product. John Christianson kicks off the entire thing with his views of what’s happening in the ethanol. Where it’s going and what the future looks like. Then we go through the product and what are the new features. What is relevant to the people in the room. The attendees are typically the accounting staff. We do have marketers that attend as well, but majority are the accounting staffs of the ethanol plants that attend.
We go through the product and what is new. We then have a breakout session where users take an hour and critique us for the year. We’re not present. They say what we could do to improve. That’s the key of that hour for us is them bringing forward what we can do to improve their lives and support, et cetera. After that, then we go into agenda items that are requested by our clients. We send out early on. We’ve got a steering committee. We work with them and then we work with our entire user base and they bring forward different features. So, they want to look at different parts of the product. Different features in the product and how they use it. So that chews up quite a bit of the day. Then we have what we call one on one sessions and that is where clients sit with one of our teammates, one of our technical people, and ask specific questions. This year, it was a lot of high requests for MR, which is a report writing tool, dynamics GP.
Mike: Management reporter? Is that what it is?
Bruce: Right. So, they bring forward some reports that they’d started or some design that they want and then we’d sit down with them and help them get it laid out or whatever and move that forward. Then we have a great dinner. Very great dinner. The following day, again, we have more sessions that are requested by our clients on different parts of the product and third-party products. It’s funny. We don’t own the product, we just resell it. When we talk about third party products, we don’t talk about Intellego. We talk about add-ons. I mean Intellego is so much a part of what we do we feel it’s ours. There’s a lot of connected tools that people use to go through those different tools that they can use.
Then the other probably extremely important part is where we just have an open forum and clients talk about issues that they have and bounce ideas off of other users. Then they get together and talk about how they solve different problems. So, we’re in the room for that. Then we throw in our two-cents worth of how they could do things a little bit different. So, it’s a really great exchange of information between clients on how they use the products to perform that same type tasks or measure their business processes and consider changing their processes to take advantage of how other clients are doing it. So that, in a nutshell, is pretty much the two days that we spend with them.
Mike: Okay. Roughly how many of your clients were there?
Bruce: We had 60 all in attendance, and probably out of that I’d say 40 out of our 75 companies. Pretty good attendance. I’d like to have more every year, but we seem to come out with the same number even though we have some plants that one year they might send four people and the next year they might send one. Some years they might not come at all depending on what’s going on at their plant. It’s about the same every year.
Mike: Sure, okay. So, based on some of the priorities that they were discussing with you based on their round tables and idea sessions and such, what particular challenges are they dealing with that are prompting some of the ideas that they have for the Intellego product? Did you notice and predominate themes related to their businesses?
Bruce: Well, I think a lot of what we talked about this year pretty much lines up with the enhancement requests that we already have into reinstalling our Cultura. In-bound load orders is really high on the list. That’s more about food safety than it is anything to do with ethanol. EPA hits the ethanol industry very hard on regulations. It probably roles them out there first. We can all guess why that might be, but that’s just the way it is. Knowing what’s coming in, scheduling what’s coming in was extremely important. Then all of the other information that’s required and is part of the Food Safety Act is very important. So that’s high on their list.
Forming a cooperative was really high prior to the ethanol conflict, but that went away. So, we didn’t have to deal with that mess, but there was still a lot of discussion and irritation around that. Other than that, I think it’s just continued making the product more efficient for them. I always want to cut down on the number of key strokes or the number of mouse clicks or whatever. Being able to do things in mass and anything that makes it more efficient.
Mike: Making it easier to get information into the system and out of it.
Bruce: Right, yep.
Mike: One of the services that we’ve spoken about in the past that you provide here to your client base is you have a benchmarking service. So, you have a number of clients that… Well, just tell us about it. Give us an overview of your benchmarking service.
Bruce: Well, the benchmarking service… Golly. I wish I’d have known you were going to ask this question. I’d get the updated numbers. I’ve not looked at them for a while as far as the clients. We have a majority of the ethanol plants that are part of the benchmarking service, which is critical for benchmarking product. You can’t have 2 out of 200 and have a benchmarking tool. It’s very, very in-depth as to the information that we gather from the technologies and the design and development of the plants, so we can compare technologies together and technology against technology. Their operations and business processes. Their costs. Whether it’s energy or whether it’s commodities. Their pricing. Who they market with on sales, how do they acquire? Do they do their own contracting? Do they come through brokers or terminals or elevators? So, it really compares the entire financials, I guess you’d say, and operations of the plants to measure how they do against each other. It’s anonymous. I mean they can’t go plant to plant, but they can carve up regions of the country.
Mike: Are the benchmarking clients all Intellego customers or do you have—
Bruce: No. No. We have quite a few Intellego customers, but it’s across the industry no matter what their back-office software is.
Mike: Okay, alright. So, they provide you with a trial balance from the accounting system primarily.
Bruce: Right. They actually, the data is entered into a website and I don’t know. I know for Intellego we can create that report and export it. I think almost all green packages out there should be able to do that same thing. But they can run their own reports and hand it to the director or however. The margins are so dependent on the cost of corn. Then the ethanol price. So, it’s not so much are the margins similar because in some cases yeah, they are somewhat similar because prices of each are fairly standard across the country. But it’s the small percentages of margin that different plants can carry through high cost of corn, low price on ethanol. Continue to have those margins is where we really look what are they doing differently.
Mike: Are there any certain characteristics of the operations or certain plants that generally provide that small percent over the standard?
Bruce:You mean other than running Intellego?
Mike: There you go. I kept circling you on about that. That was unprompted.
Bruce: I get it. I mean you’re making me work here. I might as well get a commercial in, right? I really don’t know the answer to that. I know there are, but it’s a very small part of the firm that’s privy to that information. It’s held very tightly. I know John speaks to it. We have a couple other benchmarking people that speak to it or write specific reports to companies or groups of companies. We do a lot of work with boards of directors that we come down and go through the data with them. Make that information. It’s not generally known. We do have an annual report that is sent out to the participating plants, so they can see the general part of it then they can use the application to do their whatever’s.
Pat: Bruce you mentioned what if’s. So what kind of what if’s scenario analysis are they doing?
Bruce: Commodity pricing, energy pricing, marketing strategies, marketing, marketers. What kind of margin they get from different marketers. Should they switch marketers? Should they do their own? What are the qualities, the commodities when they purchase from terminals versus quality when they purchase directly from growers? What are the yields from those different qualities?
Mike: A little bit too about your business. It’s really a full service that you can provide to your clients from if they’re thinking about building a new plant or expanding. You can help them do the analysis for that. Greenfield projects then all the way through implementing the Intellego system then helping them afterwards with not only benchmarking, but you do have attestation and auditing services.
Bruce: Correct. Right. We’re a full CPA firm. We provide all services for Wilmer, Minnesota and people within Wilmer or right around Wilmer. For the most part, we’re normal CPA firm that provides all services to all businesses and individuals. In the renewable fuels industry, then we have a lot of other services that aren’t normal for a regional CPA firm that are focused on renewable. Businesses in general. Predominately we are renewable fuels, but we do the same services for other startup businesses and provide these services. Energy and renewable energy are our key.
Mike: Another thing I was going to just ask you as well is in terms of the—There’s some new technology, maybe it’s not new, but that some of these plants are handling in terms of their raw corn stock coming in. With this product that I believe that Syngenta provides called Enogen. Are most of your clients using that technology?
Bruce: I don’t think we could say most of the clients. I know that we have had different clients test and run and use, but I don’t think you’d say the majority of them are continuing to use the product.
Mike: So, to give the audience an overview of what Enogen is, the characteristic of that corn product is. It’s a GMO, right?
Bruce: Yeah. It’s a GMO. It’s engineered for a higher yield of ethanol, so you can use… You don’t grind 100% of Enogen, but you blend it in with your other corn. And with the characteristics, you get a higher yield of ethanol. So, you should, in theory, be able to lower your cost if you use Enogen corn. It has… I know when we were dealing with it, we were paying a premium to growers for the corn. But it also has an effect on sales, not only on the ethanol side but the distillers as well because it no longer because useable for cattle feed or livestock feed. So, there’s some issues there as far as cost margins and using it. There have been discussions on the pros and the cons. It’s not part of what I do on a daily basis, but I do get a little leakage from overview or discussions from things we do within the rest of Christianson’s or from our client base that we talk about.
Mike: That probably plays into that first topic we talked about with food safety and kind of the need to preserve where the Enogen is going in and being stored in the plant and how much gets blended in. So that relates to, I would assume, a few of the requests that your customers have made relative to the product as well.
Bruce: Definitely. If you are using Enogen, you certainly have to bring those loads in when you need them. You drive by ethanol plants, as I’m sure a few of you. We’re out in the rural area, you drive by ethanol plants, and you can see their storage systems that are probably one big bin. Sometimes multiple. But it’s not a great way.
Mike: It does add some complexity to originating and storing and managing. Like the said, the trade off as well. More efficient and better yield on the ethanol, the primary product, but co-product impact. Are there any parting thoughts you’d like to give our Outstanding in the Field listeners today before we conclude?
Bruce: I mean you surprised me with this. So.
Mike: Yeah, this was unrehearsed to let you know.
Pat: Well, those are usually the best episodes aren’t they.
Mike: Generally. How could the audience reach you or find more out about Christianson?
Bruce: Christiansoncpa.com. Facebook, Twitter. Everything is just Christianson PLLP.
Mike: Alright. And the Christianson’s is with an O not an E, right?
Bruce: Yeah. It’s I-A-N-S-O-N. I mean there’s a lot of ways to spell Christianson, but if you’re struggling with inferior software, give me a call.
Mike: Alright, great. Well Bruce, we appreciate your time today and sharing more about your business.
Bruce: Good. And where do I send the invoice to?
Mike: You can send that to Pat. Alright thanks again Bruce.