Viewpoint

Market Conditions

Written by Ernie Verslues on .

Not long ago, I came across an anecdote I thought was fitting, considering today’s agricultural marketplace. When the wind changes direction, the pessimist says it will never blow in the right direction again. The optimist assumes it will change and blow in the right direction very soon. The realist adjusts his sails.

MFA is a company of realists. Cycles are nothing new to agriculture. They come every seven to 10 years. Commodities and price are dictated by supply and demand. Good prices draw many participants. That adds to supply and hastens a new cycle.

How long the current cycle will last is a question all of us in agriculture are asking.

In last month’s column, I noted the ways plant foods and crop protection companies are buying market share or merging in response to the downturn. The downturn is making all of agriculture focus on efficiencies. We at MFA are no exception.

With this downturn, we are focusing on positioning our facilities to best serve our customers. To accomplish that, we are continuing to strengthen the company in a way that has been successful in the past.

While private businesses look to increase stock values, cooperatives like MFA look for efficiencies to help member/owners and strengthen the balance sheet. That simple fact keeps MFA from making short-term profitability decisions that can have harmful long-term effects. We seek efficiencies and acquisitions to spread operating costs.

We weren’t happy with 2016 profit levels. Still, these same market fundamentals remain. With those fundamentals in mind, I would tell you MFA will focus on managing balance-sheet strength to allow nimbleness when opportunity arises.

MFA continually analyzes its operations. Costs of maintaining facilities and equipment are increasing. As all of you well know, not too many years ago sprayers were $120,000. Today, new sprayers cost $250,000. That means maintaining modern, efficient facilities mandates ever larger expenditures, whether on your operation or at MFA’s retail presence. So it is imperative for MFA to be strategic in capital investments, wise in capital use and innovative in management structure.

Decades ago, MFA began a process of combining neighboring locations in targeted areas under one management group. It makes for more efficient use of facilities, inventories, workforce and equipment. The structure is an organizational improvement that continues to pay dividends. In fact, it has proved so efficient and effective that we have continued to expand the number of groups.

MFA currently has 30 management groups. These groups allow us to do several important things extremely well. First and foremost, the structure allows better customer service. Many times, by including equipment under one management structure, we can make more effective use of equipment.

We can position resources in the places that make most strategic sense. When a spot shower in one area prevents field work, equipment and personnel can be diverted to neighboring locations.

The structure also allows improved management training. It deepens our pool of managers and allows young managers access to the knowledge, experience and practices of an experienced manager.

The general managers of these groups typically have many years of service in retail agriculture. They can share industry knowledge, experiences and decision-making skills relevant to the development of new managers. They can motivate individuals and create the teamwork that drives efficiencies.

Some of these new managers are young, with limited experience. But these individuals are excited, innovative and aggressive. The group management structures allow them to learn from the best managers in MFA’s system.

That structure is replicated across MFA’s trade territory, from the Bootheel to southwest Missouri, Kansas, northwest Missouri, Iowa and elsewhere. It is another way in which MFA responds to the always changing marketplace. We’ll continue to adjust our sails.

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