Cooperatives – What We’ve Seen in 2017

By Dennis Gardiner

It is that time of year again. We reflect back on the firm’s 100+ cooperative client base to share what we have seen over the past year. We had a few outliers that performed much better than our overall characterization of the past year. That said, there are those that performed not as well. Here is what we saw:

Income Statements:

  • Grain sales were a mixed bag, we saw some up due to bushel increases; we saw some down primarily due to per-unit prices; and plenty were flat. As last year, there did not appear to be any significant weather issues affecting volume like we have seen in some recent years across our clients.
  • For the most part, sales were flat or down for agronomy and flat or up for feed. Fuel gallons and prices were flat, as was LP gallons and prices.
  • Grain margins were up as there was some opportunity to capture a carry in the market.
  • Fertilizer margins were flat for this year, with units somewhat mixed and dollar sales were down due to lower per-unit costs. Good yields and lower fertilizer prices kept tons stronger than expected.
  • Chemical margins were down at several clients; as this business continues to be very competitive with products being sold at a loss in many instances, relying on rebates to provide the sales margin. Lots of discussion related to “tin-sheds” as competitors.
  • Seed margins held their own this last year. The seed business is very competitive.
  • Service related revenues were up overall with grain storage, handling and drying up the most; feed services were steady; and agronomy services were steady or down with tonnage volumes.
  • Expenses were primarily up across the board; with a few exceptions of successful “cost-cutting” initiatives deployed during the year.
  • Payroll was up at most clients, largely inflationary increases. Similar to last year, some of you are taking a hard look at this by not replacing some positions opened up from normal attrition and just cutting back.
  • No surprise, but depreciation was up across the board; it is rare to find a comparative income statement with lower depreciation.
  • So add all this up and we saw lower to flat gross revenue to expense ratios, grain divisions that had losses and local (operating) income down almost everywhere we went. Local (operating) incomes were flat to down at least 10% to 25% from the prior year, with some down much more than that. Consistent with last year, still saw many local (operating) losses from our clients this past year.
  • Patronage dividend income was down across the board, with CHS being the largest reason.


Balance Sheets:

  • Balance sheets continue to remain strong; due to the ability to manage equity, maximizing tax benefits/ deductions and retaining such a significant portion of earnings over the past decade.
  • Plenty of cash. Many of you have low debt, with more cash in the bank.
  • Working capital was all over the board for our clients; many utilizing their own resources to fund capital expenditures and others borrowing for larger projects.
  • Capital expenditures were still at a strong pace during the past year.
  • Credit has been well managed, no great shift in agings or an unusual amount of write-offs.


Members’ Equity

Balance sheet strength is displayed in your members’ equity section. Retained earnings continues to keep growing; particularly as a percentage of total members’ equity. Lower earnings were allocated, very strong equity revolvements were paid back to the members and continued use of the Section 199 (DPAD). Some use of non-qualified patronage being used to shore up the named members’ equity.


  • Like 2016, 2017 was a big merger year. We saw a number of peer-on-peer mergers throughout our clients along with a number of smaller cooperatives merging into larger ones. Economies of scale, combining of resources and managers retiring continue to be some of the reasons. Our larger clients still find themselves as magnets for other cooperatives looking to them as merger partners.
  • Section 199 (DPAD) was used largely for the benefit of the cooperative; but plenty was allocated back to the patrons due to lower taxable incomes.
  • Our clients continue to make significant investments in technology, to provide greater information to your members as they make their input decisions and expect greater mobility from you as their business partners.
  • Tax Reform – well it happened! As skeptical as we all were that Washington, DC could come together to accomplish anything, the Republican controlled House, Senate and President pulled it off. And as predicted, Section 199/ DPAD was squarely in the cross-hairs. Lower corporate rates, a new Section 199A, interest limitations, capital expenditure expensing and potential benefits to farmer members of agricultural cooperatives have all come from the new tax rules. We are still digesting what all this means at this time. Stay tuned!

Conclusion – still relatively solid results for our cooperative clients. Many of the issues affecting profitability are being identified and addressed. We are confident in our client’s awareness, initiative and responsiveness to ensure the success of your cooperatives. As always, we will be there to work with you.