COOPERATIVES in an ERA of CONSOLIDATION 14 TH ANNUAL FARMER COOPERATIVES CONFERENCE “Meeting Competitive Challenges: Cooperative Structure & Finance for the Future” Jeff Nielsen, General Manager United Farmers Cooperative (UFC)
Slide 1COOPERATIVES in an ERA of CONSOLIDATION 14TH ANNUAL FARMER
COOPERATIVES CONFERENCE
“Meeting Competitive Challenges: Cooperative Structure &
Finance for the Future”
Jeff Nielsen, General Manager United Farmers Cooperative
(UFC)
Mission Statement: “To supply our customers with technology,
products and services in a manner that is extraordinary enough to
add value to their lives.”
Vision Statement: To be recognized by our customers as their first
choice in the markets that we serve.
Values: We Will –
Maintain financial stability Be competitive Retain, train and
recruit employees to meet the highest professional standards Be
open to new business concepts Embrace innovation and change as a
way to achieve internal and external
growth Communicate with employees, members, our communities and
vendors in an
open, forthright manner
“Since 1915”
UFC’s History United Farmers Cooperative (UFC) is a farmer owned
cooperative that was formed in 1915 in the town of Lafayette,
Minnesota. At that time, it was formed as the “Cooperative Creamery
Association” of Lafayette. Over the next 85 years, the cooperative
would undergo many changes as the needs of the members that it
served evolved to keep pace with the changing world. Some of the
highlights over the decades were as follows:
1915 Cooperative was organized into Cooperative Creamery
Association 1920 Produce department was added 1940 Locker plant and
butcher shop was added 1960’s Ongoing construction with the
addition of fertilizer blending equipment and bagging equipment for
fertilizer products 1966 First grain elevator purchased in
Lafayette 1968 Purchased and merged in the Klossner elevator
facilities 1969 The two Elevator operations and the Farm Supply
operations merged into a single operation. The creamery division
was sold to Mid
America Dairies. 1971 The name of the organization was changed to
The Farmers Cooperative of Lafayette. 1972 Winthrop Farm Services
and Elevator purchased 1986 Purchased the Norseland location from
the dissolved Tri Ag.Co-op organization 1995 The Klossner Coop Oil
Association was merged into the operation and the Name of the
organization was changed to the current
“United Farmers Cooperative” 1995 The new Livestock Service Center
Opens – greatly expanding the feed operations 1998 LeSueur Farmers
Elevator was merged into the operation 2000 United Farmers
Cooperative purchased a liquid Fertilizer Business from Anker’s Inc
in Gibbon Minnesota. Also purchased was the
assets from Tri-County Builders of Gaylord to expand their building
and construction business. 2002 Complete redesign and
reconstruction of LeSueur location. Built new retail franchise and
opened “Giant Valley Trading Company”
(GVTC) to address rapidly growing farm store market. 2003 Purchased
Turbes Oil Company and formed UDS (United Distribution Services) in
Searles, Minnesota. This greatly increased petroleum
volume and expanded UFC’s service area. 2004 Started our own
insurance company – Parthenon Risk Partners 2006 Ag-Land Co-op and
UFC unified their operations into UFC’s 2008 Hector Location
Acquired 2010 Green Isle United Xpress – Bird Island Merged in July
1, 2010 2011 Working on new World Class Grain Terminal at Brownton
MN
UFC Today – Who We Are • We are a member owned cooperative and
have
been since 1915. Profits go back to the members. • We serve
producers and consumers from a wide
and expanding territory with sales over 230 million dollars in
2011.
• We are locally owned and locally controlled. • We are involved in
a very diverse business with
operations in Grain, Feed, Agronomy, Seed, Energy, Farm Equipment,
Grain System Construction and Convenience Stores.
• We employ over 200 people across the system.
Coop Finance – Historical Perspective • Co-ops relied on
traditional capitalization methods
– Retained earnings, long term debt, etc • Focus on Revolving
Equity
– Managing allocated equity obligation – at present, $600,000
annually pretty well handles estates and age 70/72 redemptions for
the foreseeable future. Nice position to be in.
– But we also are not “satisfied”. We have an obligation to redeem
equity as expeditiously as possible.
• Need patience – this is a marathon – not a sprint. • Need urgency
too – for example, evolving culture from
“small” co-op to a “big” co-op. Almost cannot happen fast enough.
Is the old system “sustainable”?
• Producer & Consumer demands are endless and cost $$
Historical Financial Information
Total Sales $48,798,322 $233,218,272 $1,354,760,480
$112,896,707
Interest Paid $763,555 $1,842,720 $14,541,745 $1,211,812
Local Margin $664,093 $4,230,466 $16,510,904 $1,375,909
Total Net Income
$426,966 $1,989,294 $13,114,838 $1,092,903
64% 47% 79% 79%
Co-op Finance – Future Needs • Earnings and financial performance
focus
– The absolute necessity of strong earnings – Honor the commitments
of the past. – Must be able to perform at “World Class”
levels
• Importance of a “Plan” for the Cooperative. – Vision, Access to
Capital, Creative Marketing, Execution
• Diversify sources of capital – particularly equity capital-UFC
now a “521” tax exempt co-op. – Traditional & Non Traditional
alike – need balance. – Local sourcing
• Use for Bird Island merger – substitute for allocated equity;
and, • Raise cash from members and non-members
-
Solvency Measures Total Equity, Local Equity and Long Term
Debt
Local Equity Total Equity Long-Term Debt
Built 40,000 ton hub dry fertilizer
plant – $7M
COOPERATIVE defined
Adjective: Involving mutual assistance in working toward a common
goal.
Noun: A farm, business, or other organization that is owned and run
jointly by its members, who share the profits or benefits.
UFC Grain Systems LLC Connecting our Growers to the World
UFC Historical Grain Volumes Est. Budget
SALES 2000 2005 2010 2011 Corn 4,722,198 6,508,167 12,809,789
17,000,000 Beans 2,479,950 1,880,917 2,760,517 3,850,000 *TOTAL
7,202,148 8,389,084 15,570,306 20,850,000
Corn 5,803,692 8,813,875 16,049,830 20,750,000 Beans 2,244,588
1,723,239 2,548,916 3,650,000 *TOTAL 8,048,280 10,537,114
18,598,746 24,400,000
ACTUAL BUSHELS HANDLED
MAP KEYS
Counties Used (shaded borders)
1. Kandiyohi 2. Meeker 3. Wright 4. Renville 5. McLeod 6. Carver 7.
Sibley 8. Scott 9. Nicollet
10. LeSueur
( 2010 Grain Terminal Project Area Production and Usage Overview
)
( MAP KEYS ) ( Counties Used (shaded borders) Kandiyohi Meeker
Wright Renville McLeod Carver Sibley Scott Nicollet LeSueur )
“Vertical” Partnerships - Success
• Partnered with Winfield Solutions to create first ever
wholesale/retail facility partnership in 2009 – Result of multi
year study of logistics and inventory
management by both UFC and Winfield. – Developed 80,000 sq ft
facility built on property
adjacent to UFC headquarters, that serves UFC retail patrons as
well as Winfield wholesale accounts.
– Resulting partnership and success of this project has now led to
several more facilities being built across upper Midwest by
Winfield.
Proposal Rationale
• UFC and Grain Partner create the new Grain Division. “UFC Grain
Systems LLC”
• UFC contributes all of its current grain operations &
facilities into the LLC. (appraised value = 20m, Book at
9.8m)
• Grain Partner contributes 15 million in cash • Build new Shuttle
Facility – Cost = 27 million • Creates New LLC with 50M in assets-
(including working capital)
– Governed by Board of Directors – UFC majority share holder –
Shared governance with grain partner
• LLC finances balance with term debt and/or local investment
contributions. Total debt approximately 15 million
Proposal Rationale – cont.
• This approach has the following advantages: – UFC leverages its
brand to buy grain. – UFC does not compete with itself. – Grain
Partner’s investment is more diversified because it
shares in UFC’s grain department profits regardless how the profits
are generated including ethanol, livestock, soybean processors and
of course export markets.
– LLC operates the grain operations, takes the risk of operating
losses, and provides the working capital to operate.
– Grain partner brings global access to markets along with
expertise and experience.
– UFC maintains a strong independent balance sheet.
Applying the Coop Model – Keeping it Local UFC Investment Options •
Current UFC Patron Notes Program
– Now open to anyone, members and general public – Demand Notes, 3
and 5 Year Investment Certificates
• Current rates are: Demand 2%, 3 year 3%, 5 year 4%
• “New” UFC Preferred Equity program – Class PPE, Series Brownton 1
– Open to anyone, members and general public – 5 million shares
offered – 7% dividend – Assume 1 to 7 year redemption cycle
• “Proposed” UFC Grain Systems Common Equity Program – Ownership
opportunity in the new Grain LLC – Returns based on the performance
of the LLC – Must be a qualifying member of UFC to participate –
Limited to 5 million shares at $1.00 per share
Thank You !
COOPERATIVES in an ERA of CONSOLIDATION
Slide Number 2
UFC’s History
Coop Finance – Historical Perspective
Slide Number 8
Slide Number 9
COOPERATIVE definedAdjective: Involving mutual assistance in
working toward a common goal.Noun: A farm, business, or other
organization that is owned and run jointly by its members, who
share the profits or benefits.
Slide Number 11
Applying the Coop Model – Keeping it Local UFC Investment
Options
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Slide Number 21
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