Cooperative Trends 2011-2012

Agribusiness

By: Gardiner Thomsen CPAs |  email

What we’ve seen in 2011:

  • Most clients were more profitable in 2011 compared to 2010, and many reported record earnings. Higher commodity prices along with increased or steady grain and agronomy volumes meant sales dollars were also considerably higher in 2011.
  • A range of margins in 2011: averages slightly higher than 2010; some of the best grain margins ever; agronomy margins as good as or better than past years and closer to historical averages.
  • Excellent fall fertilizer season increased volumes, gross margins, and local savings.
  • With higher grain prices, producers sold and storage income decreased, while a shorter, drier harvest season led to substantially lower and more “normal” grain drying revenues.
  • With higher commodity prices, borrowing was up, contributing to increased interest expense.
  • “Speed and space” construction continued. Many clients built grain storage at multiple locations.
  • The increased presence of OSHA, and the costs associated with compliance.
  • Increased use of accelerated depreciation rules to reduce current income tax liabilities, as well as more clients allocating the gross domestic production deduction (Section 199) to patrons as part of their year-end patronage allocations.
  • Bigger, stronger balance sheets.

What we expect to see in 2012:

  • Continued investments in grain and fertilizer facilities, the shuttering of inefficient/ineffective facilities, and increased OSHA compliance costs
  • Less aggressive book depreciation, continued aggressive use of bonus depreciation, and increased use of non-qualified patronage allocations
  • A slow-down of member equity revolvements/retirements, and the re-balancing of member equity and permanent equity (retained earnings)
  • Use of Section 199 as a means of enumerating the member (allocating the deduction to the member)
  • Continued efforts to mitigate price risk in agronomy
  • More joint ventures, strategic alliances, and ramping up of merger talks again
  • More difficulty in finding and retaining experienced staff (management, grain, agronomy, feed, energy and accounting)
  • More fraud, larger companies, more employees, less loyalty, more perceived opportunity and rationalization
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