Net sales decreased three percent in 2000 to $3.2
billion. Excluding the effect of divestitures, net sales increased two percent to $3 billion. Pretax earnings of $87.9 million in 2000 were up $77.2 million from the previous year. The earnings improvement was primarily due to more stable market prices, compared with the
previous year, and an incremental gain from the divestiture of
businesses and was partially offset by impairment charges.
Dairy Foods cheese and butter prices remained depressed throughout 2000 and averaged only slightly higher than government price support levels while nonfat dry milk prices were at or near
support throughout the year. Butter prices remained volatile and market-driven. While 1999 price declines caused significant inventory devaluations, no write-down of inventory values took place in 2000.
Sales volumes in 2000 were up notably for Dairy Foods, with all major categories showing increases over the previous year. Total branded butter, both share and volume, reached record levels, with units up four percent versus 1999. The Madison Dairy acquisition in January 2000 added incremental private-label butter volume to Dairy Foods. Aseptic products experienced strong volume growth of 14 percent, and deli products reported a volume increase of two
percent in a mature and competitive market.
During 2000, Land O'Lakes sold its fluid dairy assets to Dean Foods Company, which acquired the commodity fluid milk operations and the right to use the LAND O LAKES brand name on those products. This transaction helped strengthen the Company's balance sheet and provided improved financial capacity for future growth. As part of the sale, Land O'Lakes established an agreement to meet the raw milk requirements of the plants acquired by Dean Foods. Additionally, a 50/50 joint venture called Dairy Marketing Alliance was formed with Dean Foods to develop, market and license certain value-added fluid and cultured dairy products under the
LAND O LAKES brand name.
Feed Both sales and earnings increased in 2000. Net sales improved 26 percent to $1.2 billion mainly as a result of the new joint venture with Farmland. Earnings rose $6.2 million or 33 percent in 2000 to $25.3 million. Excluding the effect of a restructuring charge, earnings were $32 million, up $12.9 million.
On October 1, 2000, the Company and Farmland formed the Land O'Lakes Farmland Feed LLC joint venture, which combined all of their North American feed operations. Land O'Lakes holds a 69 percent ownership interest in the venture.
Feed reported strong volume increases in 2000 in both feed ingredients and vitamins. A major driver of the ingredient volume increase was the Grain and Ingredient Trading (GIT) program, which more than doubled its volume over 1999. GIT markets ingredient feed to non-traditional customers.
MoArk, LLC ("MoArk"), the new egg production and marketing joint venture established in 2000, got off to an excellent start and contributed $2.1 million of pretax earnings to the feed segment.
Seed Net sales nearly doubled to $366 million in 2000, reflecting the effect of seed acquisitions in 1999 and the purchase of WILFARM, LLC and Agro Distribution, LLC seed assets in 2000. Soybean sales
volume nearly tripled over 1999, and double-digit growth also occurred in corn, wheat, turf, alfalfa, and forages. Pretax earnings of $6.8 million in 2000 were up $1.5 million or 28 percent from 1999 results.
During the year, the Company placed a major focus on
integrating Land O'Lakes Croplan Genetics with the seed businesses acquired from Agro Distribution and WILFARM (a joint venture between Farmland and Wilbur Ellis). In addition, Land O'Lakes strengthened its position as the global alfalfa leader by purchasing certain forage assets from AgriBioTech, Inc.
Seed continued to work closely with Agriliance on local
cooperative programs for financing of crop inputs, providing
agronomic advice and administering retail sales. Several pilot
programs in Wisconsin focused on providing Total Farm Solutions to targeted milk producers by linking all aspects of crop and milk
production, including seed and crop fertility.
Swine Net sales grew $19.3 million or 23 percent to $102 million in 2000 due to improvements in market prices for hogs and increased unit sales. A loss of $1.9 million in 2000, when compared with a loss of $25.8 million in 1999, reflected both the rebound in market prices as well as improved production performance.
In 2000, reduced hog production and strong consumer demand increased the average market price to about $45 per hundredweight versus an average market price of approximately $34 in 1999, an amount substantially below the cost of production.
Land O'Lakes operates two swine programs, Farrow-to-Finish and Swine Aligned. The Farrow-to-Finish program allows producers to participate in swine production with limited risk through production contracts for farrowing and finishing hogs owned by the Company. The program generated $2.2 million of pretax earnings in 2000
compared with a loss of $10.9 million in 1999.
Under the Swine Aligned program, the Company farrows feeder pigs for sale to local cooperatives, which in turn sell the feeder pigs to independent producers. Swine Aligned realized a loss of $2.1 million in 2000, primarily due to start-up expenses. To reduce hog market price risk for Swine Aligned producers as well as other Land O'Lakes feed customers, the Company offered a cost-plus marketing program which set a floor price for the producer. The program yielded a loss of $2 million in 2000.
Agronomy In 2000, Land O'Lakes, CHS and Farmland created Agriliance, the largest North American distributor of crop nutrients, crop protection products and other agronomic inputs and services. The Company holds a 50 percent ownership interest in Agriliance. Agriliance consists of the agronomy marketing operations of
Land O'Lakes, CHS and Farmland, which were previously managed through various operating entities. Agriliance established its own external credit facilities on July 29, 2000, became a self-financed entity and secured ownership of the previously managed assets. Subsequent to this date, Land O'Lakes recognized 50 percent of Agriliance's earnings based on the equity method of accounting for investments. Consequently, business segment results included seven months of consolidated sales and earnings from the Company's agronomy businesses prior to July 29, 2000 and five months of
earnings from Agriliance for the remainder of 2000.
In 2000, Agronomy recognized a loss of $29.5 million compared with earnings of $12.4 million in the previous year. The earnings decline in 2000 was primarily due to costs associated with the
repositioning of retail distribution assets acquired in 1999, including an asset impairment charge. In addition, the southern retail
operations of Agriliance were negatively impacted by intense
competition, loss of personnel and adverse weather conditions in some markets.
Land O'Lakes has a 34 percent ownership interest in CF Industries, Inc. ("CF"), an interregional plant food manufacturer. In 2000, the Company did not receive patronage income from its investment in CF due to the world-wide over-supply of nitrogen.
