Cooperatives: What we expect to see in 2014

Cooperatives

By: Dennis Gardiner, CPA, Partner  |  email

  • More mergers of cooperatives due to retiring managers, smaller struggling cooperatives, and smart combinations to gain critical mass.
  • More joint ventures to leverage the strengths of neighboring cooperatives, or private entities.
  • Strategic acquisition of competing businesses – to take (or keep) a competitor out of the market, or to expand the cooperative’s market share.
  • Changes to data processing systems to keep the cooperative technologically advanced as it serves its members.
  • Earlier tax planning; bonus depreciation has not been extended (yet). Use of other tax mitigation strategies.
  • Talent pool for quality leadership team members continues to get shallower.
  • Increased consideration in returning more earnings to the patron-owners than what has been done in the past few years – revisiting the question: “How much retained savings is enough?”
  • Continued growth in the use of non-qualified patronage allocations as one answer to the retained savings question.
  • Changes to equity redemption programs to create value for members of all ages.
  • Continued efforts to strengthen balance sheets; striving to find the right balance between debt and equity capital.
  • Continued efforts to manage/reduce expenses.
  • Operating (local) income still being strained with the current markets, some will incur losses.
  • Increased credit risk in receivables caused by lower grain prices.
  • Continued efforts to maximize the benefit of the domestic production activities deduction (Section 199) – which will have many different applications; several will still retain the benefits; but many more will allocate the benefit to the patron members, particularly as they struggle with the retained savings question.
  • Use of member-owned preferred stock programs to fund growth; retaining member equity and providing an investment tool for the members.
  • Continued emphasis on risk-management, as commodities handled have large price fluctuations.
  • Continued capital investments in grain, agronomy and feed facilities; particularly with the strength of many of the cooperative’s balance sheets.
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