Viewpoint
By Don Copenhaver, President

Financial highlights, director elections make MFA district meetings productive

Each spring MFA’s district meetings provide an excellent opportunity for MFA’s management and corporate board to interact with member/owners.

I encourage as many of you as possible to attend. This is your cooperative and your business. During these meetings, members of the management team explain MFA’s financial numbers and highlight important company offerings designed to help members in their operations.

In addition, director elections are held. The elections featured an extraordinarily qualified group of candidates. All of us owe a debt of thanks to those who ran for election. Voters were presented with great candidates. Two new corporate board directors were elected: John Moffitt (Kirksville, Mo., District 3) and Tim Engemann(Hermann, Mo., District 10). I’d like to welcome both of these individuals, again thank the others on the ballots and thank the membership for participation. In addition to the two new directors, incumbents Joe Dent (Humeston, Iowa, District 2) and Randy Ludwig (Jackson, District 14) were re-elected. Both of these individuals have done an excellent job of representing your interests in the past. I have full confidence they will continue to do so.

Stepping down after full terms of service on the corporate board were Michael Lorigan (Revere, Mo., District 3) and Stanley Hemeyer (Montgomery City, Mo., District 10). MFA’s senior management has worked closely with these individuals over the course of their terms. I have the utmost respect for their abilities. I can also say from personal experience that Stanley has the ability to ask the tough and appropriate questions. Thank you, gentlemen, for your contributions. You’ve made a difference.

The first 5 months of MFA’s fiscal year are reported during these district meetings. The timeframe is Sept. 1, 2006, to Jan. 31, 2007. Our presentation includes both wholesale and retail sales. Of course, as in your agricultural operations, January is one of the worst times to assess financial results. But it does give us the opportunity to put those numbers in perspective and to explain our targets. As always in midwinter, profitability is low or negative because asset levels are inflated by large stores of grain and inventory buildup in preparation for the spring season. Still, it’s a good time to interact, explain our strategies and learn which topics are most important to our customers.

Grain is definitely a bright spot this year in MFA’s operations. Dollar volume is up 60 percent to total $162 million. Bushels sold are up 36 percent to 34 million. Bean harvest in Missouri last fall was up 7 percent; corn harvest was up 10 percent; and wheat harvest was up 69 percent from 2005. And as all of you know, ethanol demand and hedge fund investments are creating a bullish price environment. With the expected increase in corn acres, the market expects stabilizing prices, assuming no weather-related crisis occurs. MFA’s seed bookings reflect that expected increase in corn acres, with a 69 percent increase in corn bookings and a 9 percent decrease in soybean bookings.

Our field crop sales are down 9 percent during the time being reported. Fertilizer sales were down in wholesale, but up 7 percent in retail. An open fall contributed to increased tons at retail. But the decline in wholesale reflects an industry-wide dampening in distributor sales. Offsetting this should be the increased corn acres, which should translate into more nitrogen movement this spring. We need the weather to cooperate for NH3 movement and to take pressure off possible urea shortages. Phosphates and potash tonnage should also improve as farmers seek to replace soil nutrients.

Crop protection products are up, but margins are down. Seed sales, though, are comparable to last year. And wheat seed sales are up more than 20 percent over last year. As explained above, corn bookings show dramatic increases.
Despite or maybe because of the harsh weather and dwindling hay supply, dollar amounts in livestock supply sales, including feed, farm supplies and animal health products, are up. Feed tonnage is holding steady with a year ago with dollar sales up due to higher ingredient prices. Farm supply sales and animal health sales show unit, dollar volume and product lines comparable to last year.

In all, MFA’s total net sales for the 5-month period are $397 million compared to last year’s $347 million. That’s a 14 percent increase that primarily reflects the increase in grain sales, with bushel and unit price both higher. Expenses are up 8 percent to total $57.7 million. One million of that is due to last spring’s tornado at our Marshall swine complex that left us with expenses and no revenue. People costs (wages and benefits) are flat at $29.5 million. But our largest single expense increase is in interest expense, up $1.6 million, due primarily to grain inventory. That leaves us with a loss of $3.1 million for the 5-month winter season. We expect to end the fiscal year with a reasonable profit.

As is traditional, we closely monitor our balance sheet measurements. Again this year, those figures are in line with expectations. We will continue to work on improving them and will continue to raise our benchmarks.

When all is said and done, MFA is a fiscally conservative business structured to withstand the natural cycles of agriculture.

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