COOPERATIVES 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)
UFC’s Purpose
People….Pride….Purpose….
“Since 1915”
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
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
1920
1940
1960’s
1966
1968
1969
1971
1972
1986
1995
1995
1998
2000
2002
2003
2004
2006
2008
2010
2011
Cooperative was organized into Cooperative Creamery Association
Produce department was added
Locker plant and butcher shop was added
Ongoing construction with the addition of fertilizer blending equipment and bagging equipment for fertilizer products
First grain elevator purchased in Lafayette
Purchased and merged in the Klossner elevator facilities
The two Elevator operations and the Farm Supply operations merged into a single operation. The creamery division was sold to Mid
America Dairies.
The name of the organization was changed to The Farmers Cooperative of Lafayette.
Winthrop Farm Services and Elevator purchased
Purchased the Norseland location from the dissolved Tri Ag.Co-op organization
The Klossner Coop Oil Association was merged into the operation and the Name of the organization was changed to the current
“United Farmers Cooperative”
The new Livestock Service Center Opens – greatly expanding the feed operations
LeSueur Farmers Elevator was merged into the operation
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.
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.
Purchased Turbes Oil Company and formed UDS (United Distribution Services) in Searles, Minnesota. This greatly increased petroleum
volume and expanded UFC’s service area.
Started our own insurance company – Parthenon Risk Partners
Ag-Land Co-op and UFC unified their operations into UFC’s
Hector Location Acquired
Green Isle United Xpress – Bird Island Merged in July 1, 2010
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
FY2000
Total Sales
FY2011
12 Year Total
12 Year Average
$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
$857,474
$5,927,941
$26,673,014
$2,222,751
Total Cash Paid
to Members
$426,966
$1,989,294
$13,114,838
$1,092,903
% Cash Paid of
Local Margin
64%
47%
79%
79%
$2,518,062
$2,841,385
$33,401,325
$2,783,444
Fixed Asset
Acquisitions
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
– Re-Inventing the cooperative model…
• May need to look at cooperative partnerships differently
35,000,000
Solvency Measures
Total Equity, Local Equity and Long Term Debt
Built 40,000 ton
hub dry fertilizer
plant – $7M
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
August
2006
August
2007
Local Equity
August
2008
Total Equity
August
2009
Long-Term Debt
August
2010
Working Capital
Current Assets Minus Current Liabilities
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
August
2006
August
2007
August
2008
August
2009
August
2010
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
SALES
Corn
Beans
*TOTAL
2000
2010
6,508,167
1,880,917
8,389,084
12,809,789
2,760,517
15,570,306
17,000,000
3,850,000
20,850,000
ACTUAL BUSHELS HANDLED
Corn
5,803,692
8,813,875
Beans
2,244,588
1,723,239
16,049,830
2,548,916
20,750,000
3,650,000
18,598,746
24,400,000
*TOTAL
4,722,198
2,479,950
7,202,148
2005
Est. Budget
2011
8,048,280
10,537,114
2010 Grain Terminal Project
Area Production and Usage Overview
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
“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 !
14TH ANNUAL FARMER COOPERATIVES CONFERENCE
“Meeting Competitive Challenges: Cooperative Structure & Finance for the Future”