Cooperatives: What we expect to see in 2024

Cooperatives

Mark A. Rodruck, CPA, Partner

What does 2024 have in store for the industry and our clients? The following is a short list of potential circumstances that all will be facing when making decisions for your company; inflation, staffing shortages, increasing labor costs, increasing fixed expenses, drought concerns in many areas, overcoming lack of drying income, managing cashflow to mitigate high interest rates, to name a few. As always, our perspective comes from being involved in your audits, board and annual meetings, planning sessions and visiting with management.  Time can and usually does prove us wrong, but we see value in attempting to look forward. Now on to our thoughts:

  • Local (Operating) Earnings – As we move on from 2023, how will 2024 compare.  We expect sales dollars to be down as grain, agronomy, feed and fuel prices are trending downward.  Grain yields by region varied with some seeing better than expected yields and others not so much.  With softening grain prices, we expect storage and handling to increase hopefully offsetting the loss of drying income.  The inverted grain markets and limited carry advantages have helped keep interest costs down.  However, this along with geo-political issues will make marketing opportunities difficult.  On a positive note global grain stocks remain tight hopefully leaving more upside price risk than down.  Mother nature gave agronomy great weather to get off to a good start following harvest.  Expect to see crop nutrient tons increase to maximize grain yields.  Even though agronomy margins were down from fiscal year ‘22’s highs they were still respectable.  There will be challenges, but we expect margins to stay firm.  Feed tons continue to improve with margins expected to modestly improve in 2024.  We expect to see expenses continue to grow with challenges in insurance premiums and significantly increased deductible levels.  May need to evaluate margin structures to overcome increased expenses.  With all that said, we expect to see flat to lower local earnings in 2024.
  • Regional Income – Coming off of a very good regional year in 2023, we expect to see the trend continue into 2024 with increased regional income.
  • Capital Expenditures – We expect to see grain and agronomy projects continue with efforts towards technology, efficiencies and serving your members.  However, these projects could be scaled back or slowed down with high interest rates, increasing project costs and delays in sourcing materials and labor.
  • Expenses – Controlling expenses and looking for efficiencies will continue into 2024.  After coming through inflation and labor market issues in 2022 and 2023, we hope to see personnel cost increases normalize.  Fixed expenses will probably climb due to past capital projects and increased insurance premiums and deductibles.  We have seen increased interest in captive insurance groups to help control these costs.  Even with higher interest rates, which seem to have peaked and my trend downwards late in 2024, hopefully interest costs will remain steady with lower input costs, cashflow management and improved timing of grain sales.  Operating expenses will continue to be scrutinized as we move through 2024.  Technology will also be an important investment for the future. 
  • 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 with what has happened in the industry.  Threats continue to become more sophisticated and as you continue to get larger the risk also grows.  With the costs of cyber insurance rising some will look for alternative ways to manage these risks.  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 – Staying consistent with my thoughts from 2023, companies continue to talk trying to gain efficiencies, maximize talent and help with retirement of key management positions.  Not sure if these will lead to mergers or if they could lend themselves to unique ways to cooperatively work together and maximize labor talents?
  • People – Staffing will continue to be a concern in 2024.  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 – The message will remain consistent with 2023.  With a shrinking labor market, companies will turn to technology to do more with less.  Will technology help solve some of the labor shortages as it has in the past?  The current environment demands us to be very mobile and to be able to conduct business from anywhere.

The future continues to shine in agriculture.  Like I have said in the past, you won’t find a better group of people to work for and with.  There are a number of opportunities that will be driven by efficiency, growth and profitability.  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 2024!!!

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