As a cooperative, MFA is blessed with a large number of people with extensive knowledge in their piece of the industry. We took many of those individuals to the country for MFA’s district meetings the last of February and the first of March. My sincere thanks to those of you, our customer/owners, who took the time and effort to attend. These meetings are a wonderful time for our management team to interact with the people who drive our business.

Let me begin with a quick overview of MFA’s performance during the first 5 months of our fiscal year. These numbers provide a quick glimpse of where MFA stands compared to years past. As most of you would expect, the wet fall and rising fertilizer prices delayed fertilizer applications, which started us off slowly. Not only do we not have the business recorded, we have to deal with rising inventory costs associated with a slow fall season. So asset and inventory levels are too high for our liking.

MFA’s bottom line is not too much affected because supply side revenue is offset by last fall’s record grain volume. Even though we show a loss for the period (as we do every year at this time), we’re still a half million dollars ahead of where we were planning to be. Obviously, profitability in this industry depends on a good spring season.

Many of those attending had soybean rust in mind, and we had experts on hand to address the questions. Basically, after extensive research and deliberation, MFA has developed a rust management recommendation program. For an in-depth discussion of this program, look at Dr. Paul Tracy’s article in the April issue of Today’s Farmer or call your nearby MFA Agri Services Center. Our approach is based on rust’s winter survival in the Gulf Coast states and its northern movement. We have developed a solid information exchange network with the USDA and university systems that will do most of the soybean rust monitoring. MFA’s recommendations have been designed toward what we believe is in the best agronomic and economic interest of our soybean producers. We will keep MFA Agri Services Centers and their soybean producers aware of rust activity. 

In terms of plant foods, as I’ve said repeatedly, it’s a world market. If you look at nitrogen production capacity in just the United States since 1999, you’ll find a 25 percent decline in anhydrous production capacity, a 27 percent decline in urea production capacity and a 14 percent decline in UAN production capacity. U.S. anhydrous production capacity dropped almost 20 million tons.

There are very real results from consolidation. U.S. industry relies more and more on imported product. Market volatility increases dramatically with increased uncertainty in supply. Offshore producers have little or no loyalty to specific industries. Offshore producers follow the best price. That further increases uncertainty.

Add the fact it takes 45 to 60 days to ship product from the Middle East to the United States. Supply simply cannot react quickly to short-term or in-season market change, further destabilizing price.

Consider, too, that natural gas comprises approximately 90 percent of the cost of manufacturing ammonia. Available statistics for 2003 show U.S. natural gas price at $5.50 per MMBtu. Right now it’s higher and fluctuating. In Russia, the cost was $0.80; in Venezuela, $0.70; the Middle East, $0.60; in North Africa, $0.40. The bottom line is we’re not going to get additional nitrogen production in the United States.

Urea, another product dependent on ammonia (and thus natural gas), is also under tremendous pressure. U.S. urea production is the lowest it’s been in 7 years. The largest factor is an East Asian increased demand. Russia and the Middle East are large suppliers, and right now their best (and closest) customers are China and Indonesia. The urea industry is expected to be 700,000 tons short this year. There is a bright spot, however. Economists predict the differential to narrow in the first half of 2005.

World potash demand is at a record level. Much of that is due to increased demand in China and Brazil. The world operating rate is at the highest level in more than 20 years. Almost every producer of potash is running near capacity. Our costs at the mines have doubled in just 1 year simply because demand has outstripped supply. Will the plant foods market come around? Yes. But it will take time. Consumption has been the wildcard.

Animal identification was another hot topic during these meetings. Here in the United States, we’re in the first stage of what promises to be a long process. The states are registering premises. The next stage is identifying individuals. That’s a contentious issue. Do we as an industry want this driven by government or private agencies? If government is involved, suddenly we have in-depth records accessible by interest groups whose stated objective is the elimination of the U.S. livestock industry. As an industry, we have to decide how to handle this most basic function. Whichever way we move as an industry, we must make individual carcass grade and management data available to individual producers, or the system is worthless. The good news in all of this is that MFA Health Track will accommodate all of these possibilities, thanks to the foresight of your corporate board and the members who participate.