October 20/Atchison, Kansas/Prepared Foods magazine -— MGP Ingredients Inc. (MGPI) signed a non-binding letter of intent to enter into an agreement with ConAgra Mills whereby ConAgra would supply the company’s wheat flour requirements for use in the production of protein and starch ingredients.      

MGPI has supplied its own flour since acquiring the Pillsbury Company’s Atchison mill in 1987. The mill has been used to provide flour as the raw material for MGPI’s protein and starch manufacturing processes in both Atchison and Pekin, Ill. “At that time, and for many years after, the mill was operated at efficient, relatively stable capacity levels,” said Tim Newkirk, president and chief executive officer. “In more recent years, however, utilization of the mill’s capacity has been extremely erratic. This is due to a number of factors, including changing market dynamics, changes in our protein and starch product mix requirements, and volatile wheat prices, which reached record highs during our 2008 fiscal year. Very simply put, wheat milling as a component of our overall ingredient solutions value chain is not a step in which MGPI can uniquely create value. As such, we are exploring alternative methods for obtaining the raw material for our ingredient solutions products.”

Newkirk indicated that the supply agreement with ConAgra Mills could become effective within the next month pending the outcome of further negotiations. “In the meantime, we have discontinued operations at our mill effective today,” he said. “Unfortunately, this situation necessitates an adjustment in our workforce numbers. This adjustment involves temporary lay-offs affecting 32 positions. Simultaneously, we are offering early retirements to an additional 12 employees.”

Newkirk added, “From a personnel standpoint, the discontinuation of our milling operations at this time is a difficult and painful decision. However, it is one that we find necessary for the good of the business and our overall workforce, as well as is in the best interest of our stockholders. This potential change will also enable us to more effectively serve our customers by concentrating on those areas of our operations that can create greater value for them.”

From the October 27, 2008, Prepared Foods e-Flash