Having just finished MFA's series of district meetings, I talked with and listened to many of you who participated in the management of your cooperative. Thank you for your time and attention. Thanks also to MFA's board members who attended and led the meetings. Your board members spend many hours outside of their own complex farming operations helping guide the direction of MFA Incorporated. They have my respect and admiration.

We're off to another good year. Certainly all of us in agriculture face challenges. Recognizing challenges, however, allows us to better manage them. Summer drought depressed grain production in many parts of MFA's sales territory this past growing season. This is the second straight year of production decline in our trade territory.

With fewer bushels in the ag sector, MFA's grain sales as of Jan. 31, 2004, stood at $104 million, down $6 million from the previous year. (These and all following numbers reflect the first 5 months in our fiscal year of Sept. 1 to Aug. 31.) The sales reflect 21 million bushels of grain sales this year compared to 26 million bushels at this time last year. Keep in mind, though, because of transportation problems, we couldn't get grain that was sold but awaiting shipment reflected in those sales. As of Jan. 31, those delayed sales were unrecognized from an accounting standpoint. Grain figures underscore current transportation problems in agriculture: the shutdown of the Missouri River navigation system, a shortage of hopper cars and a squeezed trucking industry.

The Missouri River situation is a mess. Barge companies have exited the river because political manipulation by environmental groups has resulted in unreliable water levels and erratic shipping seasons. We remain hopeful that Missouri Senators Christopher Bond and Jim Talent will convince the Bush administration to intervene. On average, MFA ships 150 barges per year on the Missouri. All of that is grain and fertilizer. With barge companies gone, we rely on rail and trucking, industries that are overused, under funded and unreliable. In terms of railroads, most have been retiring worn-out cars but not replacing them. The result is a shortage. The trucking industry suffers from increased federal regulations, significantly higher insurance costs and increased diesel prices.

On the plant foods side, our fertilizer costs are 35 percent ahead of last year. Chalk that up to the transportation industry, continuing consolidation in the fertilizer industry, a worldwide shortage of ocean-going vessels, a resulting lack of price-offsetting foreign product, and the effects of federal policy on the natural gas industry.

But it's not all gloom and doom. I don't intend to dwell on the negatives facing agriculture. The above is simply a realistic look at the economics. By taking stock of the realities, we can all manage our businesses better. We've all faced these types of problems before. We'll face them again. And we'll all be stronger for the contest.

On the positive side, volumes in other areas of our business continue to increase. Field crop sales (fertilizer, seed and crop protection products) increased 19 percent to stand at $120 million this year. Seed bookings look good with 641,000 units of MFA MorSoy. MorSoy continues to do exceptionally well in yield trials across our trade territory. This year, MFA will introduce MFA MorCorn. Ask your MFA field crop representative about it.

We've provided our customers with $53 million worth of livestock supplies so far, an increase of $1 million over last year at this time. But feed tonnage stayed even with last year in the face of earlier marketed calves, good pastures and a mild winter. Farm supply is up 9 percent with increases in most major lines. By now, most people are familiar with problems in the steel market. Fencing products are significantly higher than a year ago. The industry lays the problem on the doorstep of the Chinese. Chinese efforts to import huge supplies of steel have squeezed the scrap market and tightened supplies.

If you look at MFA's overall expenses, our total is below last year despite ballooning insurance costs. Three years ago, MFA's payment on employee health insurance totaled about $2 million. Today, that figure stands at $4.5 million, not counting what employees pay. In addition, our payments have increased substantially on the retirement fund because of declines in the stock market. And, as I've described before, very few insurers will even look at our property/casualty insurance needs because of the industry and the products necessary in agriculture. The results are higher deductibles and less coverage.

Still, our sales totaled $300 million as of Jan. 31, 2004. That's up $9 million from last year. Net income, however, is down from last year due almost exclusively to last year's vitamin settlement. As a result, this year's $1.8 million in the hole is almost exactly where we stood at this point last year less settlement monies and in accordance with our expectations. Our most profitable season is going on right now, and we expect to end the year with a decent profit.

As always, here at MFA Incorporated, we closely follow our balance sheet measurements. Again this year, we measure up well. MFA is a fiscally conservative business structured to withstand the natural cycles of agriculture. In other words, we're in agriculture for the long haul. And we plan to set the standard others are measured against.