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Taking hold of the future

IN A YEAR CHARACTERIZED BY relentless volatility and uncertainty, MFA reached near-record profitability in fiscal 2022 by minimizing risks and taking advantage of opportunities to benefit the cooperative and its members.

That was the message from CEO Ernie Verslues to nearly 450 delegates, employ­ees and special guests attending MFA Incorporated’s Annual Meeting Nov. 29, 2022, in Columbia.

“A few years ago, business trends author Patrick Dixon made this statement: ‘Take hold of the future, or the future will take hold of you,’” Verslues said. “That should be a wakeup call for all of us. We can’t sit back and wait for the future to dictate how we operate. A successful future requires we anticipate, plan and implement the changes needed to adapt.”

Those efforts resulted in pre-tax earnings of $27.2 million for MFA’s fiscal year that ended Aug. 31, Chief Financial Officer Karen White reported.

“This profitability allowed us to increase our spend in some key areas and add strength to our balance sheet,” White said. “We are in a good place to confront the challenges we anticipate in fiscal 2023.”

Overall, MFA Incorporated’s net sales reached $1.6 billion, with $192 million in net worth and just over $114 million in working capital. MFA’s average asset level climbed to $845 million, due in part to increases in commodity values and input prices.

Sales on the Agronomy side of the business, made up of Plant Foods, Crop Protection and Seed, were $860 million in 2022, a significant increase from prior years. Livestock supply sales—Feed, Animal Health and Farm Supply categories— were $184 million last year, an increase of $22 million from 2021. Increased feed tonnage and value played a role in the higher figures, White explained. 

For 2022, operating margins totaled $266 million, and expenses were $243 million, White reported. Both numbers are higher than 2021, which she attributed to price appreciation in plant foods, additional volumes in crop protection and feed, and higher costs for fuel, payroll, repairs and maintenance.

MFA’s board of directors voted to return $13 million in patronage dividends and allocate $22 million in DPAD (Domestic Production Activities Deduction) to grain members.

White said fiscal 2023 is off to a “solid start,” with grain receipts slightly below plan but fertilizer, crop protection and feed movement at or slightly above plan. The operating budget for 2023 includes a profit of $14.2 million, with the reduction from 2022 ac­counted for in expected margins.

“The fiscal 2023 operating plan anticipates contin­ued volatility as well as a return to more normal, or expected, profitability levels,” White said. “With the current interest rate environment, we will incur significantly higher interest expense in 2023. The plan includes an increase both volumes and higher commodity and input values, as markets are indicating that high­er prices are here to stay, at least for the near term. The supply chain, along with inflationary pressures and interest rates, will challenge this plan, but we believe it is achievable.”

GETTING THE JOB DONE

Chairman Wayne Nichols, who represents District 13 on the board, led the meeting for the last time. He will end his board service in March 2023 after 12 years as a director, five of those as chairman.

Nichols praised MFA’s employees for their teamwork and dedication to serving the needs of today’s farmers, who he said are now “quite sophisticated in their approach to agriculture” and look to MFA for quality products, prompt service and key advice.

“It has been a fascinating experience to serve as one of your di­rectors,” Nichols said. “I was fortunate enough to be on the board when MFA turned 100 and was exposed to the rich history of a Missouri cooperative that has weathered considerable business challenges and has adapted and evolved when so many organiza­tions like ours did not. The old saying, ‘The journey truly is the destination,’ certainly applies to MFA Incorporated.”

In his address to the membership, Verslues mentioned several challenges bombarding the industry, including supply chain constraints, rising inflation, ongoing drought, the war in Ukraine, transportation concerns, labor shortages and impending recession.

“I can’t recall a year that our staff had more challenges to overcome than this past year,” he said. “Many individual opera­tions and support areas got more done with fewer people than they ever have before. Of all the comments I make today, this is the one I am most proud of. There is no quit in Team MFA. We always find a way to get the job done. We are committed to pro­viding value to the customers and communities we serve.”

As examples of that value, Verslues pointed out that MFA completed or started several large capital expenditure projects in 2022, including a rebuild and expansion of the West Central AGRIServices facility in Adrian, Mo., new agronomy centers at Ravenwood and Higginsville, upgrades to the Walker feed facility, complete replace­ment of offices and warehouse at Kahoka, new tanks at the Owensville feed mill and significant investments in rolling stock. MFA Incorporated also took sole ownership of the Ham­ilton Rail Facility from MFA Oil Com­pany, a transaction that was completed Sept. 30. 

“Recognizing and adapting to change is one of the keys to growth and longevity,” Verslues said. “We must continue to lever­age MFA’s strengths to increase our value to your operations. In short, our plans will focus on technology, people and opera­tions. How we do it will be affected by the challenges I’ve listed here. Teamwork is at a very high level in the organization, and I’m confident we can meet the challenge. We are ready to do our part in shaping the future of MFA.”

LOOKING AHEAD

Parallel to MFA’s profitability, U.S. farm income was also expected to reach record levels in 2022, said Scott Brown, interim director of the University of Missouri Rural and Farm Finance Policy Cen­ter. In his forward-looking presentation to the annual meeting audience, Brown also addressed many of the same challenges that Verslues mentioned and outlined what farmers might be facing in 2023.

“It wasn’t that many years ago that we were talking about U.S. farm income in the $60 to $70 billion range. USDA’s telling us 2022 will be another year of $140-billion-plus,” he said. “It’s an amazing change in a short period of time. We’re not done with volatility, but it’s not all negative. The volatility is going to give us challenges and opportunities as we go forward.”

Increasing expenses have tempered farm profits over the past couple of years, Brown said, and he expects production costs to stay “stubbornly high” for some time. 

“The problem is that while receipts have gone up nicely, so have expenses,” he said. “That creates a cost-price squeeze that is concerning if commodity prices were to move lower.”

Like Verslues, Brown said he fears the economy is headed for recession in 2023, although its depth and longevity are unknown. Regardless, he added, any level of recession would likely affect consumer demand for agricultural products.

“We’re already seeing some shifts,” Brown said. “Steak prices moved lower in 2022, and ground beef prices moved higher. To me, that is some indication consumers are already starting to buy down. We’re going to have to watch that piece of the demand puzzle as we look ahead.”

Managing risk will be extremely important for farmers, he told the group, as the industry continues to face familiar challenges and yet-to-be-seen concerns that could impact markets for U.S. agriculture in the coming year and beyond. The 2023 Farm Bill will also factor into that future, Brown pointed out.

“I think 2023 farm income will be lower than where we sit in 2022,” he pre­dicted. “I am not suggesting the bottom falls out, but there are more downside risks. Not having a risk management plan is certainly a strategy, but it’s not the best one in these markets.”

“And I would encourage you not to ignore what’s happening in D.C. next year related to the Farm Bill,” Brown added. “What happens if the subsidies for crop insurance were to be lowered? Just pay attention. I think that fight gets tougher and tougher as we go ahead.”

MAKING CONNECTIONS

The meeting’s closing speaker, Mark Scharenbroich, had some straightforward advice for MFA members and employees: Make a true connection, and posi­tive results will follow.

The Minnesotan shared his humor and motivational wisdom, based on the idea that people have two core needs: the need to belong and the need to hear, “nice bike.” The latter reference—and the name of Scharenbroich’s book— came from an observation he made at Harley Davidson’s 100-year anniversary event, where he repeatedly heard the compliment, “nice bike,” among the thousands of motorcycle enthusiasts. Those simple words, he said, triggered an instant connection and camaraderie among strangers.

“I contend when we create teams and communities where people know that who they are and what they do matters, amazing growth takes place,” Schar­enbroich said. “‘Nice bike’ is a metaphor that embodies three words: acknowl­edge, honor, connect. Acknowledge means to be fully present in the lives of others. Honor means you create remarkable experiences for others. Connect means make it personal.”

MFA is built on the power of connection, he added, a force that continues to propel the cooperative forward 108 years after its founding.

“You’ve been connected since that very first group of seven farmers got together in 1914 to support each other and help each other grow,” Scharen­broich said. “That tradition continues today, as you wrap up this amazing year with MFA. You support each other. You connect with each other, and you help each other grow.” 

Check out the related financial summary story: "2022 in Review"

Read more stories in this Feb. 2023 issue of Today's Farmer magazine.

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