Navigating MFA through challenging times
People, operations and financial strength are the foundation of MFA Incorporated’s continued success despite uncertainties in the agricultural economy.
That was the overall message from leaders at MFA’s 2017 Annual Meeting, held Nov. 28 at the Holiday Inn Executive Center in Columbia.
“Looking back at 2017, did we build for the road ahead? Did we make progress toward sustainable success?” asked CEO Ernie Verslues in his address. “Yes, I believe our efforts leading up to and including this past fiscal year have put this company on a solid foundation. There is still more work to be done, but we have a strong base from which we continue to build.”
More than 600 delegates, employees and special guests attended the meeting, which featured exhibits by MFA’s operating divisions, MFA Oil and the Missouri Department of Agriculture.
In his remarks to the audience, MFA Board Chairman Don Mills said the cooperative’s leadership and employees took the challenges of the past year and steered MFA to “respectable results.” Pre-tax profits in 2017 were $10.2 million, an improvement of $5.6 million over 2016. MFA will return $6.3 million to member-owners in cash patronage and equity retirement.
“I think it is fair to say that much of the past year’s success comes from foresight and the offering of products and services that truly make a difference in how we farm,” he said. “I can tell you, as a farmer, it was more fun to look at profitability and balance sheets just a few years back. But I think you’ll see that MFA is on solid footing and poised to continue its mission to provide the value-added products, services and expertise that benefit us as member-owners.”
Mills also credited MFA employees for contributing to the company’s success.
“As a farmer-customer, I appreciate good employees. As a corporate board member, I see the absolute necessity of good employees,” Mills said. “I consider MFA’s employee workforce second to none. These are the hardworking folks who make MFA what it is. They continually look for ways that help MFA help farmers. They put in the hours at planting and harvest. They deliver feed in the snow and cold. And they do it with a smile and pride in the company.”
Mills, who completed the last of his four terms as a director, said he’s proud of the decisions made during his 12 years on the MFA Incorporated board. For example, he pointed out he’d been involved in hiring two CEOs and authorizing the cooperative’s largest capital expenditure in its history with the Hamilton Rail Facility.
“This company hasn’t been here for 104 years without having good leaders, and serving on the board has been one of the greatest experiences of my life,” Mills said. “MFA is a great company with wonderful people. We’ve gone through some really good times, and we’re in a tough economy right now, but the company keeps going and keeps growing.”
Keeping pace with change
Verslues also acknowledged agriculture’s downturn, but said he was optimistic about the future and what MFA and its members can accomplish together.
“Our competitive advantage comes from attracting, developing and retaining the best people,” he said. “When it comes to products, services and solutions, we are a proven leader in bringing innovation and technology to the marketplace.”
Specifically, Verslues cited the new MFA Rail Facility in Hamilton, MorSoy and MorCorn proprietary brands of seed and the latest technologies in crop protection and precision agriculture as examples of MFA’s commitment to providing value and benefits to farmers. Though they’re smaller in volume, MFA’s livestock divisions are “key contributors to the overall value we provide to you, the member,” Verslues said. Fiscal 2017 brought exciting developments for MFA livestock customers, he added, including new products with Shield Technology, the Health Track program’s partnership with ABS Global and the launch of the PowerCalf mobile app.
MFA’s plan to navigate the road ahead includes finding ways to grow the company, being a leader in innovation and technology, focusing on data management and looking for efficiencies in product and service offerings to the customer as well as internal operations, Verslues said.
“It would be hard to argue that any industry has experienced more change than agriculture the last 10 years, and the pace of change is projected to increase in the immediate future,” he said. “We must embrace this change to shape the future we desire. If we don’t, we may not like the future we get.”
Building financial strength
Chief Financial Officer Jeff Raetz shared financial highlights of MFA’s 2017 fiscal year, which ended Aug. 31. Consolidated sales for MFA’s business entities were $1.23 billion, representing figures from MFA Incorporated and MFA Enterprises.
In 2017, MFA Incorporated’s cooperative business reached $1.04 billion in sales. MFA Enterprises, a wholly owned subsidiary of MFA Incorporated, had $185 million in sales. Formed in 2001, MFA Enterprises represents non-cooperative expansion in southern Iowa, southeast Kansas, west-central Missouri and northwest Missouri.
Joint ventures include AGRIServices of Brunswick, Cache River Valley Seed, Mid-State Seed and Alliance Animal Care. MFA holds a 50-percent ownership in these companies. The cooperative also has 45-percent stake in Central Missouri AGRIService. Together, the joint ventures delivered $398 million in sales this year.
Greater grain volume is a primary driver of MFA’s sales increase, Raetz reported. At $482 million, grain sales increased 27 percent over last year.
“We handled 75 million bushels in 2017, the second-largest number of bushels in company history,” he said. “We were blessed with a bountiful harvest last fiscal year and this year, too. With the Hamilton Rail Facility coming online, we anticipate handling 92 million bushels of grain in 2018.”
Reviewing financial performance by category, Raetz reported that field crop sales were $582 million, a decrease of $12 million, and livestock supply sales were also down $11 million to $158 million. However, he pointed out, volume tells a different story.
“There’s no need to worry about decreasing sales dollars,” he said. “A commodity-based business like ours will ebb and flow with the market. I believe that the volume numbers show we are growing or maintaining market share in our territory.”
On the crop side of the business, plant food tonnage increased slightly, but sales dollars decreased $22 million due to lower selling price for fertilizer. MFA’s MorSoy and MorCorn continue to make up a larger portion of seed sales. Crop Protection sales dollars also increased 6 percent this fiscal year.
In the livestock sector, the majority of the sales decline was in Feed, Raetz explained, although Animal Health and Farm Supply sales also decreased slightly.
“If you think back to last year, we entered the fall with an abundance of hay and grass and had one of the warmest winters in recent history,” he said. “Those two factors are what I would call a perfect storm for our Feed Division. It’s hard to sell feed when there’s plenty of hay and no winter. There is no question, however, that we are the market leader in our trade territory, and we have high-quality products that set us apart from our competition.”
Total margins and operating revenues were $219 million, an impressive increase of $14 million from fiscal 2016. Joint venture earnings were $3 million compared to $2.5 million last year. Working capital was $80 million at year end.
Total assets at the end of August were up slightly to $479 million, due mainly to the increase in capital expenditures related to the MFA Rail Facility.
“It’s a pretty simple equation,” Raetz said. “The more we earn, the more we can afford to invest back into the business.”
Raetz reported that MFA Incorporated has long-term debt of $82 million, including a term loan with CoBank, which financed the rail project, and the MFA Bond Program, which is unsecured debt.
Total net worth increased to $164 million, divided into non-cooperative earnings at $108 million and member equities of $56 million.
“As a company, we are optimistic going into fiscal 2018 and beyond,” Raetz said. “Next year’s plan reflects net income before taxes of $10.2 million, but our expectations are always higher. We continue to set goals and develop operating plans to target growth and ensure the continued financial strength of your cooperative.”
Making your voice heard
Among special guests in attendance was Missouri Director of Agriculture Chris Chinn and several of the department’s leaders, who gathered feedback from farmers through a short survey at their booth. MFA’s annual meeting was the first stop on the Department of Ag’s “Reach MORE” tour.
“For us, being part of this meeting is all about seeing the farmers and ranchers,” Chinn said. “It’s hard for them to get to us, so we came to them. We wanted to get input on what they’d like to see at the next Governor’s Conference on Agriculture and get their opinions about what we can do to improve our service to them. We are their department, and we want them to help shape our path going forward.”
Farm broadcaster Max Armstrong, host of “This Week in AgriBusiness” television show and “Farm Progress America” and “Midwest Digest” radio programs, was the keynote speaker and conducted on-camera interviews with key MFA personnel as part of the pre-meeting activities. He said he welcomed the chance to be part of MFA’s meeting and connect with the cooperative’s members.
“This is like coming home for me,” Armstrong said. “I really enjoy warmth of the growers and the opportunity to visit with them and find out what’s going on. They share the challenges and successes of the past year and how they see the landscape around them.”
In his address, Armstrong encouraged the audience to make their voices heard to lawmakers, especially as key legislation such as NAFTA and the Farm Bill are being considered.
“It’s absolutely critical that we be engaged in the political process,” Armstrong said. “So many winds of change are buffeting Washington right now. I know it’s not easy for those of us in agriculture to get involved in politics. We can’t envision ourselves being lobbyists or politicians, but we can all play a role by keeping the line of communication open to our lawmakers to make sure our story is getting out there.”
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