Strategic moves for uncertain times
MFA navigates headwinds to achieve profitability in 2023
Despite the headwinds of market volatility, rising inflation and drought across much of MFA’s trade territory, the cooperative recorded a profitable year for fiscal 2023 by strategically addressing those challenges and taking advantage of opportunities to benefit MFA Incorporated and its members.
That was the message from Don Schlesselman, who represents District 5 on MFA Incorporated’s Board of Directors, as he led the cooperative’s annual meeting for the first time as chairman. Nearly 440 delegates, employees and special guests attended the meeting Nov. 21, 2023, at the Holiday Inn Executive Center in Columbia.
“Uncertainty in world events and markets affects the environment in which we do business. More locally, a significant portion of the MFA membership area suffered drought this year, and for many of you, the second year in a row,” Schlesselman said. “I want to thank the employees of MFA for helping us navigate those challenges, securing products and assisting us in marketing what we grow on our farms.”
Those efforts helped MFA close its fiscal year with pre-tax earnings of $13.7 million, Chief Financial Officer Karen White reported.
“We began the year with a very strong balance sheet, but we knew fiscal ’23 would present more challenges than the past two years,” White said. “We were facing a declining market in agronomy inputs, interest rate hikes by the Feds, higher labor and insurance costs and continued inflationary pressures on our other major expense categories. Our profitability for 2023 is not at the level of our two previous fiscal years, but all things considered, it was a good year for us financially.”
Overall, MFA Incorporated’s net sales reached $2 billion, with $198 million in net worth and just over $95 million in working capital. MFA’s average asset level climbed to $917 million, due in part to increases in commodity values and input prices. Revenues totaled $257 million, and expenses were $247 million, White reported.
“As a company that relies heavily on rolling stock, facilities and labor, inflation had a significant impact on our expenses,” she said. “But by far, our single largest expense increase is interest expense. Increased borrowings tied to higher commodity values, along with rising interest rates, doubled our interest expense in 2023.”
The operating plan for 2024 is similar to 2023 with a profit level of $11.1 million, White concluded. “We have a solid start with sales and profits currently ahead of plan,” she said.
MFA’s board of directors voted to allocate $29 million in DPAD (Domestic Production Activities Deduction) to grain members but retain current year earnings. (See sidebar, “What is DPAD?" on page 12.) The decision to invest those earnings back into the company was based on the need for facility, equipment and technology updates as well as the higher debt level and interest expenses, said CEO Ernie Verslues in his address to the members. The overall financial strength of producers was also a factor, he added, with profitability and cash flow positive for most right now.
Despite the tough agricultural and economic environment, Verslues said MFA is on “a very good path” with management and the board aligned on a strategy to move the company forward.
“Technology, artificial intelligence and sustainability initiatives open a whole new world of possibilities. We continue to actively evaluate their place in future operations for both MFA and for you and will only recommend and bring to market those that are based on sound agronomic or nutritional grounds,” he said. “Sure, we will have peaks and valleys. That is agriculture. But involvement by our membership is a strength throughout the trade area we serve. Most importantly, we have a talented team ready to deliver.”
After the business meeting, Gregg Doud, who recently took the reins as president and CEO of the National Milk Producers Federation, provided a global economic outlook for agriculture in the year ahead and beyond. Before being tapped for his new role, Doud most recently worked at Aimpoint Research as vice president of global situational awareness and chief economist.
Doud said economic obstacles such as rising interest rates and the value of the U.S. dollar are thwarting our nation’s global competitiveness as world politics and economics continue to shift. Protein demand is driving much of this shift, and China is a key player in the market, he explained.
“We live in a world today where China’s total food imports from the world are more than U.S. total agricultural exports to the world,” Doud said, referencing China’s $236 billion in agricultural commodity imports in 2022, compared to U.S. exports of $196 million. “What happens in China in terms of food dictates everything else in the rest of the world.”
For example, he said, China is now the biggest corn importer in the world, largely due to the rebound in its hog industry coupled with its ban on feeding food scraps to pigs to help combat African swine fever. The Chinese also consume a tremendous amount of beef, and this past August, the country purchased an all-time record high in beef imports.
“The Chinese are now buying $18 billion worth of beef a year,” Doud said. “They are clearing the Brazilians, the Argentines, the Europeans, everybody in the world out of beef. But there’s no way the supply of protein in the world can come close to meeting projected demand. The only place on earth we can make more protein is here in the U.S. And so my charge to you today is, ‘Let's make this happen.’ This is the world of agriculture right now. This is where we’re headed.”
The same opportunities are true, he noted, for the U.S. dairy industry. Global growth and American capacity for innovation and production are combining to create a dairy powerhouse here, Doud explained.
“Last year, dairy was the fourth biggest thing we exported at $9.5 billion,” he said. “In terms of the world of protein, dairy is a huge part of the future.”
America’s farmers indeed have a bright outlook, Doud said, if the industry can capitalize on available opportunities for exports, technology and value-added products, such as producing soybeans for renewable diesel fuel.
“Renewable diesel technology can take soybean oil, refine it and get a product that can be used 100% as diesel fuel,” he explained. “This industry is expanding like crazy, to a point where we’re actually making more renewable diesel in the U.S. than we are biodiesel. That gives us mountains of soybean meal that can be fed to more pigs and chickens and cattle to meet the demand for protein, versus competing with the Brazilians to export soybeans to China.”
Motivational speaker David Okerlund finished the day’s events with his presentation, “The Power of Living a Passionate Life.” He reminded the farmers that nurturing their own minds, their passions and their overall wellbeing is just as important as fertilizing and caring for their fields and livestock.
“If you don’t take care of yourself, you’re not going to be able to take care of your farm,” he said. “And that goes for every person who sells products and services to farmers as well. Living a passionate life is critical to living a positive life.”
Illustrating his points with inspirational examples and anecdotes, Okerlund said the greatest attribute influencing stellar achievement is an individual’s level of passion. He defined passion as having two components: faith, believing you have both the will and the way to accomplish your dream; and optimism, a strong, enduring expectation that everything will work out OK.
“I know MFA is an incredibly successful organization. But can you imagine what it would be like if everybody here, from this day forward, set aside 10, 15 minutes a day to become a better member or employee of this organization, to become a better rancher or a farmer?” Okerlund said. “Success is no accident. It’s hard work, persistence, learning, study, sacrifice and, most of all, a passion applied to everything you do. It’s your attitude, so take care of it."
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