Anyone managing an agricultural business—from farmers to suppliers and manufacturers—looks at the past few years as a stretch unprecedented in its volatility. MFA Incorporated has endured the peaks and valleys of that volatility and, in the process, shaped its business operations to reflect agriculture’s changing economic landscape. After record profits in fiscal year 2008 and record losses in fiscal year 2009, your cooperative spent the past fiscal year with extreme focus on: implementing risk-management strategies, continuing to control operating costs and intensifying focus on its traditional business strengths. The result was reasonable profit for the year.
MFA’s net profit for the fiscal year was $9.7 million, up from a $62.1 million loss the previous fiscal year. Total sales for the year were comparable to last year and once again exceeded $1 billion. The net profit was a result of good earnings in most of MFA’s divisions. While profits were in line with the budget goals for the year, earnings were dampened by losses in MFA’s hog operations and a wet fall that was followed by a wet spring limiting movement of field crop inputs and services to a narrow window.
Grain sales totaled $431 million compared to the previous fiscal year mark of $365 million. Because the fiscal year ends Aug. 31, these numbers reflect the 2009 harvest season. The region’s great harvest bounty was reflected in an increase in grain handled by MFA with 63 million bushels moving through the system. This was an increase of some 9.7 million bushels compared to the year prior, a 19 percent spike. By commodity, volume increases were 7.1 million bushels for soybeans, 6.2 million bushels for corn and a decrease of 3.7 million bushels for wheat. Volume shifts mirror crop production reported for our trade-territory.
Field crop sales (plant food, seed, crop protection products) produced revenues of $396 million, down from $485 million the previous fiscal year, an $89 million decline. Of the $396 million, plant food sales represent $266 million, a 14 percent drop from last year. Tonnage sold at Wholesale and Retail increased compared to the previous year, but lower average unit values reduced total sales dollars. Crop protection volume was $132 million, down $5 million from last year. There was considerable decrease in unit values, especially among glyphosate products, which was largely offset through an increase in units sold.
Seed sales were $74 million, up $1 million from last year. Soybean seed volume was down 6 percent compared to last year and totaled 727,000 units. Seed corn sales increased about 10 percent at 86,000 units. Both of these results reflected the change in planted acres in MFA’s trade territory. To no surprise, MFA wheat seed sales were down substantially as wheat acres in the region plummeted.
Livestock supply sales (feed, farm supply and animal health) totaled $163 million, an increase of $13 million. In a challenging market and with the beef herd continuing to shrink, Feed Sales tonnage increased 7 percent to 323,000 tons.
Finished hogs marketed in 2010 were comparable to 2009. Sales dollars increased 9 percent, reflecting higher market prices received in 2010.
MFA sold its swine operations to Cargill in July 2010. Ownership of the weaned pigs at closing remained with MFA. MFA will raise these animals to market weight and recognize sales through December 2010.
The increased sales value was due to higher market prices received for fat hogs.
Farm supply product sales remain flat with last year’s measures. Under current feedstuffs and livestock input prices, producers continue to limit discretionary spending on farm supply products.
Margins and Expenses
Margins (gross margin on products sold and service revenue income) totaled $145 million, an increase of $84 million. 2009 margins were reduced by the losses incurred on the devaluation of plant foods and losses on market hogs sold. Increased volumes in most of the operating divisions added to this increase.
Operating expenses were up $2 million to a total of $136 million. Increases are attributable to increased sales and service volumes.
The net operating losses incurred in 2009 that could not be carried to previous tax years were carried forward and used to offset all of 2010 member earnings. Even with the loss carryforward, alternative minimum tax regulations resulted in a small tax expense.
The balance sheet
After a very difficult year in 2009, MFA made managing the balance sheet a priority with the goal of limiting risk, bank debt and the associated interest expense. Current assets reflect a decrease of $23 million due mainly to a reduction in receivables. During 2010 MFA entered into a financing arrangement with ProPartners whereby they assumed a portion of the producer input loans. An early grain harvest resulted in increased inventory, this increase was offset by a lower cash balance.
Investments (our ownership in interregional cooperatives and joint ventures) increased to $38 million. Recapitalization of AGRIServices of Brunswick and positive earnings in our three joint ventures supported this increase.
Fixed assets (land, buildings, equipment and rolling stock) decreased to $81 million in 2010. Capital expenditures were reduced approximately 50% to $7 million. Reducing fixed assets was the sale of some redundant, inefficient and non-operational assets with a book value of $2 million and depreciation expense of $14 million.
Total assets are $358 million, down from $381 million for fiscal 2009. Most of the reduction is attributable to reduced accounts receivable, particularly the credit arrangement with ProPartners.
Net worth improved by $9 million, to $94 million as a result of earnings. Member equities account for $62 million and retained savings make up the remaining $32 million.