CHS goes with the grain. The company is a leading publicly traded cooperative marketer of grain, oilseed, and energy resources in the US. It represents farmers, ranchers, and co-ops from the Great Lakes to Texas. CHS trades grain and sells farm supplies through its stores to members. The group processes soybeans for use in food and animal feeds and grinds wheat into flour. Through joint ventures and a variety of business segments, it sells soybean oil and crop nutrient products and markets grain. CHS also provides insurance, financial, and risk-management services and operates petroleum refineries to sell Cenex-brand fuels, lubricants, and other energy products.
CHS's ability to survive and thrive depends significantly upon prices for its mainstay commodities -- grains, oilseeds, crop nutrients, and flour, as well as petroleum products and natural gas. Fluctuations in prices are mainly driven by weather conditions, crop yield, existing commodity supplies, government regulation, and the global economy. The company's energy segment processes crude oil into refined petroleum products to member cooperatives and others under the Cenex brand. The company's Agriculture segment accounted for two-thirds of its revenue with energy accounting for the rest.
The cooperative marketer serves more than 77,000 producer-owners across 15 states through nearly six dozen service centers that are either company owned or locally governed. Globally, CHS has operations in Israel, China, and the US (in Kansas, Nebraska, and Minnesota).
Sales and Marketing
CHS makes some 81% of its refined fuel sales to members. The cooperative sold about 1.3 billion gallons of gasoline and about 1.8 billion gallons of diesel fuel in 2014. Sales are made wholesale to member cooperatives and through independent retailers operating Cenex-branded Zip Trip convenience stores.
In 2014 (ended August) CHS's revenues slipped 4% to $42.7 billion (compared to $44.5 billion in fiscal 2013). The dip was primarily due to a 9% decline in revenue from the Ag segment, which saw market prices of soybeans, corn, and spring wheat go down. Gains on investments and declines in interest and income tax expenses led to a 9% rise in net income in 2014 -- to $1.1 billion versus $992.4 million in 2013.
Cash flow from operations declined in fiscal 2014 to $1.4 billion, compared to $2.5 billion in fiscal 2013. Cash spent on derivative assets, accounts payable, and expenses contributed to that decline.
CHS's broad product portfolio helps to mitigate price volatility. In its Ag Business, demand for crop nutrient products have improved. Grain marketing joint ventures reduce its exposure, as well. CHS holds joint ventures with Cargill (TEMPCO) and with United Grain Corporation (United Harvest), as subsidiary of Tokyo general trading firm Mitsui & Co. The partnerships operate grain terminals and export grain for the Pacific Northwest market, as well as customers in the western US. In 2014 the company acquired a 50% stake in Australian agricultural supply chain management firm Broadbent Grain, allowing it expanded access to the growing Asia/Pacific region.
Building on the success of its joint ventures, in 2013 CHS formed a flouring-milling partnership with agri-giants Cargill and ConAgra called Ardent Mills. The newly-formed partnership is North America's largest flour miller with annual sales of more than $4 billion. CHS holds 12% of Ardent Mills, while ConAgra and Cargill each own 44%.
The following year, CHS partnered with Illinois-based agronomy retailer United Prairie. Through the partnership, CHS will bring additional services and new technologies to United Prairie's customers.
CHS's country operations -- one of the largest country elevator operators in North America, by sales -- have inched up, too, thanks to strengthening crop nutrients and grain margins.
CHS's energy segment, primarily driven by the National Cooperative Refinery Association (NCRA), a majority-owned subsidiary, operates oil refineries, and sells wholesale propane and other petroleum products, as well as transports them.
The company is building a nitrogen fertilizer plant in North Dakota for an estimated $3 billion. The facility is expected to be operational by 2018 and will produce more than 2,400 tons of ammonia daily; the ammonia will be further converted to urea, urea ammonia nitrate, and diesel exhaust fuel.
Mergers and Acquisitions
CHS plans to buy Illinois River Energy, an ethanol plant that is capable of producing 133 millions of gallons of ethanol annually. Located in the heart of the Midwest, the plant situates CHS to expand its grain origination and related activities. In another transaction, the company has agreed to buy some of the Canadian retail assets of Agrium subsidiary Crop Production Services (Canada). The deal includes 16 retail agronomy locations in Alberta and Saskatchewan.
Beyond the US, the company was part of a grain marketing joint venture (Multigrain A.G.) with Brazilian commodities-company PMG Trading and Mitsui. In 2011 CHS sold a nearly 45% stake in Multigrain to the Japanese firm for ¥47 billion yen (roughly $510 million). Mitsui, which already owned about a 45% stake, also bought PMG's interest. The deal marked one of the largest overseas farming investments made by a Japanese trading house.