Profitable, productive year reported at MFA annual meeting

Last year, thanks to COVID restrictions on in-person gath­erings, MFA Incorporated Board Chairman Wayne Nichols delivered his annual meeting message into a camera.

This year, the cattleman from Pomona, Mo., stood proudly in front of a live audience of nearly 450 delegates, employees and special guests on Nov. 30 to report earnings of $23.5 million for the cooperative’s 2021 fiscal year, which ended Aug. 31.

It was a remarkable turnaround in so many ways, especially consider­ing the company recorded a loss of $15.4 million in 2020.

“From extreme weather conditions and trade troubles to volatile prices and the upside-down world of COVID-19, MFA and our farming operations at home faced significant challenges over the past few years,” said Nichols, who represents District 13 on the board. “MFA met those challenges with an all-hands-on-deck approach. Your cooper­ative tightened its belt, managed expenses and focused on our strategic plan. The hard work is paying off. This year was very profitable, and we’re in a much better financial position.”

Near-record plant food tonnage, a rebound in grain bushels and solid sales in other areas of the business contributed to those positive results, reported Chief Financial Officer Karen White. Overall, MFA Incorporated’s net sales reached $1.5 bil­lion, with $174 million in net worth and just over $96 million in working capital.

“The earnings in fiscal 2021 rebuilt working capital from the losses we experienced in 2019 and 2020,” she said. “A strong level of working capital allows us to manage the seasonality of our business and to finance capital expenditures.”

While total assets ended the fiscal year at $528 million, White said the overall average for the year was a record high of $716 million. That number was mainly impacted by commodity values and grain ownership, she explained.

“We are projecting lower average assets for fiscal 2022, but they will most likely still be at higher-than-historical levels,” White continued. “The positive side is that higher grain prices are good for a lot of you in the crowd, but input pricing is an area of concern for all of us right now. Market signals are indi­cating higher prices through the spring season. This will drive up costs for both MFA and our members.”

IMPROVEMENTS ALL AROUND

Sales on the Agronomy side of the business, made up of plant foods, crop protection and seed, were $671 million in 2021, a significant increase from prior years. Both volume and per-unit value were on the rise in all categories, particularly fertilizer.

“In Plant Foods, 2021 was an excellent year for us in retail volume to the ground,” White said. “We moved 520,000 tons, second only to 2018, when retail sold 532,000 tons.”

Livestock supply sales—Feed, Animal Health and Farm Supply categories—were $162 million last year, also an increase over 2020.

“Percentage-wise, the increase from last year is divided pretty evenly among the categories,” White said. “The increase in feed and animal health sales was driven by higher demand for animal health products and higher feed ingredient prices, driving average selling prices up.”

For 2021, operating margins totaled $239 million, the CFO reported, pointing out that this, too, is better than the previous two years. White at­tributed the improvement to a fertilizer market that rewarded ownership, increased fertilizer tonnage sold and higher sales volumes in all MFA product categories.

Fiscal 2021 expenses totaled $219 million, which were higher than recent years due to several factors, White said.

“With the improved profit­ability, we were able to catch up on some repair and maintenance projects that had been cut back and provide some well-deserved incentive payments to em­ployees,” she explained. “Insurance expense also incurred a 15% increase as insurers battled record claims in their portfolios.”

SO FAR, SO GOOD

Several months into the new fiscal year, White said profitability was already better than MFA’s operating plan for 2022, which is $7.7 million and accounts for margins and expenses returning to more normal levels. The total plan for 2022 is $15.7 million, which includes insurance proceeds from the explosion at MFA’s grain facility in Adrian, Mo.

“This is a plan we feel good about given the positive start we have to the new fiscal year,” White said. “We also know there will be challenges that we will need to overcome—supply shortages, high input prices and inflationary pressures being the most prominent. But with the team we have in place, I am confident we can achieve continued growth in 2022.”

Loss carryforwards were used to offset the majority of the 2021 earnings, White explained. MFA’s board of directors voted to retain the remainder of the earnings and invest them in upgraded equipment and new facilities. The 2022 plan includes capital expenditures for new operations in addition to the ongoing rebuilding and expansion project at Adrian, where the facility’s grain storage, drying and handling capacity will be significantly increased.

In his address to the membership, MFA Incorporated Chief Executive Officer Ernie Verslues shared details about other investments—a new, state-of-the-art 14,000-ton fertilizer plant at MFA Agri Services in Lafayette County near Higginsville and a modern agronomy facility that includes a high-speed fertilizer plant, ag chem build­ing and seed treatment warehouse in Nodaway County outside Maryville. Both projects, which are expected to be up and running by August 2022, will serve existing MFA locations in the surrounding areas.

“When you look at customer needs, the top three are typically price, quality and availability,” Verslues said. “After that it comes down to dependability—who has the facilities and equipment to deliver on their value promise when you need it, where you need it. We are committed to improvement.”

Admittedly, much of 2021’s profitability can be tied to fertilizer, but Verslues emphasized that other positive efforts from the past year should not be overlooked. In addition to increased sales in all categories, he said there had been improved collaboration on company goals and decisions, benefits from targeted capital expenditures and a strategic focus on efficiency and teamwork across the entire system.

“Those items all contributed to putting $23.5 million on the bottom line,” Verslues said. “Years like this don’t just happen. They happen when opportunities present themselves, when you have a talented team, when you are prepared and when you execute on the plan.”

After praising the talents, dedication and teamwork of MFA employees and directors, Verslues also thanked the member-owners for their commitment to the organization.

“We went through two very tough years, and you stayed with us,” he said. “You trusted us to have supply in place and to deliver on our value proposition. I would say we all came out better and stronger. Going for­ward, the challenges facing both growers and this cooperative are at extremely high levels, and it is imperative that we continue to work together to minimize our collective risk.”

Some of those challenges include uncertainty and volatility in the mar­ketplace, high input costs, tight inven­tories, supply chain disruptions and staff­ing issues throughout the industry. Despite those obstacles, Verslues said he fully believes MFA is positioned for another positive year ahead.

“When we discuss ways to grow, we know that a satisfied customer is the best strategy of all,” he said. “You can expect continued focus on customer relationships by our sales team, managers and staff. We want to be partners in your operations, the go-to person for tools that provide value in products, services, technology, innovation and data management.”

VALUE VENTURES

When it comes to Missouri agri­culture as a whole, the concept of providing added value is the next step in cultivating economic growth, said Lieutenant Gover­nor Mike Kehoe, who followed Verslues on the annual meeting program. As chair of the Show-Me State Food, Beverage and Forest Products Manufacturing Task Force, Kehoe shared some of its initial findings about ways Missouri could increase the value from its agricultural and forestry resources.

“Right now, Missouri agriculture has an $88 billion impact on the state’s economy—clearly our No. 1 industry,” he said. “But we can’t just sit back and hope it continues to get better. We think there’s significant room for growth, up to $25 billion more, and value-added is where we need to step up our game.”

New and expanding businesses such as the recently an­nounced meat-processing plant coming to Warren County and hemp gins now operating in Scott and New Madrid counties are prime examples of adding value for producers, Kehoe said.

Agritourism is another opportunity that provides multiple benefits, he added. “It may be a pumpkin patch or a corn maze or a dairy farm where busloads of kids can watch cows being milked,” Kehoe said. “These operations provide an extra income stream for farmers, but, perhaps even more importantly, they introduce people to what agriculture is really like. We have mil­lions of people in our urban centers who literally have no idea about the sacrifices and risks that farm families go through to put food on their tables.”

Kehoe said he knows about many of those challenges firsthand. Raised in north St. Louis City, Missouri’s 48th lieutenant governor admitted he “didn’t really know a horse from a cow” until he was introduced to agriculture by trusted mentors in the industry. Today, he and his wife, Claudia, own and operate a 700-acre cattle farm in Phelps and Pulaski counties.

“When I get asked to talk at a meeting like this, it’s incredibly humbling,” Kehoe said. “This is the group of people who would take me under your wing to help me understand and learn. Being a first-generation farmer is the most rewarding thing I’ve ever done. I’ll never forget what the agricultural community has done for me and my family and what it does for Missouri.”

SEAT AT THE TABLE

The afternoon’s guest speaker was Brett Begemann, former executive vice president and chief operating officer for the Crop Science division of Bayer, who also has hands-on agricultural knowledge cultivated on his family farm in Mayview, Mo. With more than 35 years of experience with Monsanto and then Bayer before his retirement last year, Begemann shared his unique perspective on some familiar hot-button issues and relevant top­ics he believes will shape the future of agriculture.

Right away, he addressed con­cerns about supply chain disrup­tions, something he was intimately familiar with from his longstanding role in the crop protection industry.

“The pandemic has no question caused a lot of the challenges MFA faces and all of you face in your own operations,” he said. “But sometimes I think it also gets used as an excuse. When it comes to the supply chain, the challenge is the way it’s all interlinked together. The issue is never just one thing; it’s a combination of multiple, complex factors. I’m highly confident it will work its way out. But how fast that will happen, I have no idea.”

Speaking candidly from his insider’s view of the biotech revo­lution, Begemann said he wished he and others at Monsanto/Bayer had taken a more active “seat at the table” when it came to conver­sations with consumers about the technology’s science and safety. The same opportunity now exists with climate-change conversations, he said, as regulatory decisions are being made by government leaders far removed from agriculture.

“There is no industry in the world that’s done more to improve sustainability than ag­riculture,” Begemann said. “Just think about all the invest­ments we’ve already made to improve our carbon footprint. But we have to tell our story louder, because a lot of people don’t believe it. If agricul­ture isn’t at the table for those sustainabil­ity conversations, then we’ll be on the menu.”

Helping to drive sustainability suc­cesses are data and analytics, which Begemann said he believes will change agriculture more than anything in his career. He applauded MFA for leading the way in those innovations, recog­nizing the tremendous amount of investment and resources it takes to deliver data-driven solutions for producers.

“It’s a highly complex biologi­cal system we’re trying to analyze and predict, and it takes massive amounts of data,” he said. “The answers aren’t there today, but I urge you to get engaged at the level you feel comfortable with. Then, as the technology continues to evolve, you’ll be in a position to take ad­vantage of all its benefits.”

Acknowledging that the agri­cultural industry is facing serious challenges in today’s uncertain economic and political climate, Begemann nevertheless expressed bold optimism about its future.

“Our industry has nothing but opportunity ahead,” he said. “Sure, we’re going to have challenges, but we’ve always had them. There’ll be logistical issues and sustainability discussions and food fights, but agriculture is a great place to be. Nobody is going to put you out of business. The world needs more of what we do, not less.”