EXHIBIT 20 - LETTER TO STOCKHOLDERS
Published on
Exhibit 20
November 11, 1997
Dear Stockholder:
While our earnings for the first quarter of fiscal 1998 were negatively affected
by a further decline in wheat gluten selling prices, our cash position was
bolstered by increased sales of alcohol products. As a result, we were able to
reduce our debt to approximately $26 million during the quarter. Since the end
of the quarter, debt has been reduced an additional $1 million.
The fall in gluten prices was caused by the predatory pricing practices of
subsidized producers from the European Union (E.U.), who continue their program
of unloading excess gluten in the U.S. market. Due principally to this factor,
our Company experienced a first quarter net loss of $235,000, or $0.02 per
share, on sales of $57,623,000. For the first quarter of fiscal 1997, we had a
net loss of $346,000, or $0.04 per share, on sales of $53,173,000.
To reduce the severity of E.U.'s damaging tactics, and yet maintain a stable
customer base, we have stayed with our strategy to limit our production of wheat
gluten until conditions allow otherwise. At the same time, we are taking part in
a recently launched initiative under Section 201 of the Trade Act of 1974 in an
effort to help put an end to this unfair situation.
On September 19, the Wheat Gluten Industry Council of the United States filed a
petition with the International Trade Commission (ITC) that asks for the
establishment of a four-year quota for each country exporting gluten to the U.S.
The ITC has up to four months from September 19 to review the situation and make
an injury determination. Within six months of the filing, the ITC must deliver
its remedy recommendation to President Clinton. The President then must act on
the ITC recommendation by May 18, 1998.
Although the establishment of quotas under Section 201 would provide only
temporary relief, it would give us and other U.S. wheat gluten producers time to
bring stability back to the marketplace while seeking a more lasting solution.
This conceivably could be accomplished through U.S. government consultations
with the E.U. pursuant to the 1996 Grains Agreement, as well as the GATT
negotiations in the year 2000.
As we wage our battle on the gluten front, we are continuing to make strides in
optimizing our alcohol production capabilities at both of our plants. This is
reflected by the increased alcohol production and sales we experienced in the
first quarter compared to the same period a year ago. We also experienced
increased sales of our premium wheat starch, with the largest percentage of that
increase occurring in sales of our non-modified varieties. Sales of our modified
wheat starches, which have been developed for unique, value-added uses, remain
steady and we continue to work with customers in matching these special
ingredients to functional needs in new product formulations.
Much time and effort are being spent as well toward the development and
marketing of our modified wheat gluten products, which can be used to replace
other grain-based and/or animal-based proteins in both food and non-food
applications. We expect these ingredients to eventually become very important
products for Midwest Grain, both in terms of revenue and in helping to shape our
Company into a less commodity-oriented, more value-added producer.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO