MFA:VIP

At MFA's annual meeting in Columbia, Mo., Nov. 27, 2007, Don Copenhaver, President and CEO, highlighted MFA's positive financial results. Following is the text of his presentation.

Our theme this year is: MFA:VIP. Typically VIP identifies a very important person. Our use of it embodies Vision, Integrity and Passion—the key components of good leadership. Vision is foresight and wisdom in planning. Integrity is honesty and incorruptibility, and passion is strong emotion and great enthusiasm. These characteristics define MFA.

MFA is blessed with talented people who go out of their way to provide outstanding service to our customers. That’s the passion we refer to in our theme. It is our job to recognize the needs of our customers and to provide solutions for those needs.

This past year, our financial results were good; we posted good results from our joint venture operations. We enjoyed good results from the grain side of our business. Fertilizer volume was up substantially. Corn acres were up nearly 30 percent, contributing to the increased fertilizer volume.

Fertilizer prices
I do not have to remind you that we are experiencing unprecedented fertilizer prices. The price keeps going up, but demand has not slowed. To justify investing the money required to plant corn at today’s fertilizer values, you need $3.50- to $4-per-bushel corn. However, if you are a livestock producer, this is not necessarily good news, especially with no guarantee of adequate milk, cattle and pork prices.

Unfortunately, the fertilizer manufacturing industry has continued its consolidation, creating a situation in which a few major players control production. When demand starts to soften, they simply curtail production to keep prices from falling.

So far demand has not softened. The needs of the biofuels industry have increased corn acreage. There is huge world demand for fertilizer. We simply have a tight supply, which causes today’s high prices.

Another factor not helping is an outdated tariff on nitrogen products produced in Russia and the Ukraine. This past spring, Congresswoman Jo Ann Emerson, (R-Mo) and Congressman Marion Berry (D-Ark) introduced legislation to remove import duties on urea coming from these countries. They have been subject to a 68 percent duty since 1987. Unfortunately, the move was unsuccessful.

Years ago, these tariffs were designed to protect domestic nitrogen producers. But with fertilizer values of today, domestic producers do not need that protection. As I understand it, there are renewed efforts to fix this. But once rules are put in place, it is almost impossible to remove them. These dynamics not only have increased your input costs significantly, they have raised MFA’s working capital requirements. That raises the cost of doing business.

Financial implications
When you consider grain values of today and add the unit values of fertilizer, MFA’s working capital requirements increased by well over an additional $100 million this past year. At times we were tying up more than $200 million in inventories and receivables. At those levels of working capital, interest costs rise.

With all the focus on renewable fuels, I do not see MFA going back to working capital levels of years past. As a result, it is important that MFA continue to generate profitability to offset increased cost. Maintaining adequate profitability is important because we want to grow the company and continue to be a leader in providing service needs. Capital is required to grow the company and to remain on the leading edge of technology and services that our customers have come to expect from us.

We are also impacted by ever-increasing costly and restrictive government regulations that require huge amounts of capital for compliance. These dynamics determine what opportunities we can or cannot seize for growth. Therefore, we must exercise prudent business judgment as we look to the future. As in the definition of vision I alluded to earlier, we must use wisdom. After all, we have an obligation to you, our customer/owner, to make sure we use our available capital wisely. With the corporate board’s oversight, we will continue to do just that.

MFA’s corporate board of directors moved to pay patronage on last year’s member earnings, as well as retire some old equity. It is good that we can be in a position to return a portion of the earnings to those who made it possible. After all, that is what cooperatives are all about.

MFA Foundation Scholarships—50 Years
On another note, let me mention an important milestone that will occur in 2008. The MFA Foundation will celebrate its 50th anniversary in 2008. Over that 50-year period we have provided more than $10 million dollars in scholarships to nearly 10,000 graduating high school seniors in the market area MFA Incorporated and MFA Oil Company serve.

What other company can match that level of giving to our future leaders? Annually, we provide $2,000 scholarships to nearly 325 high school seniors throughout our market area. Our scholarship is one of the highest given at our local high schools.

The MFA Foundation scholarships are funded by interest income on investments of the Foundation and contributions from MFA Incorporated, MFA Oil Company and many locally-owned MFA affiliates. We are truly investing in our future leaders.

MFA’s corporate board
Let me say a few words about four members of your corporate board who will be leaving the board in March as a result of term limits. It has been such a pleasure to work with these individuals. I have tremendous respect for them. During their years of service, they have had to make some difficult decisions.

The primary responsibility of MFA’s board of directors is to provide governance for your cooperative. We ask a lot of them. They must thoroughly understand and approve MFA’s strategic direction. We rely heavily on the board for advice, strategy and vision. They make sure management lives up to the original purpose of why MFA was formed nearly 94 years ago—to provide economic benefit to its customer/owners.

I do not like term limits in a corporate board setting. The situation is different than term limits for elected public officials. MFA is the only regional cooperative that I know of that still has term limits. None of our sister regional cooperatives across the United States such as Southern States, Growmark, Land-0-Lakes or CHS has term limits.

With the consolidation in our industry, there are not as many farmers to draw upon for board service. Many of those qualified are already serving on boards and committees and simultaneously managing their farming operations. Plus, the complexity of today’s business environment means new members, no matter how qualified, need several years to become familiar with a company’s business units and operations.

I understand this is a governance issue that falls to the board and not management. A change would require an amendment submitted to our delegate body. Enough said. It’s a subject for another day.

Following are our members whose terms have expired. Bill McClure is from the Sedalia area representing District 8. He has served nearly 13 years on the board. Those of you who know Bill understand he is a quiet individual, but Bill analyzes everything and will ask the difficult questions. Thank you, Bill, for your dedication and your willingness to serve in this very important capacity.

Ted Sloan from Hamilton represents District 4. Of the current board members, Ted has served the longest. He served 14 years before the board was downsized from 30 members to the current 14 members. After sitting out a couple of years, Ted was re-elected in 1995. His combined service to the board is 26 years. His experience and common-sense wisdom have been an asset to MFA, especially during his service on the executive committee. I can assure you he was not afraid to ask tough questions.

I have heard of board members who rubber stamp everything management recommended. I’ve never met one. Certainly not Ted. He challenged management. We are going to miss you, Ted, even if those tough questions made some of us uncomfortable at times. Ted has been an inspiration to me. He helped me through some difficult times. Thanks, Ted, for the loyal support of MFA.

David Cottrill, our current vice chairman from Albany, represents District 1. He has served nearly 13 years. The last 10 years David has served as the vice chairman of the board and has also been a member of the executive committee. David is another individual who has the ability to analyze information and ask probing questions. He always put on his corporate hat when making a decision. Was it in the best interest of the cooperative? That was his primary concern. Thanks, David, for your willingness to serve and for what you have given to this company.

Lester Evans, chairman of the board from Lebanon, represents District 13. He has also served nearly 13 years on the board. Lester has served as chairman of the board for the past 6 years. It has been a pleasure for me to work with Lester over the last several years and especially in his capacity as chairman. He served in that role admirably.

Lester is a true gentleman who brought a wealth of experience. He has served on the Dairy Farmers of America corporate board as well as committees and boards of other organizations. He has served as chairman of the board for many years of the locally-owned MFA affiliate at Lebanon, with branches at Conway, Richland and Grovesprings. He served at one time as the presiding county commissioner of his home county of Laclede.

The list goes on. He was inducted into the Missouri Institute of Cooperatives Hall of Fame in 2006 for his distinguished service to cooperatives. That’s a great honor for which very few ever qualify. Lester is a natural-born leader. His strengths and wisdom will be missed. Lester, thank you from the bottom of my heart for all you have given to MFA.

All four of these gentlemen are solid individuals who have devoted their time and talents to this organization. They have played an important role in the success of MFA.

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