March 2008
Horses, Horses, Horses!

At 71st Annual Meeting: AFC President Advocates Restraint

By Alvin Benn

Farming has been on a roller coaster ride the past two years and it’s time to take a breather, Alabama Farmers Cooperative President Tommy Paulk said at the 71st annual membership meeting.

Speakers at the Valentine’s Day event took a close look at positives and negatives impacting the cooperative and agriculture in general during the past 24 months.

After a downturn in 2006 and a rebound in 2007, it’s time to do a bit of belt-tightening because there are too many variables impacting agriculture to push ahead at full speed, said Paulk.

"We think the only prudent way to prepare ourselves for those times is to back up on spending, take a serious look at costs and maybe stand in place for a year or so," said Paulk.

During an interview at the Hotel at Auburn University and Dixon Conference Center following his annual report to an audience of 350 farmers and their spouses, Paulk discussed future planning.

He acknowledged the year just ended was a record one for AFC, but pointed out "there’s a lot of uncertainty out there right now, especially for the U.S. economy."

"With an election coming up, we think it’s best to do a better job with what we’ve got and not increase our leverage," he said. "We’re going to slow our growth."

One reason for that decision, he said, is to avoid "huge inventories and increased leverage."

"We’re real afraid of debt right now because so many lending institutions find themselves in trouble and internal problems they face could have a detrimental effect for us on how they position themselves in the marketplace," said Paulk.

During his prepared remarks, Paulk said 2007 was a difficult year because of a devastating, protracted drought. Ironically, it also produced one of the best bottom lines ever for the cooperative.

He said a return of about $17 million to local cooperatives throughout Alabama amounted to a "shot in the arm that could not have come at a better time when it was more greatly needed."

That "shot in the arm" came mainly from the sale of Anderson’s Peanuts, a transaction Paulk said, was "painful" because it had been such a productive and important part of our cooperative for so many years.

With the sale, he said, patronage will be paid only on earnings from Feed, Farm and Home and from Agri-AFC "and I don’t see that changing any time soon."

"It was difficult to say goodbye to a group of loyal and hardworking employees, many of whom had devoted their careers to this company," Paulk said, referring to Anderson’s Peanuts. "But, changes in that industry, driven by changes in the Farm Bill, rendered too great the risk of our continued ownership."

Prior to Paulk’s address, AFC Chief Financial Officer Dan Groscost outlined the positives and negatives of the cooperative during the past fiscal year.

One of the highlights, Groscost said, was a $36 million swing resulting from total indebtedness being reduced $18 million from the previous year while equity was up more than $18 million.

He said the $20 million net margin before tax was a record for earnings.

"Because the fixed assets at Anderson’s had largely been depreciated there was a gain of about $6 million on the sale of the business to Birdsong," said Groscost.

He said the sale of Anderson’s was an "enormous undertaking" because it involved considerable assets and locations.

During his address, Groscost focused on each of the AFC’s departments and divisions, pointing to gains and losses. They were:

GRAIN:

Although it didn’t exceed the record year of 2006, Groscost said it still turned in a strong performance, earning nearly $2.7 million before taxes while handling 28 percent less volume.

The year just ended was exceptional for the AFC, said Groscost, who pointed out it was done at a time when the department had to deal with "difficult crops brought on by poor growing conditions."

FEED, FARM AND HOME:

It earned $796,000 which represented a 44 percent improvement over 2006. Each unit within the department was profitable and most showed improvement over the previous year.

ANDERSON’S PEANUTS:

It operated through the end of March, 2007 and had a margin of $1.8 million which compared to a loss of $3.2 million for 2006. Including interest income and the gain on the sale and the net margin before taxes was just under $10 million.

BONNIE PLANTS:

It was an outstanding year for the Bullock County-based business that has a national audience. Bonnie’s had an operating margin of $20.5 million and a net margin before taxes of $15.2 million.

The 2007 totals compared to an operating income of $10.4 million and a net margin before taxes of $5.9 million in 2006.

Bonnie’s sales for fiscal 2007 were $141 million which represents a $31 million increase over the previous year. Sales for the coming year are being projected to be more than $170 million.

FRANK CURRIE GIN:

It had a very good year with an operating margin of $863,000 and a net margin of $1.5 million before taxes. That compared with an operating margin of $309,000 and a net margin before taxes of $795,000 in fiscal 2006.

Facts and figures might tend to be mind-boggling at times, but the bottom line was easy to understand for 2007. It was a record year for Alabama Farmers Cooperative with AFC meeting most, if not all, of its financial goals, said Groscost.

During his speech, Paulk said the departmental reports reflected an outlook of "enthusiasm and optimism" for the coming fiscal year.

"I cannot tell you how proud I am of these leaders and their success," said Paulk, referring to department spokesmen who gave their reports.

Despite optimistic predictions, Paulk also cautioned members of the cooperative to be prepared for changing times.

"We saw some pretty good prices on some commodities, but price becomes irrelevant when yields are at or near zero," he said, without having to support that statement since everyone in the huge meeting room knew about the devastating impact of the lingering drought.

As the winter moves into its final days and planting season nears, Paulk said he is concerned a new Farm Bill has yet to be signed by President Bush who "promises to veto it."

Because of that uncertainty and with some disappointing yields in recent years, Paulk said, "Our farmers have no safety net and are hamstrung in their ability to plan for the coming years."

Much of the planning, he said, will depend on passage of a Farm Bill which will impact agriculture throughout the country.

Paulk said the 2006 national election resulted in a Congress that "finally seems determined to pass a Farm Bill that will provide a meager safety net for our farmers."

He said it should forestall, at least for a few more years, "the disturbing trend toward allowing other countries to produce our vital and strategic needs like energy and food."

The theme of the annual meeting was "An Ever Changing Environment" and those who listened to Paulk’s report left with a better understanding of just what that meant.

Alvin Benn is a freelance writer from Selma.