MFA's year-end numbers underscore the financial strength of your cooperative, which, company officials say, is a direct result of never losing focus on members.

If profitability and balance-sheet numbers provide an overview of financial health, the numbers posted by MFA Incorporated describe a healthy patient. That doesn't mean a continued regimen of good fiscal habits isn't necessary. To the contrary, say officials of the cooperative, continuing consolidation, increasing regulations and rising employee benefit costs must be managed closely.

But from a profitability standpoint, MFA's pre-tax income of $13 million significantly exceeded last year's $4 million income. A closer look, however, adds perspective to that number. The total for fiscal year 2002-03 is distorted by a one-time or non-recurring $5.2 million settlement MFA Incorporated received from vitamin anti-trust litigation that dated to the 1980s and early 1990s, said Don Copenhaver, president and CEO of MFA Incorporated. Still, the cooperative's fiscal performance was respectable, Copenhaver told the annual meeting crowd of nearly 750 people. "Profitability was good this year," he said, "despite the weather difficulties we experienced throughout our trade territory. The balance of our profitability increase is due to improved sales volume, increased contributions from our joint venture operations and minimal increases in expense levels."

In true cooperative fashion, said Copenhaver, the company will return portions of that profitability to the members in the form of patronage. Patronage decisions are made by the cooperative's 14-member farmer board. "The company will be paying patronage on the current year earnings, 100 percent in cash," he said. "In addition, we will be retiring a portion of the 1975 allocated equities for a total cash outlay of nearly $5 million. We are putting that money back into the hands of our members. We feel very fortunate to be in a position to pay patronage, considering the economic conditions in which agriculture has been operating."

The dynamics of agriculture are changing rapidly, he said, and show no signs of slowing. Consolidation and increasing regulation drive up business cost. New Homeland Security regulations burden not only MFA but also farmers. "If you transport more than 1,000 pounds of NH3 or ammonium nitrate behind your pickup or more than 119 gallons of diesel, gasoline or crop protection products from a retail site to your farm, you are affected by these regulations," said Copenhaver. [See related article, page 28] "We intend to do everything we can to help you comply with these new regulations. But as we've always found with regulatory bodies, common sense seems to be lacking. Will Rogers observed so many years ago, 'Common sense ain't so common.' Imagine what he'd say today."

No matter what the regulatory climate, though, agriculture will continue. Agriculture is the lifeblood of the nation and underscores the nation's prosperity. As this year's theme indicates, said Copenhaver, MFA will remain focused on agriculture. "We remain committed to our mission, which is why MFA was founded nearly 90 years ago. We will provide economic benefit to our customer/owners."

Crop and livestock numbers
Allen Floyd, senior vice president, chief financial officer and treasurer of MFA Incorporated, reported the numbers behind that economic benefit. MFA's revenues and volumes varied across the spectrum, he said, but overall the numbers underscore a healthy company. Sales and service revenues increased 10 percent or $70 million to total $760 million. That growth, he pointed out, reflects higher commodity prices since unit volumes (particularly grain bushels and fertilizer tons) trailed last year's levels.

Unit volume in grain decreased from 49 million bushels last year to 42 million bushels this year. That decrease was a direct result of decreased yields across MFA's sales territory. "Soybean production in Missouri was down 9 percent in 2002," said Floyd, "and corn production was down 18 percent. Unfortunately, the 2003 harvest includes another 16 percent decline in soybean production." The resulting lower yields meant fewer bushels handled and sold. That, in turn, was reflected in storage revenue, which declined $500,000 to total $2.1 million.

Field crop sales (plant foods, seed, crop protection products and service revenues) were again a bright spot for the cooperative. Sales stood at $388 million, an increase of $33 million for the fiscal year. Of that increase, plant food sales represented $25 million. The increase was a direct result of last year's higher nitrogen prices. As pointed out in Today's Farmer last year, nitrogen prices are directly correlated to the price of natural gas. When natural gas prices skyrocketed last year, so too did the cost of nitrogen products.

"Higher prices also reduced usage," said Floyd. "Tons sold were down 3 percent at wholesale and nearly 6 percent at retail. The wholesale decline is not too bad when you consider that in 2002 MFA set a record high in tons sold. In addition, tonnage reductions at retail were impacted by a wet April that changed some planting intentions from corn to soybeans."

Seed volume increased $3 million over last year's totals. Seed corn volume was nearly 43,000 units, up slightly. And soybean seed sales, after a slight decline last year, increased 73,000 units for total unit sales of 945,000. Wheat sales totaled 179,000 units, an increase of 18,000 units.

Despite retail volume being down $3 million, crop protection volume increased $5 million (5 percent). Price declines on glyphosate products and lower spraying revenues at retail were offset by an $8 million increase in wholesale volumes, mostly in MFA's southern market.

Livestock supply sales (feed, farm supply and animal health) were up slightly to total $116 million. Both farm supply and animal health sales were lower than the previous year. "After a 20 percent increase in sales last year," said Floyd, "farm supply felt the effects of reduced demand in 2003. Animal health sales are lower due to price reductions on certain pharmaceutical products."

Offsetting those declines were feed sales, led by the introduction of TrendSetter SLR for the beef market. TrendSetter SLR sold 20,000 tons, an astounding volume for a newly introduced feed.

Other sales include swine marketing, hardware and miscellaneous revenue. These volumes totaled $64 million, an increase of $17 million. Two major items account for the increase. First is a $12 million increase in volume in MFA's livestock marketing division, most of which is swine feed tonnage sold from the Centralia, Mo., feed mill. The mill is a swine-only production facility. "The other item making up this increase is a one-time $5 million settlement received on a vitamin anti-trust litigation," said Floyd. "Vitamin manufacturers settled price-fixing allegations that dated back to the 1980s and the first half of the 1990s. Settlements were based on purchases of vitamin additives during those timeframes. MFA was one of many feed companies to receive settlement."

The balance sheet
The cooperative's balance sheet shows the underlying fiscal strength of the company. Highlighting that strength were increases in working capital, net worth and total assets. Current assets (cash, receivables and inventory) increased by $12 million to total $169 million. Investments (the company's ownership interest in interregional cooperatives as well as joint ventures) increased $2 million to stand at $66 million.

Total assets increased $11 million to stand at $307 million as a result of higher inventory balances. In total, fixed assets of $72 million (land, buildings, equipment and rolling stock) were down $3 million. That's basically a reflection of depreciation expense. No new businesses or locations were added in 2003, said Allen Floyd, chief financial officer. "We continue to seek new business opportunities to expand market share, geographic reach and distribution network. But any acquisitions must meet specific hurdle rates relative to profitability, cash flow and return on investment."

Net worth increased $4 million to total $113 million. "With earnings of $13 million, why did net worth increase only $4 million?" Floyd asked the audience. "First of all, we have an income tax liability of $3.7 million on non-member and non-patronage income. Second, $600,000 was paid out during the year under our deceased equity program. And finally, your board of directors approved a cash distribution to the membership of $4.7 million. This $4.7 million has been reclassified from net worth to a current liability."

Working capital (current assets minus current liabilities) increased $2 million to total $53 million. "A strong liquidity position gives us the ability to pursue expansion opportunities," said Floyd. "It also allows us the flexibility to lower our cost of capital by reducing high interest rate debt."

With an eye on the future
As a member-owned cooperative, not only does MFA maintain a fiscally sound business, the cooperative also focuses on programs and products that benefit members. Look no further than the MFA Health Track Beef Alliance, said Don Copenhaver, president of the company. "The beef cattle industry is an important part of our business," he said. "It includes feed sales, animal health, farm supply, fertilizer and seed. It is vitally important that we keep producers in business. Health Track is designed to make producers money and to help them with the regulatory burden."

That's the focus also of new feed offerings like TrendSetter SLR, he said. It's the focus too of MFA's swine network, of the precision farming program, of the company's efforts to ensure employees are well trained and knowledgeable.

"We are about to celebrate our 90th year of doing business," said Copenhaver. "We have never lost sight of why we were formed. It's the very reason we are still here today continuing to serve your needs. I want to express my appreciation to you, the member/owner, for your continued support and confidence. To continually earn that support and confidence, we will maintain a reputation of dealing with honesty, integrity and sound business practices."