Cooperatives – What We Expect to See in 2022 – Mark Rodruck, CPA, Partner

If we look back a year, who would have thought that 2021 would become 2020 2.0? I’m sure everyone had to deal with new challenges in 2021, such as supply chain issues, rising costs, the ongoing threat of virus mutations and staffing shortages to name a few. Despite these challenges, I was still glad to see everyone at our hospitality room during the CHS annual meeting.

Like you, we continue learning to be fluid and being able to roll with whatever comes our way. Technology has always been important and it continues to plays a very important part of our new work environment.

So, what does 2022 have in store for the industry and our clients? We perspective comes from being involved in your audits, board and annual meetings, planning sessions, and visiting with management.

+ Local (Operating) Earnings – After last year’s rock bottom storage and drying, this year will see a slight increase in most areas with pockets below last year. Higher grain prices are great for the producers but can become stressful while managing cashflow and seasonal lines of credit. Grain yields were very good this year with Iowa seeing a record corn yield, which may bring new marketing opportunities in 2022. This year, like last year, gave us great fall weather for harvest and allowed agronomy to get off to a good start. And depending on your fertilizer positions and early fill programs, there were also opportunities for good crop input margins.

However, prices and supply chain issues could make agronomy a challenge this spring. As companies replace fertilizer inventories will there be any concerns of crashing prices? The competition for seed and chemicals continues to stress margins and sourcing chemicals due to supply chain congestion will likely be a concern. 2021 brought lower feed tons with supply chain issues, and we hope that 2022 will see those tons come back as barns fill back up. Considering all of these factors, we expect local earnings to be consistent with 2021 with an upward trend.

+ Capital Expenditures – We don’t anticipate a slowdown of capital projects in 2022. It seems that storage projects are still on the books for both grain and agronomy. Some will consider updating outdated facilities and locations making for some tough decisions in the board room. Hopefully we can see a drop in building material costs, or some may have to be selective with projects or be prepared to spend more.

+ Expenses – Controlling expenses and looking for efficiencies will continue. Fixed expenses will probably climb due to capital projects and rising insurance costs, while operating expenses will continue to be scrutinized. We expect to see interest increase as all commodity prices continue to climb. I’m sure you’ve all made multiple calls to the banker to evaluate needs and increase your operating lines. On the bright side, rates are still very low, but the Fed may be considering raising interest rates in 2022. Staffing and increased payroll costs will also be a concern as staffing shortages nationwide continue to cause disruptions. Technology will also be an important investment for the future, especially considering the cybersecurity issues that hit the agricultural industry in 2021, more money will be spent to strengthen controls and security.

+ Credit Risk – Most have done a great job, with lots of effort, managing their credit risk. Continue the efforts and stay focused on our credit policies.

+ Fraud and Cyber Security – This is an area that everyone should stay focused on after what has happened in the industry in 2021.Threats continue to become more sophisticated, and as you continue to get larger the risk also grows. Continue to invest in education, training, and technology to battle these risks. Threat assessments and penetration testing are also very important.

+ Mergers and Acquisition’s – We do not expect to see a slowdown as companies continue to talk. However, they could look a little different in the future with companies forming alliances as a precursor to a merger. The need to keep and attract talent could drive future mergers.

+ Retained Earnings – We expect everyone will continue to evaluate named equity vs. unnamed equity. The good, and the bad, is that there is not a one size fits all when discussing equity. Every company has to evaluate their environment and their members’ wants and needs to keep their equity relevant.

+ People – As staffing concerns continue to grow due to labor shortages, the workplace is going to have to find creative ways to keep and attract talent. This will most likely take higher wages, but also evaluations of working environments and benefits.

+ Technology – Everyone continues to evaluate their data processing systems and ask themselves if they are keeping up with their changing needs and demands? Companies are also working with current providers to ensure that wants and needs are being addressed. The current environment demands us all to be very mobile and to be able to conduct business from anywhere.

The future continues to shine in agriculture. In my opinion, you won’t find a better group of people to work for and with. Technology demands in the industry makes agriculture very attractive to people entering the workforce. Cooperatives and agriculture have always adapted and evolved to stay relevant in the industry. We look forward to continuing our relationships with current customers and growing with new ones. Have a great 2022!