A pre-tax profit of $10.1 million made this year's annual meeting even more upbeat than usual. The numbers underscore MFA's current position, history and future in the agricultural marketplace.

MFA's annual meeting emphasized the spirit of MFA tradition--experience, knowledge, solutions. Each year the meeting provides the cooperative's leaders and member/owners with a chance to interact. And each year the meeting highlights MFA products and services while providing members with detailed financial data.

"MFA has been around for 86 years," Don Copenhaver, president and CEO, told the crowd of more than 750 assembled in Columbia. "This cooperative was formed for one purpose: to provide economic benefit for our customer/ owners. Being in business for 86 years has allowed us to gain a lot of experience in this industry we serve."

Knowledge, the second component of the annual meeting theme, is best exemplified by the cooperative's employees, he said. "We have placed a lot of emphasis on hiring competent people and making sure our employees are armed with the proper amount of knowledge that, in turn, allows them to disseminate that knowledge," said Copenhaver.

MFA has been providing solutions for 86 years, he continued. "That is what cooperatives are all about. We have an obligation to help you, our member/owners, enhance your bottom line by providing solutions for your individual farm operation."

Keith Schnarre, chairman of the MFA Incorporated Board of Directors, used the theme as a backdrop in his address. "MFA was started when there was a bully in the twine market," said Schnarre, a diversified farmer from Centralia in central Missouri. "MFA still protects you against the bullies of supply-based markets. We need to remember that MFA was formed to meet the needs of its farmer/members. And MFA will always be there to supply our basic needs as things change. But as the market changes, we need to change."

The bottom line
MFA ended the fiscal year with a pre-tax profit of $10.1 million. Of that, $8.8 million was earned on MFA's own operations. The other $1.3 million came in the form of patronage income from interregional investments. Low commodity prices and the general depressed agricultural economy resulted in the dismal performance of interregional investments.

MFA's profitable performance stands in stark contrast to last year's loss of just over $2 million.

"What makes these results even more rewarding," said Copenhaver, "is the fact we were able to generate a very respectable profit and improve the balance sheet in an unfavorable agricultural economic environment. Never in the 86-year history of the company have we generated that much on our own without income from our interregional investments."

Crop and livestock numbers
Allen Floyd, vice president, chief financial officer and treasurer of MFA Incorporated, reported the cooperative's financial statistics. Net sales and revenues for the cooperative totaled $561 million, an $11 million increase when compared to 1999 actual totals.

Grain sales of $130 million (representing 2000 summer wheat and 1999 fall harvest) decreased almost 8 percent. Fall harvest of 2000 will be reported with the 2001 results.

Dry weather in the summer of 1999 significantly reduced grain volume in MFA's trade territory. MFA handled 36 million bushels this fiscal year compared to 39 million the previous year. That also affected storage revenue. On top of that, historically low grain prices further depressed financial numbers.

In spite of the grain market, field crop sales increased 14 percent to total $291 million. "Plant food sales accounted for nearly $24 million of this increase," said Floyd. "Wholesale fertilizer tonnage was up 13 percent with sales of more than 1.1 million tons."

Favorable weather in both fall and spring enhanced sales and application. In addition, pastures and hay ground accounted for sales growth.

Nitrogen prices also had a positive impact on sales. "The fertilizer industry continues to undergo structural change," said Floyd. "Excess production capacity and high natural gas costs have forced many domestic producers to curtail or cut back production. More product is coming into the United States from offshore production facilities. Our plant food group continues to monitor and evaluate these industry changes so that we will be well positioned to handle your future product needs." (For a more in-depth discussion of fertilizer issues, see Dr. Paul Tracy's column on page 28.)

Seed sales were excellent for MFA in 2000, said Floyd. Both corn and soybean sales increased, corn by 15 percent, soybeans by 16 percent. In fact, soybean sales exceeded 700,000 units, reflecting the strength of MFA's MorSoy brand and the addition of Asgrow seed.

Livestock supply sales increased $5 million to total $102 million. Of the total, feed sales were the largest contributor. Beef feed sales increased 13 percent. (MFA Cattle Charge and TrendSetter continue leading the market.) Dairy feed sales remained even despite a reduction in the dairy cow herd. Swine feed and specialty feed sales declined. But horse feed sales grew 10 percent over last year's totals.

MFA's total operating margin increased $11.4 million to stand at $105.3 million. Total operating margin, said Floyd, represents the gross margins on products sold and related service revenues. "Much of this improvement is related to the higher volumes across all supply input product lines," he said. "In addition, higher unit margins were realized on certain products, particularly plant food, seed, grain and livestock marketing."

Added to those totals were the contributions of MFA's seven joint ventures, which added over $1.5 million to the cooperative's margins.

The balance sheet
On the balance sheet front, MFA's financial condition continues to improve, said company executives. As mentioned earlier, MFA's pre-tax profit of $10.1 million is an excellent indicator. But MFA's financial health is best illustrated by the balance sheet.

For instance, MFA's expense-watching philosophy paid a $4 million premium. Total expenses declined from $100.5 million last year to $96.5 million this year. "Significant increases in fuel costs and higher interest rates will make it very difficult to continue this expense reduction trend in the future," warned CFO Allen Floyd.

Current assets stand at $129 million, said Floyd, a decline of $12 million. "Approximately half of this reduction is the result of transferring inventory and receivables from MFA retail locations to form Central Missouri AGRIService, LLC, and West Central AGRIServices, LLC," he said. "Last year, these locations were a part of MFA. This year, the inventory and receivable balances are reported in the LLC."

Additionally, grain inventories were lower this year, noted Floyd, because MFA shipped wheat and old-crop grain to clear warehouse space in anticipation of a bumper 2000 fall harvest. Fertilizer and crop protection product inventories were also lower than last year.

Fixed assets (facilities, equipment and rolling stock) increased $1 million to total $70 million. Capital expenditures stand at $13 million. The single largest addition was the renovation and retooling of the MFA feed mill at Aurora, Mo.

MFA's net worth increased $4 million to total $102 million this year. Net worth includes equities allocated to MFA members and all after-tax income on non-member/non-patronage business. An $8 million-plus equity distribution came from net worth. The distribution is shown as a current liability in the year-end balance sheet and reflects approximately $8 million earmarked by the corporate board of directors to retire member-allocated equities issued in 1974.

The distribution also affects working capital ($38 million), which declined $1 million from last year's figure. Prior to the restatement of the equities, working capital was $45 million.

Ownership percentage (percentage of company assets owned by members) rose 3 percent from last year's 35 percent to stand at a respectable 38 percent. The percentage is calculated by dividing total net worth by total assets.

The future
Difficult times remain for agriculture. That's not so much pessimism as realism, said those addressing participants. Commodity prices are expected to remain low. Fuel costs are expected to remain high. Interest rates have increased. Still, MFA's position in the industry remains strong. It's a strength MFA will continue, said Don Copenhaver, MFA president and CEO.

"Our vision," he said, "is to position this cooperative in a manner that continually focuses on meeting the needs of our member/owners. To do so, we must stay abreast of new technology. We must be prepared to adapt to new ways of doing business."

The sentiment was shared and echoed by Keith Schnarre, chairman of MFA's corporate board. "The board and the management believe that whatever we do, we will do only if it brings value to you, the farmer/owner/user. I dare you to find another co-op that knows and understands the needs, concerns and pains of its farmer/owners better. Your board of directors, the management team, the home office employees, the agri services managers and their staffs all know who they are working for and the reason they are there." n