WFS

This has been a different year for prepays in the industry. Normally, we have customers put money down for products before year-end for tax purposes. This year was different; farmers waited until after the New Year to make their prepayment. We continue to see a lot of prepays being made, and I would expect the levels to be normal. My assumption for this change is that our customers had a lot of other expenses including new equipment, buildings, and tiling, along with the timing of the market, which left them not needing to have additional write-offs for 2011.

Another thing that takes place as we start the New Year is deferred payments. We wrote $80 million in checks for deferred payments the first week of January. This may seem like an extraordinary amount to some, but in the size and scale of our business, we would consider this normal and it does not change the way we operate our day-to-day business. WFS has a $125 million operating line that was sitting with a $0 balance prior to writing these checks, so cash flow is not an issue.

Financial update
WFS is off to a good start with all divisions ahead of budget for the first four months, with the exception of energy. It is no surprise that our energy division is lagging behind. With the unusually high temperatures we have been experiencing and no dryer gas season, propane sales are way behind.

Fall was good for the rest of our divisions. Our agronomy department was able to get a lot of dry fertilizer application done. Anhydrous ammonia application, however, was a challenge due to the dry conditions of the soil. We got as much done as we could, and have actually continued to work on it into January as temperatures have allowed.

No storage charge for NH3
Although the anhydrous ammonia manufacturing companies have decided to charge agronomy retailers like WFS a storage fee for our unused anhydrous contracts, WFS has opted not to pass that through to our customers who have unused contracts over the winter months. Like I said previously, the unfavorable ground conditions this fall made it almost impossible in some areas to apply the anhydrous. Because neither the cooperative nor the farmer had any control over these conditions, we felt that it was not prudent to pass on the fee at this time; however, a storage fee will go into effect on July 1, 2012 on any tons leftover after spring.

Loan syndication positions WFS for growth
Your cooperative continues to grow in terms of sales volume. In fiscal year 2011, we passed the half a billion dollar mark in sales and ended the year at $535 million. To give you some perspective on how much we have grown, five years ago our sales were $251 million, and our operating line was $40 million. Because of the dramatic increase in sales volume and operating loan, WFS went through a loan syndication process. This loan syndication simply means we now have multiple lenders. CoBank continues to be our primary lender with the addition of three other lenders who will be participating in our loan as well. This combination of lenders helps position WFS for growth so that we can meet our customers’ needs.

Donation to be given to food shelves
WFS has once again made the commitment to donate to our local food shelves. This contribution will total $30,000; $15,000 will come from WFS, and $15,000 in matching funds will come from Land O’Lakes Foundation. The donation will be given to one food shelf in each of the seven counties where WFS has a location and will be distributed later this month.

Feed department working on HAACP plan
Due to the new FDA Food Safety Modernization Act that was passed back in November of 2010, our feed division is going through a process of putting together a Hazard Analysis Critical Control Point (HACCP) plan to track and ensure the quality of ingredients that enter into the human food chain. HACCP is a process control system that identifies where hazards might occur in the food production process and puts into place stringent actions to take to prevent the hazards from occurring. It is an extensive process that we hope to have completed by late spring.

Having this plan in place is important because it prioritizes and controls potential hazards in food production. By controlling major food risks, such as microbiological, chemical, and physical contaminants, the WFS feed division can better assure consumers that your products are as safe as good science and technology allows.

End of year tax preparation
It is tax season once again and WFS will be distributing your 1099-PATR forms at the end of January. Grain customers should have also received a 199 tax deduction pass through letter in November that would have given them the amount that will be passed through to them. This amount will also be included on your 1099-PATR form. If you, or your tax advisor, have questions regarding this deduction, please have them contact Bill Day, WFS CFO, at 507-776-1234.

If you have online access to your account, I just want to remind you that your 1099-PATR will be available for you to view and print off at the end of the month. If you do not have online access and would like this made available to you, please call Julie Zarling at the Truman office, 507-776-2831, to get set up.

Cooperative Council meeting
Our next Cooperative Council meeting is set for Thursday, January 19 starting with lunch at noon in the meeting room at our downtown office in St. James. Topics on the agenda include: Delavan, Wells, and Lewisville update, MF Global, 75th Year Celebration, AFD recap, Non-Qualified Patronage, Condo Storage at Delavan, Preferred Stock, and Financial Highlights - through November.

Those that have participated in the past received an invitation in the mail, but we encourage any member who wants to participate to join us. We have been given a lot of positive feedback about the Cooperative Council and credit its success to the small group setting which allows interaction between management, board, and members. If the council continues to grow, we anticipate breaking it into two groups in order to maintain that small-group setting. If you are interested in participating, please call Jami Lebert at 507-776-2831 to make your reservation.

Multi-national partnering
The cooperative structure continues to be one of success, which is great for our member owners. At the same time, the success has not gone unnoticed, and we continue to have multi-national and private companies attempting to access and gain control of our marketplace. A Minnesota cooperative recently announced partnering with a multi-national company in their grain division. As this partnering and/or consolidation takes place, we need to continue to look at ways to partner with neighboring cooperatives so we can compete with these multi-national entities/partnerships.