April 2013

April 2013

MKC and TMA deliver success by linking producers to local markets.

Our Mission...

April 2013 To be our customers leading supplier of quality inputs and services and marketer of our customers' products, thus enabling our current and emerging stakeholders to achieve their goals while improving the profitability of all.

Our Vision…

MKC will be a highly valued, customer-focused business engaged in profitable relationships with high business ethics and employee satisfaction.

Contents Private Letter Ruling results in tax deduction for members and MKC .....................................................Page 5 A recent favorable ruling by the IRS allows MKC to allocate a tax deduction to its members.

Delivering success by linking producers to local markets ..................................................................................Pages 6 & 7 MKC and its customers benefit from relationships with area food, fuel and agriculture businesses.

Construction to start on new facilities; improvements being made to a number of locations ......................................Pages 8 & 9 MKC announces plans to build two new grain facilities. Improvements to speed and space that will provide for significant enhancements are also underway at a number of locations.

Our Core Values… · Building lasting relationships through shared success · Environmental and community stewardship · Integrity and honesty · Safe practices · Best management practices · Achievement through initiative, knowledge and innovation

Construction for the addition of an outbound scale in Moundridge started in mid-March.

The upgrade will improve traffic flow during peak harvest times and reduce wait times.

Series of customer workshops planned .........................................Page 10 MKC and TMA’s online customer systems offer features that allow producers to do business online and on their time. A series of workshops are being held to assist producers with learning more about the systems.

President & CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dave Christiansen Vice President & CFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Danny Posch Vice President & CMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .David Spears Interim Director of Energy Operations . . . . . . . . . . . . . . . . . . . . . . .Brandi Bailey Director of Southern Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Erik Lange Director of Northern Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .Steve Peterson Connections Managing Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Kerry Watson Staff Writer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cassie Wandersee Mid Kansas Coop Association P.O. Box D • Moundridge, KS 67107 • 620-345-6328 www.mkcoop.com

Planned redundancy I know it may appear that many of my articles are just short of carbon copies. For some of you, it may seem as though I have droned on about the same things since my arrival at MKC. If that is your perception, I appreciate the fact that you’ve been paying attention!

I use the same theme in every article and presentation that I have the opportunity to do and in every conversation I have with growers, vendors and employees.

Don’t look for this to change. I may bore you to tears, but you’ll never wonder what the initiative of the month is.

We recently completed our strategic planning for next year as well as the next few years. While our daily activities contain some action plans that may appear different, our overall strategies (or corporate initiatives) remain intact. We share these frequently and I’ll share them again now.

Our strategic objectives will be to focus on growth in scale of the company and in financial strength. We will remain focused on our customers by providing programs, products and services that they find of value, not just for today, but for the next 5 or 10 years. We will continue to seek out and employ the best people. And finally, we will continue our efforts to renew this organization’s infrastructure.

I’ve written many times about our intentions to grow. Consolidation in the cooperative industry will continue and will result in vendors chasing those who have or can deliver scale. MKC has to be that company. The impact of our continued growth is clear when you stop and consider the tools we can deliver to our growers.

Our current scale provides for vendor relationships that give us access to tools that smaller companies don’t get. That puts additional money directly in your

By Dave Christiansen, President & CEO

pocket. A medium-sized grower recently told me our programs and people have put an additional $150,000 in his pocket over the past two years. Now that is what we are trying to do!

data, veris rig technology analysis, risk management assessments and tool utilization in all areas. We must have creative people with the skill set to interpret this data coming at us daily.

While our customer focus hasn’t changed, it continues to be refined. Not only do we focus on having the right structure to deliver what customers need, we continue to refine our programs, products and services that are critical to your success today and in the future. We must be diligent in our efforts to understand the services that young producers require in order to advance their profession. The needs of this group certainly are different than those of 30 years ago. This group generally has a much better knowledge base to start from, with many having an education in agronomy or ag business.

However, they are faced with greater volatility than has existed at any time before. We are working to help them manage that volatility. You will see more effort by us to insure the overall customer experience is improved in multiple areas.

We acknowledge there is plenty of room in which to raise the bar.

Seeking talented people for all facets of our business is just part of the challenge.

Another challenge we face is when we do our job to help employees develop their skills, others in the industry take notice and recruit them from us. We will develop some and lose some and each time we will feel some pain. We’re proud that we’ve helped them pursue their personal greatness and they helped us be a better company along the way.

Our effort to attract, retain and develop the best and brightest talent remains robust. Great people are critical to the success of not only your coop but to your operation as well. In addition to the traditional employee who is smart, diligent and loyal, we’ve added other criteria.

Today’s employee has to be passionate about our mission. They have to be creative and willing to take the initiative no matter what position they hold within the organization. Creativity and innovation will continue to drive our business.

We continue to see a transition from embodied technology (such as Roundup® Ready seed, hybrid seed corn, cell phones and guidance technology) to knowledgebased technology. Examples include integrated pest management, site specific

As I hope you’ve noticed, we are making many investments throughout our organization. We understand that in order to deliver on our promises to you we must have the people, the processes and the scale required to be effective.

Over the next year our members will be much more involved in our planning process. We will be asking many more questions of you through formal and informal surveys. The number of meetings I have with members will also increase. We are seeking your input in order to continue positioning MKC and TMA to be the companies that are your partners of choice in the future.

It’s tough for you, our customers and members to get excited about the future of our company if we don’t share our plans.

My intent is to be clear about the direction the board has given the management team and to build an execution strategy around it. As many of you have pointed out, we have opportunities to improve consistency in performance in many areas. We agree and are making corrections daily. Our size and strength continues to help us go about this process.

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Community News FFA members see agriculture in action

By Cassie Wandersee, Staff Writer

“I like the idea of giving something back,” said Benisch of helping with the tour.

Dalton Queen, a sophomore at Inman High School, has been involved in FFA for three years. “I thought the Veris Rig was very cool,” he said.

MKC Field Marketer Chris Thompson (pictured at right) explains some of the products and services available through the agronomy center at Groveland.

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Forty students from Inman High School involved in Future Farmers of America (FFA) participated in an educational tour at the Groveland location in late February.

ture; instead her education is based in business. She showed the students that the agriculture industry needs people with more than agriculture experience.

“I wanted my students to see that they live close to agriculture,” said Daniel Knapp, FFA advisor and Ag Instructor at Inman High School. He went on to comment that many of his students were not aware of the presence of the Groveland MKC location close to where they live.

Ross Benisch, Precision Ag Specialist for MKC, comes from a background very much based in agriculture with a history of involvement in FFA. It was his involvement in FFA that began him on the career path to where he is today.

Students were given a tour of the offices and had an opportunity to hear about each employee’s job responsibilities and their educational background.

“I was on an FFA trip when I first saw mapping technology. It was seeing the technology that made me want to pursue a career in it and steered me to where I am now,” Benisch said.

Tara Struber, Billing Specialist at Groveland, shared with the students that she doesn’t have a background in agricul-

Benisch was an FFA member in high school and still has a lot of respect for the organization.

Benisch had explained to the students how the Veris Rig utilizes a soil electrical conductivity (EC) meter, pH electrodes as well as a GPS system to map out (down to the foot) the specific soil type, elevation and pH levels in a field. This information is combined into a field prescription that can then be applied at a variable rate, increasing the amount of revenue per acre.

“It’s amazing how with technology now everything is done by computer,” Queen went on to say. Another student commented that he wished he had the same technology on his family farm.

Precision agriculture is one area that MKC is actively working to educate the next generation of farmers through outreach programs like the FFA facility visit.

“A good number of my students are looking to an agricultural field or going home to farm,” said Knapp. “Agriculture is everywhere and we’re always going to have people to feed. There is a need for farming and the kids got a better idea of that on the tour.”

Helping their garden grow Standing in front of an assembly of grade school students, (Goessel) USD 411 Superintendent and Principal, John Fast, slipped on a pair of worn out gloves and mentioned he was looking forward to warmer weather because he had been bitten by a bug.

Students soon found out that it was a gardening bug, not termites or the flu bug as some had guessed, that bit Superintendent Fast and that MKC was donating $500 to help offset costs of the school’s garden program.

Kerry Watson, Communications Specialist for MKC, was on hand to make the presentation to the assembly.

“A large portion of our donations go towards programs that promote ag education, alleviate hunger, develop the leadership skills of youth and improve community safety,” stated Watson. “The school garden is a great opportunity for MKC to donate to as it ties in nicely with two components of our donation program.”

The garden program was started two years ago when the school received a grant from the state department of education. The school’s garden was one of the first five garden projects in the state of Kansas started that year.

Fast commented that the garden has created a renewed sense of enthusiasm.

“Since starting the garden, students have been very excited learning about agriculture, science, nutrition and cooperative learning,” stated Fast.

“They enjoy the chance to work in the garden.”

A curriculum has been incorporated with the garden project and includes weekly lessons that are 20 to 30 minutes each for students kindergarten through fifth grade. The Agricultural Education classes help teach the students by inviting them to help start the plantings in the greenhouse. In addition, students learn to recycle plant and garden refuse in the compost pile.

Fast added that several lessons in their curriculum involve visiting farms and dairies so that the students can get a better understanding of how food is raised on a large scale production.

MKC’s donation will pay for the garden project’s new coordinator, Pam Abrahams. An avid gardener herself, Abrahams commented that it was important to her that the students have an opportunity to grow their own food. “I think all children should experience the joy and wonder of digging in dirt and watching the seeds they helped to plant grow,” she said.

Private Letter Ruling approval results in tax deduction for members and MKC This past fall, the Internal Revenue Service (IRS) approved MKC’s Private Letter Ruling (PLR) request to change the calculation of its Domestic Production Activities Deduction for upcoming years. The ruling, while requiring certain changes to grain purchasing processes, allows MKC to significantly enhance the value of it’s Domestic Production Activities Deduction (tax deduction) for its members and the company.

The Domestic Production Activities Deduction, often referred to as Section 199 Deduction, is a special federal income tax provision that allows a cooperative to allocate to its members a tax deduction generated by “qualified production activities.” As outlined by the IRS and as it relates to the Domestic Production Activities Deduction, the payments MKC makes to its members for grain are considered qualified production activities by the cooperative, thus making the cooperative and its members eligible for the tax deduction.

Danny Posch, Chief Financial Officer for MKC, commented that the coop initiated a plan at the beginning of the year to fully capture the value of the deduction for the members. “Part of that plan includes communicating details and the benefits of the Domestic Production Activities Deduction, as well as the requirements to participate in the deduction to our members,” stated Posch.

Posch added that additional communication will be sent to members during the next six to eight months.

MKC Communications Specialist, Kerry Watson, presents $500 to Goessel grade school students.

Also pictured are Pam Abrahams and Superintendent John Fast.

“Returning value to the members, our owners, is at the core of MKC’s mission, Shared Growth. Shared Success.,” states Posch. “MKC strives to provide value through grain marketing, insurance services, energy, feed services, and the crop input and services we offer to our members. We will also strive to provide value through patronage and other economic value whenever possible.”

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Delivering success by linking producers In his role as Chief Operating Officer for Team Marketing Alliance, Ted Schultz is tasked with helping customers aggregate the products they produce through new and traditional marketing opportunities. To ensure maximum return and profitability for all producers, Schultz looks to a variety of marketing channels, including relationships established with local agriculturalbased companies.

“We play a role in the middle to maximize the farmer-owners’ profits while helping our end users, providing a balance to make sure farmers are meeting the needs of the end-users.”

TMA marketers work to ensure that local businesses have access to the type of grains they need and want. The relationship with each business is different Schultz said, with some taking delivery year-around and others purchasing a product only after harvest or when specific crop characteristics are identified. Regardless of the delivery schedule, the ability to service local industries allows MKC to utilize their facilities more efficiently and provides new markets, which generate additional revenues for the cooperative. Those profits are then passed along to producer customers through patronage dollars and used by MKC to upgrade its facilities and services.

“We play a role in the middle to maximize the farmer-owners’ profits while helping our end users, providing a balance to make sure farmers are meeting the needs of the endusers,” said Erik Lange, Director of Southern Area Operations for MKC.

Countryside Feed uses about 1.5 million bushels of grain on an annual basis. It’s relationship with MKC has allowed Countryside Feed to grow its market share.

As a member of TMA, Mid Kansas Cooperative and its farming customers benefit from relationships with area food, fuel and agriculture businesses that purchase grain from TMA to use in the production of their end products. The relationships are win-win situations for the producer and TMA as they open new markets, provide new pricing opportunities and allow businesses to use locally grown products in their production process.

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“TMA or the local coops we represent are all in growth mode and always looking for new opportunities and if something arises we will pursue those. All we want to do is what is best for local producers and pass along the best prices we can find,” Schultz said.

Each year, TMA sells 40-70 percent of its product locally. The quality and size of the crop determines its local marketability so

One of TMA’s largest local grain buyers is Countryside Feed. The relationship between TMA and Countryside Feed dates back to 2000 and was enhanced when MKC and Countryside Feed merged their feed mills in 2005. Today, they work together to manufacture a variety of animal feeds, using locally grown crops.

Lyman Adams, COO of Countryside Feed, said the company uses about 25,000 bushels of grain each week – or about 1.5 million bushels annually – to produce feeds sold under the Land O’Lakes label. Countryside Feed sells feed both directly to the consumer and also back to MKC, which makes bag feed available to its customers at various locations.

Adams said the relationship with MKC has allowed Countryside Feed to grow and uti-

to local markets lize MKC’s customer base and expertise to grow its market share and service livestock owners throughout the state of Kansas.

Countryside Feed, Schultz said, is often one of the first customers contacted when TMA determines it is no longer profitable to hold onto grain supplies.

“We can’t hold grain when the markets tell us not too,” Schultz said. “When that happens, we go to local feed mills and customers. They are the first ones we call so we do work with them closely in that regard.”

Unlike Adams, who can utilize a variety of MKC grain products, Brent Wall, vice president and general manager of Cereal Food Processors Inc.’s McPherson mill, can only take advantage of the cooperative’s annual wheat crop.

Wall said his company has purchased wheat from MKC since 1992, when the mill operated under the Wall-Rogalsky name. The number of bushels purchased through TMA varies annually and is largely dependent, Wall said, on the makeup of the wheat crop. Because the crop will vary throughout its territory, MKC works to ensure the wheat Wall needs is made available.

By Katie Sawyer, Freelance Writer

And it’s more than food processors that look to MKC and TMA to purchase grain inputs. Kyle Adams, a TMA employee who works out of the Kansas Ethanol plant in Lyons, purchases grain directly from TMA for use in the ethanol manufacturing process. Kyle Adams utilizes risk management tools to determine the plant’s purchasing needs and turns to TMA as well as other cooperatives, and multi-national companies to keep the plant operational. Annually, TMA provides approximately 6 million bushels of grain, or about 30 percent of the plant’s overall grain inputs.

The relationship between TMA and Kansas Ethanol is beneficial for both companies Kyle Adams said. TMA is able to supply the plant corn and grain sorghum year-around, including times when it would traditionally be more difficult to execute a purchase from producers or other commercial customers.

The proximity of the MKC territory to the plant also allows for TMA to transport a larger amount of grain to Kansas Ethanol with lower transportation costs.

The ethanol produced at the Lyons plant, Kyle Adams said, is largely marketed in the Wichita and Oklahoma markets. Wet and dry distiller grain, both products of the ethanol refining process, are also sold locally, a majority used by area feedlots.

The ongoing drought has created a few challenges for both TMA and its local customers. Between a smaller-than-normal crop and the emergence of issues like aflatoxins in the corn, Schultz said it is more important than ever that TMA continue to evaluate the quality of its crop to ensure its end-users are receiving a high quality product that meets their production needs.

“The size of TMA and the number of its facilities gives us the ability to help fulfill the needs of both the producers and end-users,” said Schultz.

Some of the freight advantages of buying locally have disappeared Wall said, but that has not changed his desire to partner with MKC. “More than anything right now, we like to take advantage of the opportunity to buy good, quality wheat and know for a fact that it’s locally grown,” Wall said, who noted that the wheat is used to produce flour that is also sold locally.

Kyle Adams, Commodity Marketing Manager at Kansas Ethanol, relies on Team Marketing Alliance to supply approximately 6 million bushels of grain on an annual basis.

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Construction to start on new facilities; improvements being made to a number of locations

by Kerry Watson, Communications Specialist

The boards of MKC and CHS Inc. have approved an agreement to form a limited liability company (LLC) to build and operate a high-speed shuttle loading facility in Canton, Kan. CHS Inc., a Fortune 100 company, is a leading global agribusiness owned by farmers, ranchers and cooperatives across the United States.

Construction on property currently owned by MKC is expected to begin later this spring and is projected to take 12 months to complete. Located on the Union Pacific rail line, the grain shuttle will load 110-car trains bound for export facilities in the Pacific Northwest, the Gulf Coast and Mexico. Upon completion, onsite storage will be in excess of 3 million bushels.

The newly formed LLC will become a member of Team Marketing Alliance (TMA) which will handle grain marketing services for the Canton grain shuttle facility.

“We are excited about the opportunity to come together with strong partners like MKC and TMA to expand the global reach for Kansas grain farmers,” said John McEnroe, Executive Vice President, CHS Country Operations Division. “This is a great example of how we can be greater together.”

“MKC has been studying this project for quite some time and part of our due diligence included the selection of the right partner that could bring us an advantage immediately,” said Dave Christiansen, MKC’s President and CEO. “We’re very pleased to be able to develop a partnership with our regional cooperative CHS that will bring considerable value to our member owners.”

Also scheduled for this spring is the construction of a high speed, dual-scale grain facility to be located four miles south of Lyons. The 3 million bushel storage facili-

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Construction of a high-speed shuttle loading facility near Canton is scheduled to begin later this spring.

The facility will load out 110-car trains bound for export facilities in the Pacific Northwest as well as the Gulf Coast and Mexico.

ty will be designed to receive multiple grains quickly and efficiently and provide long-term storage opportunities.

Improvements to speed, space and product availability are also occurring throughout MKC’s trade territory. These projects will provide significant enhancements to a number of locations.

Final preparations to the seed warehouse in Abilene were completed in February making the facility fully operational and providing centralization for bagged seed storage. The seed treater, now located inside the warehouse, allows for multiple applications of treatments in a timelier and more accurate manner.

In addition to the warehouse a 4,000 unit seed bin was added to the bulk seed storage bringing total seed storage capacity to 13,000 units. Steve Peterson, Director of Northern Area Operations for MKC, commented the additional bulk seed

storage will allow for receipt of early shipments of seed product. “It will insure a good supply of seed throughout the planting season, meeting our customers’ needs,” stated Peterson.

A larger scale with an improved approach to the elevator in Longford is scheduled to be installed later this summer. According to Peterson, the scale and improvements will bring the location into compliance with state regulations.

Pre-harvest construction at Talmage will result in increased speed on the leg in the main house. An upgrade to the main leg will increase the distribution capacity in the main house to 20,000bu per hour which will tie in to the conveyor to the annexed bins. “The addition of the new leg and distributor will reduce dumping time, getting our customers back to their fields quicker,” stated Peterson.

Most noticeable at Talmage has been the

installation of an anhydrous ammonia bulk plant located north of town on Highway 18. Discontinued by Farmers Cooperative Association in 2005, Peterson commented that reinstating anhydrous ammonia to the area will provide growers the opportunity to utilize all three forms of nitrogen. “This will allow us to meet the diverse farming practices of our producers in our northern region,” stated Peterson.

Construction at Walton is also underway on the outside leg. When completed, the leg will have a capacity of 15,000 bph bringing the total dump capacity to 25,000 bph. Lange commented that the upgrades are part of MKC’s continued commitment to revitalizing its infrastructure.

The grain facility in Groveland is also undergoing a series of improvements,

MKC employees plumb in the lines to the new anhydrous ammonia bulk plant in Talmage.

Upgrades in MKC’s southern territory include the addition of an outbound scale system at Walton and Moundridge.

Expected to be completed prior to the 2013 wheat harvest, the upgrades will result in reduced wait times and ease of navigation for producers.

Once considered sufficient, the single scale system at both locations has created traffic problems during peak harvest time.

“Over time, trucks have gotten larger but we’ve not made the changes necessary to accommodate those trucks,” stated Erik Lange, Director of Southern Area Operations. “Our goal is to make the flow of traffic an easy, straight shot in and out of the location.”

In addition to the new scale systems in Walton and Moundridge, an outbound printer and intercom system will be installed allowing drivers to remain in their trucks throughout the loading and unloading process.

including increasing the original portion of the existing facility speed to 20,000 bph.

A LeMar storage system will also be added, increasing the storage capacity by an additional 1.2 million bushels.

Ground has also been purchased in Benton to provide for future storage expansion. The project is still in the planning phase with no date yet confirmed for construction.

Christiansen commented that there has been quite a bit of excitement among the employees and members regarding the new facilities and project improvements.

“This is all part of our plan to meet the needs of our customers not only today but as we move into the future,” said Christiansen.

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Staying the course

Series of customer workshops planned

Chaos at every corner! Webster’s Dictionary describes chaos as, “A state of utter confusion or disorder; a total lack of organization or order”.

This sums up the feelings of a vast majority of producers throughout the United States.

by Kerry Watson, Communications Specialist

by Devin Schierling, Grain Marketing Manager

Producers are feeling psychological, environmental, and emotional pressures that have the potential to unleash total chaos on their farms.

Whether it’s the environmental pressures of rainfall and temperature, the psychological impact of making buying/selling decisions or the emotional effect of the past year’s growing season, producers are looking for ways to eliminate the chaos in their life.

In times of chaos people look for a magic solution that will cure whatever ails their operation. The solution comes in multiple forms. Some people will pay a marketing consultant that guarantees them their grain

will be sold at the high of the market while others will choose to buy private insurance to insure against a specific peril. These products, by themselves, have very little impact on the bottom line of a farming operation. However, when used in conjunction with a profit/revenue based marketing approach, they can greatly improve the operation’s profitability.

It’s important to remember to stay the course and not attempt to manage individual events that are out of your control. Stay focused on the overall profitability of your farming operation. By being mindful of your crop input expenses, using crop insurance to insure potential revenue, and grain marketing programs to maximize profitability, you can stay the course and insure the profitability of your operation regardless of the chaos that is around the corner.

TMA introduces new Crop Insurance Specialist Nick Levin joined TMA earlier this year as a Crop Insurance Specialist serving TMA’s northwest region.

Originally from Kensington, Kans., Nick gained his experience as a producer on his family’s farm. He personally believes in the importance of protecting your farm’s revenues with crop insurance. Nick is excited to return to agriculture and looks forward to providing dedicated service to producers with their insurance needs. He and his wife, Emily, reside in Inman with their two children.

A series of workshops that assist producers in learning about features available through MKC’s and TMA’s online customer systems are underway. Craig Roebke, Trainer for MKC, will conduct the workshops. “We know we have a number of customers who are using only the basics on these systems, and we know there are some customers who just haven’t tried them at all,” states Roebke. “Our goal is to show our customers how the online systems can save them time and help them become more efficient.”

The workshops will cover a number of tools available on the sites. Participants will learn how to access detailed information including purchase history on products. In addition, they will learn how to sort data listed on invoices and how to schedule payments online. “One misconception about paying bills online is that it will automatically occur each month,” stated Roebke.

“This feature actually gives customers the flexibility to schedule the payment when they want it to occur. They can use the online bill payment system one month and then not use it again for a couple of months if they choose.”

Producers will learn how to use the online grain system to determine the amount of grain available for sale as well as view any open contracts.

Reviewing grain sold and capturing proof of yield information, including splits, will also be covered.

Another great feature that saves the producer time is the offer contract system. “Producers can go online any time of the day and make an offer for their grain,” states Roebke. “The offer is good for 30 days and can be cancelled at any time during that time period.” Roebke added that a trip to the bank can also be eliminated if the producer is enrolled in the direct deposit program.

The premise behind the online customer systems is to allow producers to do business online and on their time. “If a producer fully understands how to use the online systems, he may very well no longer have to stop what he’s doing just to make a trip to the coop,” commented Roebke.

Producers should contact their MKC location for information about workshops scheduled in their area.

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