MFA leaders reinforce commitment to customers during virtual Annual Meeting
MFA INCORPORATED’S 2020 ANNUAL MEETING on Dec. 1 was like no other in its 106-year history, befitting a year that was filled with unprecedented challenges.
Instead of convening in Columbia the Tuesday after Thanksgiving as usual, MFA directors, delegates and employees were invited to view company updates and financial reports for fiscal year 2020 through an online platform. The virtual annual meeting consisted of pre-recorded messages from MFA Incorporated leaders and a special address from Missouri Director of Agriculture Chris Chinn.
With COVID-19 case counts on the rise throughout the trade territory, officials say the change in meeting format was made out of consideration for MFA employees, customers and their communities.
“This is a first for us. We’d rather meet in person,” Board Chairman Wayne Nichols said in welcoming the unseen audience. “But when we looked at restrictions on the number of people who could gather in our traditional setting—and when we considered the unknowns we faced going into winter—a non-centralized meeting was the surest course of action we could take.”
The pandemic was just another in a string of difficult situations that negatively affected MFA’s financial performance over the past two years. While consolidated sales reached $1.1 billion for fiscal year 2020, which ended Aug. 31, the overall result was a pre-tax loss of $15.4 million for 2020.
“Weather, trade issues, devaluation of inputs, low commodity prices and market disruptions from the coronavirus—none of these things have been favorable to the financial performance of MFA,” Nichols said. “As chairman of the board, I want MFA members to know that we are closely tracking the economic fundamentals of your cooperative. While certain aspects of the past year were unavoidable, we know that loss years are not sustainable for the organization.”
In her report to the membership, Chief Financial Officer Karen White pinpointed three factors that contributed to MFA’s loss in 2020:
Plant food inventory devaluation: Fertilizer volumes were reduced in the spring of 2019 due to flooding and prevent-plant acres, creating a large carryover of inventories into fiscal 2020. Then, wet weather limited movement of that inventory throughout the fall and early spring.
Lower grain volumes: Flooding and prevented planting also led to significantly reduced production of corn and beans in 2019, which, in turn, meant fewer bushels sold at the elevator.
COVID-19: The pandemic caused uncertainty in the markets, resulting in commodity and livestock values reaching 15- to 20- year lows during the March-through- August timeframe. Many producers turned to lower-priced products, and fewer dollars were spent per acre or per animal.
Despite the loss, White pointed out that MFA’s balance sheet remains solid, and the cooperative has a much more favorable 2021 fiscal year budget, which includes $1.3 billion in sales, a 16% increase over 2020. This number reflects increases in both grain and crop input volumes. If this plan is achieved, MFA would realize a profit of $3.2 million.
“Although this is not acceptable long-term, it is a significant positive step from 2019 and 2020,” White said. “We need profits to sustain and strengthen our position. I believe in our team and have confidence in their ability to meet the 2021 plan.”
Reviewing financial performance by category, White reported that 67 million bushels of grain were sold in 2020, a slight increase from the previous year but well below the 82 million bushels sold in 2018.
“Predictions for fiscal 2021 are significantly higher,” White added. “Much of our trade territory is looking at a record or near-record harvest, and we anticipate reaching volumes experienced in 2017 and 2018.”
Agronomy sales—which include plant foods, seed and crop protection—were $501 million, an 11% decrease from fiscal 2019. Fertilizer tonnage was negatively affected by wet conditions in the fall of 2019 and spring of 2020, White said. Seed sales were also down, but crop protection sales reflected increases at both the retail and supply divisions.
Livestock supply sales were slightly higher than 2019, totaling $152 million, but the increase was tied to how corn is now handled in customer feed mixes, White explained. This area includes feed, animal health and farm supply sales, and all categories were flat to down slightly in sales for fiscal 2020.
Total margins and operating revenues were $189 million, a decrease of $12 million related to the plant food devaluation, reduced grain volume and lower earnings from joint ventures. Working capital was $75 million at fiscal year-end.
Total assets at the end of August were down $40 million to $478 million, due mainly to reduced plant food and crop protection inventories.
“We ended fiscal 2019 with a large carryover of inventories as a result of flooding and prevent-plant acres,” White said. “Due to the reduced demand in the spring of 2019, we weren’t able to move the product. But in 2020, we reduced this inventory.”
White also reported that MFA Incorporated has long-term debt of $81 million, including a term loan with CoBank and the MFA Bond Program. Total net worth decreased by approximately $9 million to $153 million.
White concluded her report by announcing that MFA will return to members 100% of its Domestic Production Activities Deduction (DPAD), estimated at $25 million for fiscal 2020. This deduction is available for members who sold grain to MFA.
CEO Ernie Verslues followed the financial report with a candid discussion of the challenges MFA and its farmers recently have faced and outlined steps the cooperative is taking to overcome the losses of the past two years. He said the 2021 budget includes improvements in all key sales areas of the company.
“The theme for fiscal 2021 and today’s meeting is ‘Adapt, Aim, Achieve,’” Verslues said. “2020 has been an almost year-long lesson in adapting because of COVID-19. The impact will minimize at some point in the future, but there will always be the next event that forces us to adapt. MFA has taken aim on those actions that will drive improved profitability. We know growth is not a given. But together, our member-owners and the MFA team will achieve success.”
Going forward, Verslues said, MFA will continue to focus on customer relationships, striving to hire and develop the best talent in MFA’s trade area. After people, he added, the cooperative’s retail presence is one of its strongest advantages.
“We’ve got the best opportunity of anybody in the industry to influence decisions at the farm gate,” Verslues said. “That influence comes from our people, our value-added products and services, our facilities and our financial strength. We continually look for better ways to efficiently service your needs. In some cases, that is different than it has been in the past. It might be done with fewer facilities. The key is to strategically place all of these resources within our trade area.”
The CEO listed other actions to improve profitability, including competitive pricing that drives sales, adoption of technology that benefits producers and the environment, data management for improved decisions, improved member engagement and continued cost controls. All of these efforts, he pointed out, center around the company’s value proposition: Enhancing producer capability and profitability.
“Weather and outside forces will always impact our business,” Verslues said. “My goal, and the MFA team’s goal, is to minimize the impact to our bottom line. We must be resilient in the face of disruptions and interruptions to our business. The last two years have reduced the strength of our balance sheet— losses always do—but it’s still solid. Now, it’s time to turn the tide.”
In her recorded message to the MFA audience, Missouri Agriculture Director Chris Chinn discussed the challenges COVID-19 presented to the state’s farmers and rural families. From limited meat-processing capacity to milk disposal to pressure on rural broadband resources, the department was called upon to handle a number of pandemic-related issues in 2020, Chinn said.
“Even though we’ve had a lot of challenges with COVID-19, there are bright spots,” she said. “One example is our local meat processors. When Missourians went to the grocery store and saw empty shelves, they started reaching out to farmers and ranchers directly to buy their protein. As a result, by June 2020, we had doubled the amount of red meat under state inspection compared to 2019.”
In concluding the annual meeting presentations, Nichols shared an encouraging message for members.
“With recent structural changes and a realistic outlook on volume for the coming year, we believe a good turnaround is underway for this fiscal year,” Nichols said. “We have checks and balances in place, and we are supportive of MFA management and its employees. The coming year has great promise for all of us in agriculture.”
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