Credit, Suppliers & Purchasers :Credit, Suppliers & Purchasers Jeff Stroburg, CEO West Central Cooperative Iowa Farm Bureau Policy Information Conference February 24, 2009


West Central :West Central West Central is a farmer-owned cooperative headquartered in Ralston, Iowa. West Central markets products throughout most of North America and to several other foreign destinations.


Slide 3:Annual Operations Sales this year will be $700 million Within the top 20 largest grain companies in North America, by storage capacity Markets over 80 million bu. of grain West Central adds value to members’ crops by transforming them into products that are worth more in the world marketplace


External Environment :External Environment Historic pricing environment Price volatility risk Make capital demands 3x – 4x Lender capacity vs. lender intent


Commodity Prices :Commodity Prices July 2007 Corn $2.79 Soybeans $7.28 Anhydrous $495 Potash $270 Diesel Fuel $2.88 July 2008 Corn $5.16 Soybeans $13.44 Anhydrous $895 Potash $830 Diesel Fuel $4.65


External Environment :External Environment Counterparty risk End User – contract and credit Forward contracts with producers Producer “3% Rule” Pushes risk to least sophisticated


Internal Environment :Internal Environment Physical Inventory Risk 1.5 million bu. x $2.00 = $3 million 1.5 million bu. x $5.50 = $8.25 million Handling Shrink QMS – ISO Certification Competition for capital


Current Situation :Current Situation Changing relationships require credibility Technically skilled labor Gross margin expansion Tremendous demand for grain production Long term protein demands


Functions Performed By Grain Companies for Farmers :Functions Performed By Grain Companies for Farmers Provide a Ready and Reliable Market For Producer Grain Daily Cash Market Cash Forward Contracts Delayed Payment Contracts Deferred Pricing Contracts Hedge to Arrive Contracts


What happens when a grain company buys a bushel of corn? :What happens when a grain company buys a bushel of corn? The elevator makes an initial margin deposit on a 5,000 bushel contract Currently this initial margin ranges from $1,200 to $1,700 per 5,000 bushel contract Every time corn goes up 10 cents it costs the elevator another $500 in margin calls When you receive a margin call you have until 3:00 PM the next day to have the money deposited or your position will be liquidated


What has caused costs to escalate? :What has caused costs to escalate? If 5,000 bushel of corn was purchased in January at $5.00 per bushel The elevator has the initial margin of $1,200 plus when corn rose to $8.00 they had an additional $3.00 invested in margin calls At this point the elevator would have $3.24 per bushel invested in that contract The majority of this money is likely borrowed operating capital


Capital Uses :Capital Uses Return on equity Fixed assets Term debt payments Investments


Sarbanes – Oxley :Sarbanes – Oxley West Central is a privately held company, but it has adopted some important Sarbanes Oxley Guidelines: Audit Committee Established Outside Director Position Established Internal and External Auditor Reports to Audit Committee


Sarbanes – Oxley :Sarbanes – Oxley Formal reporting structure of Audit Committee to full Board membership Monthly Financial Statements Are Submitted to External Auditors for Review Audit Committee Receives and Follows Up on “Whistleblower” Reports Management report to stockholders on internal controls


Monitor Risk Exposure :Monitor Risk Exposure Commodity price risk Commodity quality risk Regulatory compliance Marketable security - value risk Insurance coverage Director liability Contract programs


Jeff Stroburg, CEOWest Central Cooperative :Jeff Stroburg, CEOWest Central Cooperative