MFA Incorporated’s fiscal year reflects a solid year and opens the door for the cooperative’s 100th anniversary
MFA celebrated more than the end of another fiscal year on Nov. 19, 2013. The cooperative focused its annual meeting on the fact MFA turns 100 in March 2014.
In his address to attending MFA members and guests, MFA president and CEO Bill Streeter said, “The first highlight is that the company will have been in business for 100 years on March 10, 2014.” Streeter went on to name many of the milestones MFA has met along the way. From the formation of creameries, produce exchanges, grain and fertilizer facilities to the modern and high-tech efforts of today’s MFA, Streeter’s list revealed your cooperative as a strong force in agriculture both past and present.
Streeter finished his address by offering the members in attendance his vision for the path forward:
We want to be a company that provides excellent customer service. We want to be a business that develops excellent company culture. We want to hire the best people and ensure that knowledge is passed on from one generation to the next. We want a company and a group of employees that display a positive attitude and accept the responsibilities of their results. We want to develop simple but effective business strategies that meet the members’ needs. We want to create a financial road map and have the discipline to follow it. We want to challenge ourselves to change our business processes if what we are doing isn’t working. We want to develop and implement effective marketing programs. We want to provide constant training—agriculture is a changing business, and we must change with the times. We want to develop and adhere to a risk management program, but we will not fear calculated risks when clear and positive outcomes are in mind.
We will never lose sight of the fact that this is what we’re about: serving the farmer at reasonable returns.
Streeter closed by noting that MFA is the oldest regional farm supply and marketing co-op in the United States and asking MFA employees and members to join him in ensuring the cooperative is still serving farmers 100 years from now.
MFA’s CFO, Ernie Verslues, reported that MFA’s net profit for the fiscal year was $15.4 million compared to $22.3 million in 2012. Total sales for the year increased to $1.45 billion, an increase of $38 million from the previous year.
Grain sales for 2013 totaled $530 million compared to $543 million the previous year, a 10 percent decrease. Actual bushels sold were down 9 percent compared to a year earlier totaling 54 million bushels.
“As always, grain sales are driven by weather. It sets both volume and value,” said Verslues. He noted that 2013 volume was impacted by drought over a large part of the MFA trade territory, which pulled yield down as much as 15 to 20 percent.
MFA originates grain in northeast Arkansas, south central Iowa and southeast Kansas, but the state of Missouri is the largest geography for the cooperative’s grain operations. While Missouri corn and soybean harvest was affected by significantly dry conditions in 2012, MFA held onto a very good marketshare of the grain moving in its territory.
Field crop sales (plant food, seed, crop protection products) produced revenues of $744 million in 2013 compared to $683 million the previous year. “You’ll notice a very good growth trend line here,” said Verslues. He pointed out that in the past two years, field crop sales have grown by 33 percent.
MFA sold more than 925,000 tons of plant food in 2013, with volume reaching $479 million.
Crop protection volume was increased by 23 percent over 2012, reaching $89 million. In today’s cropping environment, growers are spending more to make sure their planting investment succeeds. Add-on sales fungicides, seed treatments, adjuvants and other plant-health boosting products account for a considerable part of crop protection growth.
Seed sales increased by 17 percent in 2013. Soybean seed sales reached 896,000 units. Overall, soybean sales have increased 10 percent in the past two years. Seed corn sales reached 124,000 units, contributing to a 14 percent increase for corn over the past two years.
Livestock supply sales (feed, farm supply, animal health and livestock marketing) totaled $174 million in fiscal 2013. Looking over a four-year period, livestock supply sales remain flat. “Animal numbers have declined over this time period,” said Verslues, “In fact, estimates show we haven’t seen levels this low for more than 50 years.”
Verslues said from a feed standpoint, however, sales figures are impacted by commodity values. “A better comparison of performance is complete feed tons,” he said. Verslues pointed out that 2013 complete feed tons sold were at the same level as in 2010, at 325,000 tons. While tonnage sold grew slightly to 335,000 tons in-between those years, the general flat sales are indicative of a shrinking feed market. With herd reduction as severe as it has been in recent years, flat tonnage sales actually indicate market share growth.
Financial pressure on livestock producers and herd reduction also took a toll on the animal health and farm supply components of livestock supply sales. High feed costs consumed more of producers’ budgets, re-directing funds away from animal health and farm supply products. Both saw sales reductions of about 8 percent in 2013.
Livestock Supply also includes a line for “other sales,” which includes hardware, lumber and miscellany. Sales for that category totaled have remained steady, approaching $11 million.
Margins and expenses
Product margins, service revenues, joint venture earnings and patronage combined for $205 million. After a couple years of solid growth, this represents a leveling off.
Looking at those margins by segment, Verslues pointed out that grain margins and revenue were down due to reduced volume of grain moving in the trade territory. Likewise, volume and margins in livestock supply were down, reflecting pricing pressure and reduced volume from a smaller herd.
Crop input margins reflected growth in line with the sales increases from a year prior.
Income from joint ventures including AGRIServices of Brunswick, Cache River Valley Seed, Central Missouri AGRIService and Mid-State Seeds operations totaled $4.6 million in 2013 compared to $7.7 million in 2012.
Patronage in regional and other cooperatives including AGP and MFA Oil Company were up slightly from a year ago.
Fiscal 2013 also included a $1.1 million gain on the sale of the Marshall Research property and its hog operations. In the past three years, MFA has moved from owning hogs to a contract operator to selling the entire facility. MFA is no longer in the hog business.
Expenses for 2013 totaled $190 million compared to $183 million in 2012 and $174 million in 2011. A third of that increase is attributed to new locations.
Verslues said that each year there are three categories accounting for about 75 percent of operating expenses—car and truck expenses; repairs and maintenance; and personnel costs. As has been the trend, higher fuel costs, employee merit pay increases and facility improvements are the main factors for these expenses. Verslues said that agriculture remains a capital intensive industry, but that, “we will always strive to have facilities that look good, equipment that is reliable and competent and energetic employees.”
Fixed expenses (depreciation, insurance, interest and taxes) have declined by 27 percent in the past two years. Verslues said the decrease is attributed to larger amounts of producer prepay activity, an increase in unsettled grain and favorable interest rates from improved financial conditions.
The income tax expense for MFA decreased to $3.9 million for 2013 business. It was $4.5 million in 2012.
Investments (MFA ownership in interregional cooperatives, joint ventures and deferred assets) totaled $47 million this year compared to $45 million in 2012. MFA’s investment in joint ventures continues to perform well over time.
Fixed assets (land, buildings, equipment and certain rolling stock) totaled $90 million compared to $87 million the previous year, an increase of $3 million. After reduced capital expenditures in 2010 and 2011, MFA continues to dedicate significant capital to upgrade facilities and equipment as well as acquire assets in new geography. Overall, capital expenditures were steady from the previous year at $23 million, with the bulk of the category spent on ongoing operations.
Total assets have been on a flat trend since 2009, on average slightly less than $400 million. Fiscal year 2012 was an exception to that rule due to an early harvest that drove grain inventories up significantly. For fiscal year 2013, total assets were $412 compared to $506 million for 2012.
Long-term debt includes term loans with CoBank and MFA’s bond program. There has been a general increase in the bond program in recent years. Verslues pointed out that the bond program gives MFA access to long-term non-bank financing. MFA members and Missouri residents have invested considerable cash in MFA during the past three years. Verslues pointed out that in the current economic conditions these bond investments have resulted in interest rates that are favorable for MFA and returns on investment that are favorable to bond holders.
“We don’t promote the bonds,” said Verslues. “Most of the sales have sought us out. This growth shows these investors have a great deal of confidence in the company. The bonds are unsecured.”
Net worth increased in 2013 to total $142 million compared to $133 million the previous year. “Net worth is another good trend line back to 2009,” said Verslues. This amount reflects the amount of the company owned by farmer/members. As of Aug. 31, 2013—the end of the fiscal year—ownership was 34 percent.
“While the level of ownerships continues to improve,” said Verslues, “our target is 40 percent.”
“Thanks to the continued support and patronage of you, the members, MFA has enjoyed a string of three profitable years,” said Verslues. “The result is a stronger balance sheet. The company recognizes this, and our lenders recognize it. Profitability allows the company to withstand volatility in the market place, and it allows us to take advantage of opportunities that arise.”
For the first time since 2008, MFA will pay patronage. Verslues said MFA by-laws stipulate that patronage is paid on tax earnings. For MFA in 2013, total pre-tax earnings were $19.3 million. Of that, $3.5 million was non-patronage income from joint ventures, which is not eligible for distribution. Some $5.9 million of the total was from patronage-sourced business done with non-members, which isn’t eligible for distribution. There are tax adjustments of $3.8 million (of which $2.1 million was net operating loss carryover, which is now exhausted).
Thus, of the total earnings, there is $6.1 million available for distribution to members. The board voted to make patronage distribution of that amount.
Cash patronage will be paid at 75 percent of the total ($4.5 million). The remaining 25 percent will be in allocated equities.
Verslues said that the board also voted to retire $2.2 million in back equities—100 percent of both 1977 and 1988.
Total cash back to the member/owners of MFA will be $6.7 million. Wholesale patronage and equity retirement commenced in December 2013. Retail patronage and equity retirement started in January 2014.
FULL 2013 ANNUAL MEETING COVERAGE HERE . . .
Record turn out at MFA's Annual Meeting
This year's annual meeting kicked off MFA's celebration for the upcoming 100th year. The business meeting convened at the Missouri State Fairgrounds in Sedalia and began with the National Anthem performed by the 2013 Miss Missouri, Shelby Ringdahl. Missouri Governor Jay Nixon and Senator Roy Blunt both spoke briefly to commend MFA. Chairman of the Board Don Mills and President/CEO Bill Streeter spoke at the event as well.
The event culminated with recreation of the historic original panorama image of 1914. Click HERE to view a zoomable, taggable printable version of both images.
CLICK FOR BILL STREETER'S ADDRESS
CLICK FOR DON MILLS INTERVIEW
CLICK FOR JAY NIXON & ROY BLUNT TALKS
CLICK TO VIEW EVENT SOCIAL MEDIA
CLICK FOR A PHOTO ALBUM OF THE EVENT
CLICK TO VIEW THE INVOCATION VIDEO