June 17, 2019

Adapt and Succeed: How MaxYield is Managing Through Tough Times

By Keith Heim, chief executive officer

It’s no secret that all of us are operating in a challenging financial environment, especially as agriculture endures its fourth year of lower net farm income. Just like you, we’re doing everything we can to adapt and succeed in this tighter market.

The ag industry’s current downturn began in early 2014, and its effects are widespread. That said, total revenues at MaxYield Cooperative were noticeably higher in 2017 but below budget. This can be attributed to lower carries in the corn market throughout the year and farmers maintaining ownership of more corn bushels than past years, and these bushels will carry forward into the next fiscal year. For the year ending July 31, 2017, MaxYield’s local savings from operations were a negative $1,258,390. Pre-tax total savings for the cooperative totaled nearly $3.1 million.

I want to emphasize that the local savings loss is not due to mistakes or missed opportunities. If you’re wondering whether MaxYield’s acquisition of seven locations from The Andersons in the spring of 2016 played a role, I continue to be pleased with the progress we’ve made to date.

I’m also pleased to report that your cooperative is as financially strong as it has ever been, as you’ll see on our balance sheet.

Strengthening MaxYield’s financial position

It seems counter-intuitive in times like this, but our balance sheet has never been stronger. Members’ equity increased by over $3.0 million, and we added $2.4 million to working capital in fiscal year 2017. This boost helped us reach $34.9 million in working capital, which is a record in the company’s history.

We’ve also lowered long-term debt by $3.9 million, so our leverage was down 15 percent at year’s end. We’re poised to lower leverage 15 points per year going forward.

Retained savings grew in 2017 and now total more than $45 million. In 1997, retained savings were a negative $122,242, so you can see we continue to make significant progress in strengthening MaxYield’s financial position.

DPAD and retirement of preferred stock

Your MaxYield board has chosen to retain this year’s earnings and use about 25 percent of the domestic production activities deduction (DPAD) to offset the tax obligation of retaining that income. The other 75 percent (approximately $3.1 million) will be passed through to the MaxYield membership.

You can apply the DPAD to your individual or business tax bill. Talk to your tax preparer for specific details.

The board also approved paying a 5 percent dividend on Class A preferred stock that was issued in 2013. Those checks were mailed in September. In fiscal year 2017, the MaxYield board distributed more than $500,000 for the retirement of preferred stock and preferred stock dividends.

Cost reduction and revenue enhancement

In case you’re wondering what MaxYield is doing in the current fiscal year to grow local savings, we’ve implemented a detailed cost reduction/revenue enhancement plan for implementation in 2017, 2018 and 2019.

This cost reduction/revenue enhancement plan will enable MaxYield to continue forward with a balanced approach of upgrading facilities and equipment, retiring previously issued preferred stock and lowering term debt. Your board continues to focus on upgrading rolling stock and facilities throughout MaxYield. We know members who use the co-op need efficient, modern facilities and equipment, and we’re pleased to fund these improvements.

The board has approved more than $3 million in capital expenditures for the 2017-2018 fiscal year. This is comparable to what we invested in the previous fiscal year.

We’ll also continue to implement strategies to lower MaxYield’s cost structure. We reduced our full-time team member count in fiscal year 2017.

We’ve also identified other cost saving and revenue enhancing measures that will improve our financial position noticeably. We’ve already started implementing many of these initiatives, including our new MaxYield leadership training program, which you can learn about on page 10.

Above all, we’re taking a balanced approach to enhancing revenue and decreasing expenses so we can meet the diverse needs of our members. As always, we appreciate your support and want to help your cooperative thrive for years to come.

 

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