$122 billion in ’08 sales
sets record for Top 100

By David Chesnick, Ag Economist
Cooperative Programs
USDA Rural Development

he nation’s largest farmer-owned co-ops enjoyed a banner year in 2008, ringing up a record $122 billion in sales, due primarily to sharply higher prices for many key commodity markets. The 2008 sales total was up $33 billion from 2007.

While higher sales don’t always translate into high profits, the 2008 sales picture did provide a solid boost to the bottom line for most co-ops. Table 1 shows the change in the consolidated income statement for the nation’s 100 largest agriculture cooperatives (Top 100) between 2007 and 2008.

The diversified, farm supply and grain cooperative subgroups of the Top 100 posted the largest gains. These three groups accounted for 89 percent of the overall sales increase. Only sugar cooperatives saw sales slip in 2008, primarily due to lower sales volumes.

With grain and other commodities selling at record-high prices in 2008, cost of goods also climbed sharply, up 38 percent, to $112 billion.

Gross margins were up $1.7 billion, to $10.4 billion. Conversely, gross margins as a percent of total sales were down slightly, dropping from 10 percent in 2007 to 9 percent in 2008.

While most investor-owned businesses strive for higher gross-margin percentages, cooperatives are different. Paying members more for their commodities will mean higher costs of goods sold and thus lower gross-margin percentages.

Expenses, debt also up
Expenses were up 21 percent, to $7 billion in 2008. Dairy cooperatives accounted for more than one-third of that increase. Part of higher costs for dairy cooperatives was higher labor expenses, which were up 17 percent.

Labor expense increased 11 percent for all Top 100 cooperatives. While labor expenses were up, they only accounted for one-third of the total increase and represent about 42 percent of total operating expenses.

The largest cooperatives held more debt in 2008, which pushed interest expense up 19 percent, to $663 million. Diversified and grain cooperatives accounted for nearly 73 percent of the total increase in interest expense.

Interest income was generally lower across the board for all commodity groups of the Top 100, declining to $53 million for 2008, a drop of $9 million.

Non-operating revenue — which includes revenue from rent, investment income and other items not related directly to a cooperative’s main operations — jumped 57 percent, to $854 million in 2008. However, much of this $310 million increase can be attributed to a single farm supply cooperative.

Non-operating expenses declined 74 percent. These expenses are similar to non-operating revenue in that they are not directly related to operations. Much of this decline can be attributed to dairy cooperatives, which were able to control their non-operating expenses.

Higher patronage refunds
Patronage refunds received were up $61 million in 2008. Cooperatives receive patronage refunds because of business done with other cooperatives, including federated farm supply co-ops and financial co-ops, such as CoBank. Grain cooperatives received more than half of the total patronage refunds received by the largest 100 agriculture cooperatives.

Net margins for the Top 100 were up 30 percent, to $3.8 billion. All commodity groups had positive gains in net margins with the exception of sugar cooperatives, which saw their net margins slip 56 percent, to $78 million.

Other marginal interests and “extraordinary” items include minority interest payments, gains/losses on discontinued operations, changes in accounting practices, and other revenue or expenses that are outside the normal cooperative operations. These items generally are costs to the cooperative. In 2008, these extraordinary item expenses were reduced by $120 million, to $74 million.

Margins and taxes up
Margins are generally passed through the cooperative to members, who are liable for paying income taxes on them. However, cooperatives do pay income taxes on retained income.

Cooperatives retained more of their income in 2008, generating an increase in their income tax liability. The largest cooperatives paid $316 million in income taxes in 2008, up 80 percent from the year before.

Net margins after taxes were $3.4 billion in 2008, up $850 million from 2007. This is a new record for net income after taxes for the Top 100. Every sub-group (again, with the exception of sugar cooperatives) had solid increase in net income for 2008. Sugar cooperatives net margins were down 53 percent, to $60 million.

Consolidated balance sheets comparing 2007 and 2008 for the Top 100 agriculture cooperatives are presented in table 2. Total assets jumped 22 percent in 2008, to $42 billion.

Leading this increase once again were current assets, which were up $6.8 billion, to $27.3 billion. Current assets account for 64 percent of total assets in 2008, up from 59 percent in 2007. Current assets are those assets considered most liquid. These include cash, accounts receivable, inventory and other assets that can be sold quickly.

The largest part of the increase in current assets was a buildup of inventory value, which jumped $3.5 billion, to $12.9 billion in 2008. Farm supply, grain and diversified cooperatives had the largest increase, accounting for 86 percent of the increase. On the other hand, cash balances were down $156 million, to $988 million in 2008.

Asset values climb
Fixed assets increased $585 million, or 7 percent, in 2008. Rice and sugar cooperatives were the only commodity groups that didn’t increase their investment in fixed assets. Diversified and grain cooperatives accounted for the majority of the increase.

Current liabilities shot up 29 percent, ending 2008 at $21.3 billion. With the exception of amounts due members, all other accounts had substantial increases.

Amounts due members include cash patronage refunds, equity redeemed and other cash payment to members that have been declared but not yet paid out. All other current liabilities were up between 25 and 35 percent.

Long-term debt rose by $1 billion, to $5.7 billion at the end of 2008. This increase, along with an additional $1.7 billion short-term debt, increased interest expense for most cooperatives.

Minority interest (the portion of a cooperative’s subsidiary that is not owned by the cooperative itself) increased 5 percent in 2008, to $498 million. Diversified and sugar cooperatives account for 85 percent of the Top 100’s minority interest. The outside interest has a claim to a subsidiary’s assets and income generated by that entity.

Total member equity in the largest agriculture cooperatives increased 9 percent, to $9.3 billion in 2008. Member equity includes preferred stock and common stock as well as equity certificates. Unallocated equity jumped 23 percent, to $3.3 billion.

Buoyed by high commodity prices in 2008, the financial performance of the Top 100 agriculture cooperatives was, on balance, very strong, despite a downturn in the overall economy. The plunge back to earth in commodity markets in 2009 will show starkly different results for many of these same co-ops when we compile this article next year.

May/June Table of Contents