EXHIBIT 20
Letter To Our Stockholders
May 9, 1995
Dear Stockholder:
Reduced production efficiencies and the continuance of strong
competition from European wheat gluten producers caused results for
our third quarter of fiscal 1995 to decrease significantly compared
to the prior year's third quarter results. Our net income for the
quarter was $298,000, or $0.03 per share on sales of $42,005,000.
In the third quarter of fiscal 1994, our net income was $6,084,000,
or $0.62 per share on sales of $50,652,000.
A principal reason for the outstanding results we experienced in
last year's third quarter was the extraordinary increase in demand
for wheat gluten during that period. This mainly resulted from
poor wheat protein levels domestically and abroad, requiring
substantially more gluten than usual for use in fortifying flour.
Following a return to more normal crop conditions this past summer,
the U.S. market began experiencing a tremendous rise in imported
wheat gluten from the European Union, where wheat starch and gluten
capacities underwent sizeable increases. The escalation of this
situation was a principal cause for a decline in our total results
for the first nine months of fiscal 1995, which had net income of
$5,291,000, or $0.54 per share on sales of $132,477,000. Our net
income for the first nine months of fiscal 1994 was $10,364,000, or
$1.06 per share on sales of $135,100,000.
Although the intense competitive conditions in our wheat gluten
market remain unchanged at this time, I am encouraged by the
improved efficiencies we are beginning to experience through the
increased utilization of our expanded distillery capacity in Pekin,
Illinois. Completion of this expansion, which is designed to
double our total alcohol production capacity, was delayed by
mechanical equipment problems with new distillers feed drying
equipment. Intermediate repairs to the equipment were completed by
the supplier at the end of the third quarter. Production should
further improve when permanent repairs to the equipment are
completed late this summer.
Our total alcohol unit sales were up substantially in the third
quarter as the result of a large increase in the fuel grade alcohol
category. We are now also experiencing an increase in unit sales
of food grade alcohol for industrial and beverage applications,
principally as a result of new capacity we have gained from our
expansion in Pekin.
Growth opportunities in the fuel market, for which the majority of
our expanded capacity is designed, remain viable but will occur
more gradually due to a recent ruling by the U.S. Circuit Court of
Appeals for the District of Columbia. On April 28, the Court reversed the
Environmental Protection Agency's regulation requiring that renew-
able fuel oxygenates such as grain-based ethanol play a larger role
in satisfying future Clean Air Act requirements in nine of the
nation's smoggiest metropolitan areas. The Court's decision
resulted from a suit filed against the EPA regulation last
September by two groups representing the petroleum industry.
Favorable conditions continue to exist in our wheat starch market,
where growth in our multiple modified and specialty varieties has
occurred throughout the current fiscal year. Our ability to
increase wheat starch production will be strengthened by the new
starch processing capacity that we plan to have installed at our
Pekin plant by the end of this year's fourth quarter.
Our planned wheat gluten capacity increase in Pekin remains on hold
until greater stability returns to the market. Through our
membership in the U.S. Wheat Gluten Industry Council, we are
actively raising awareness of policies and practices that allow our
European counterparts overwhelming competitive advantages. In
concert with this program, we are seeking reasonable solutions to
the problem with assistance from leading government officials.
In the meantime, with increased use of our expanded distillery
operation, our overall operational efficiencies should steadily
improve. While we don't expect marked improvements in results for
this year's fourth quarter compared to the third quarter, we do
expect more favorable conditions to prevail long-term.
As previously announced, a dividend of $0.125 per share was
declared and is payable May 9, 1995 to stockholders of record April
7, 1995.
Sincerely,
/s/ Ladd M. Seaberg
Ladd M. Seaberg
President and CEO
Corporate Profile
Founded in 1941, Midwest Grain Products, Inc., is a fully
integrated producer of vital wheat gluten, premium wheat starch and
alcohol products.
In addition to its major product lines, the Company also
produces flour for internal use, and several by-products, including
wheat bran, mill feeds, distillers feeds and carbon dioxide. The
Company's principal raw material is grain, consisting of wheat,
which is processed into all products, and corn and milo, which are
processed into alcohol and alcohol by-products.
Vital wheat gluten and premium wheat starch are sold
primarily as food additives to enhance the nutritional value,
appearance, texture, taste, and a variety of other characteristics
of baked and processed foods. Alcohol products are produced as
part of the gluten and starch processing operations. They consist
of food grade alcohol for beverage, industrial and commercial
applications, and fuel grade alcohol, which is sold as an octane
additive for motor fuel.
The Company operates two processing plants in the United
States. The corporate headquarters and original plant are located
in Atchison, Kan. The plant located in Pekin, Ill., was acquired
from the American Distilling Company in June, 1980. These
facilities are operated 24 hours each day of the year and enable
utilization in the Company's products of approximately 95% (by
weight) of grain processed.
Midwest Grain Products, Inc.
1300 Main Street
PO Box 130
Atchison, Kansas 66002-0130
Phone: 913-367-1480
Symbol/Market: MWGP/NASDAQ