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COOPERATIVES in an ERA of CONSOLIDATION 14 TH ANNUAL FARMER COOPERATIVES CONFERENCE Meeting Competitive Challenges: Cooperative Structure & Finance for the Future Jeff Nielsen, General Manager United Farmers Cooperative (UFC)

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Mission Statement: To supply our customers with technology, products and services in a manner that is extraordinary enough to add value to their lives. Vision Statement: To be recognized by our customers as their first choice in the markets that we serve. Values: We Will Maintain financial stability Be competitive Retain, train and recruit employees to meet the highest professional standards Be open to new business concepts Embrace innovation and change as a way to achieve internal and external growth Communicate with employees, members, our communities and vendors in an open, forthright manner UFCs Purpose People.Pride.Purpose. Since 1915

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UFCs History United Farmers Cooperative (UFC) is a farmer owned cooperative that was formed in 1915 in the town of Lafayette, Minnesota. At that time, it was formed as the Cooperative Creamery Association of Lafayette. Over the next 85 years, the cooperative would undergo many changes as the needs of the members that it served evolved to keep pace with the changing world. Some of the highlights over the decades were as follows: 1915Cooperative was organized into Cooperative Creamery Association 1920Produce department was added 1940Locker plant and butcher shop was added 1960sOngoing construction with the addition of fertilizer blending equipment and bagging equipment for fertilizer products 1966First grain elevator purchased in Lafayette 1968Purchased and merged in the Klossner elevator facilities 1969The two Elevator operations and the Farm Supply operations merged into a single operation. The creamery division was sold to Mid America Dairies. 1971The name of the organization was changed to The Farmers Cooperative of Lafayette. 1972Winthrop Farm Services and Elevator purchased 1986Purchased the Norseland location from the dissolved Tri Ag.Co-op organization 1995The Klossner Coop Oil Association was merged into the operation and the Name of the organization was changed to the current United Farmers Cooperative 1995The new Livestock Service Center Opens greatly expanding the feed operations 1998LeSueur Farmers Elevator was merged into the operation 2000United Farmers Cooperative purchased a liquid Fertilizer Business from Ankers Inc in Gibbon Minnesota. Also purchased was the assets from Tri-County Builders of Gaylord to expand their building and construction business. 2002Complete redesign and reconstruction of LeSueur location. Built new retail franchise and opened Giant Valley Trading Company (GVTC) to address rapidly growing farm store market. 2003Purchased Turbes Oil Company and formed UDS (United Distribution Services) in Searles, Minnesota. This greatly increased petroleum volume and expanded UFCs service area. 2004Started our own insurance company Parthenon Risk Partners 2006Ag-Land Co-op and UFC unified their operations into UFCs 2008Hector Location Acquired 2010Green Isle United Xpress Bird Island Merged in July 1, 2010 2011Working on new World Class Grain Terminal at Brownton MN

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UFC Today Who We Are We are a member owned cooperative and have been since 1915. Profits go back to the members. We serve producers and consumers from a wide and expanding territory with sales over 230 million dollars in 2011. We are locally owned and locally controlled. We are involved in a very diverse business with operations in Grain, Feed, Agronomy, Seed, Energy, Farm Equipment, Grain System Construction and Convenience Stores. We employ over 200 people across the system.

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Coop Finance Historical Perspective Co-ops relied on traditional capitalization methods Retained earnings, long term debt, etc Focus on Revolving Equity Managing allocated equity obligation at present, $600,000 annually pretty well handles estates and age 70/72 redemptions for the foreseeable future. Nice position to be in. But we also are not satisfied. We have an obligation to redeem equity as expeditiously as possible. Need patience this is a marathon not a sprint. Need urgency too for example, evolving culture from small co-op to a big co-op. Almost cannot happen fast enough. Is the old system sustainable? Producer & Consumer demands are endless and cost $$

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Historical Financial Information

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Co-op Finance Future Needs Earnings and financial performance focus The absolute necessity of strong earnings Honor the commitments of the past. Must be able to perform at World Class levels Importance of a Plan for the Cooperative. Vision, Access to Capital, Creative Marketing, Execution Diversify sources of capital particularly equity capital-UFC now a 521 tax exempt co-op. Traditional & Non Traditional alike need balance. Local sourcing Use for Bird Island merger substitute for allocated equity; and, Raise cash from members and non-members Re-Inventing the cooperative model May need to look at cooperative partnerships differently

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Built 40,000 ton hub dry fertilizer plant $7M

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COOPERATIVE defined Adjective: Involving mutual assistance in working toward a common goal. Noun: A farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits.

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UFC Grain Systems LLC Connecting our Growers to the World

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UFC Historical Grain Volumes Est. Budget SALES2000200520102011 Corn4,722,1986,508,16712,809,78917,000,000 Beans2,479,9501,880,9172,760,5173,850,000 *TOTAL7,202,1488,389,08415,570,30620,850,000 Corn5,803,6928,813,87516,049,83020,750,000 Beans2,244,5881,723,2392,548,9163,650,000 *TOTAL8,048,28010,537,11418,598,74624,400,000 ACTUAL BUSHELS HANDLED

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Vertical Partnerships - Success Partnered with Winfield Solutions to create first ever wholesale/retail facility partnership in 2009 Result of multi year study of logistics and inventory management by both UFC and Winfield. Developed 80,000 sq ft facility built on property adjacent to UFC headquarters, that serves UFC retail patrons as well as Winfield wholesale accounts. Resulting partnership and success of this project has now led to several more facilities being built across upper Midwest by Winfield.

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Proposal Rationale UFC and Grain Partner create the new Grain Division. UFC Grain Systems LLC UFC contributes all of its current grain operations & facilities into the LLC. (appraised value = 20m, Book at 9.8m) Grain Partner contributes 15 million in cash Build new Shuttle Facility Cost = 27 million Creates New LLC with 50M in assets- (including working capital) Governed by Board of Directors UFC majority share holder Shared governance with grain partner LLC finances balance with term debt and/or local investment contributions. Total debt approximately 15 million

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Proposal Rationale cont. This approach has the following advantages: UFC leverages its brand to buy grain. UFC does not compete with itself. Grain Partners investment is more diversified because it shares in UFCs grain department profits regardless how the profits are generated including ethanol, livestock, soybean processors and of course export markets. LLC operates the grain operations, takes the risk of operating losses, and provides the working capital to operate. Grain partner brings global access to markets along with expertise and experience. UFC maintains a strong independent balance sheet.

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Applying the Coop Model Keeping it Local UFC Investment Options Current UFC Patron Notes Program Now open to anyone, members and general public Demand Notes, 3 and 5 Year Investment Certificates Current rates are: Demand 2%, 3 year 3%, 5 year 4% New UFC Preferred Equity program Class PPE, Series Brownton 1 Open to anyone, members and general public 5 million shares offered 7% dividend Assume 1 to 7 year redemption cycle Proposed UFC Grain Systems Common Equity Program Ownership opportunity in the new Grain LLC Returns based on the performance of the LLC Must be a qualifying member of UFC to participate Limited to 5 million shares at $1.00 per share

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Thank You ! 14 TH ANNUAL FARMER COOPERATIVES CONFERENCE Meeting Competitive Challenges: Cooperative Structure & Finance for the Future