MANAGEMENT TIP
Downward spiral for commodity prices continues; bottom line mixed for Plains co-ops
By David Cummins,
Ag Economist USDA Rural Development
Editor's note: This is Cummins' final Management Tip column. He is retiring Jan. 1, 2001, after more than 38 years with USDA, including 19 years with the Cooperative Services unit of USDA Rural Development and its predecessor agencies. Prior to that he worked with USDA's Economic Research Service and Federal Grain Inspection Service. His retirement home will be in Virginia's Shenandoah Valley, west of Staunton.
rain and total sales continued to slide downward in 1999 for cooperatives that are first-handlers of grain in the Northern Plains, where wheat-barley-oats co-ops are prevalent. Grain volume marketed by these co-ops was significantly higher in 1999 than in 1998 up 20 percent for medium-sized co-ops (those with total sales of $5 million to $14.9 million) and up more than 15 percent for large co-ops (those with total sales of more than $15 million).
Commodity prices, however, continued a sharp downward trend that has been ongoing for the past three to four years. Farm supply sales averages were considerably higher in 1999 for large grain co-ops and about the same in both years for medium-sized co-ops.
Net savings for large grain co-ops averaged $352,637 in 1999, compared with $461,975 in 1998, a drop of nearly 24 percent. This followed a 17-percent drop in 1998. Net savings for the medium-sized co-ops averaged 12 percent higher, $78,587 vs. $70,142 in 1998.
Sixty-two percent of large grain co-ops and 64 percent of medium-sized grain co-ops in the Northern Plains reported lower net savings for 1999. The average decline in net savings for large co-ops was $338,580, while medium-sized co-ops reported an average decline of $105,192. Large co-ops that improved their bottom line in 1999 did so by an average of $438,049, while medium-sized co-ops reported an average gain of $102,390.
For large grain co-ops in the Northern Plains, gross income aver-aged more than 5 percent higher in 1999, but operating costs were more than 12 percent higher than in 1998. While grain margins were down, margins on total sales and service revenue were both up. Non-operating income dropped significantly, plunging 89 percent.
For medium-sized grain co-ops in this region, gross income averaged 15 percent higher, as increases in margins (for grain and farm supplies) and service revenue more than offset substantially lower non-operating income (patronage received from other co-ops). Operating expenses averaged about 15 percent higher.
Patronage refunds received from other co-ops declined 41 percent for large grain cooperatives and dropped 35 percent for medium-sized co-ops. These refunds are a key component of non-operating income for co-ops, particularly for medium-sized operations. In 1999, these refunds accounted for 44 percent of net savings from total operations for large co-ops and 62 percent of net savings for medium-sized co-ops.
Nearly 7 percent of the medium-sized grain co-ops in 1999 had losses averaging more than $261,000 per co-op. The loss rate, however, was down from nearly 23 percent in 1998. An additional 21 percent of medium-sized co-ops would have had losses (averaging about $35,000 per co-op) if it hadn't been for patronage income. The loss rate for large grain co-ops was about the same in both years: 11 to 12 percent.
Southern Plains co-ops
Large Southern Plains wheat-sorghum co-ops averaged net savings of $847,274 per co-op, up slightly from 1998 and the highest since at least 1982. Net savings for the medium-sized co-ops averaged $250,022, down about 5 percent, but the second highest since at least 1982. Grain margins and service revenue increases were key factors for the large grain co-ops; farm supply margins and service revenue increases were key for the medium-sized co-ops. For large co-ops, an 8-percent increase in gross income more than offset 10 percent higher operating expenses. For medium-sized co-ops, an 18-percent increase in gross revenue fell short of covering 23 percent higher total operating expenses.
Lower net savings in 1999 was reported by 62.5 percent of large and 61.5 percent of medium-sized grain co-ops. Corresponding dollar declines averaged $331,072 and $168,040. Large and medium-sized grain cooperatives showing higher earnings in 1999 had increases of $263,551 and $94,859, respectively.
In 1999, as in 1998, grain price averages were down 14 percent for large co-ops and 17 percent for medium-sized co-ops. Grain volume marketed increased 18 percent for large and 16 percent for medium sized co-ops. Grain sales climbed an average 1 percent for large co-ops, but dropped more than 3 percent for medium-sized co-ops in 1999.
The incidence of losses among wheat-sorghum grain co-ops was 13 percent for the medium-sized co-ops, with no losses reported by the large co-ops. As in 1998, fewer than 5 percent of the co-ops would have had losses if it had not been for patronage income received from other co-ops. This was in spite of sharply lower patronage income in 1999 down more than 24 percent for large and down nearly 29 percent for medium-sized co- ops.
Producers continued to adjust to changing weather conditions and relative commodity prices in 1999. This was reflected in a change in the relative proportions of the grains/oilseeds marketed by their co-ops.
A general shift from grain sorghum to primarily wheat and (to a lesser extent) corn was evident in the Southern Plains, particularly by large grain co-ops. In the Northern Plains, large grain co-ops handled significantly more corn and soy-beans, along with more wheat, at the expense of barley, in 1999 than in 1998. Noteworthy for the medium-sized co-ops were an 84-percent increase in "other crops" (mainly oats, sunflowers and rye) sold and a 34-percent increase in barley sold, at the expense of wheat.
How does your co-op measure up?
Benchmarks are common in business management to measure how well your cooperative is performing. However, such figures don't reveal how your cooperative compares with others.
If your cooperative is primarily a first-handler of wheat and sorghum or handles wheat, barley and oats as its major function, comparative data for 1999 are now available. Tables 1 and 2 contain selected average financial and structural data compiled from a survey of Southern Plains and Northern Plains cooperatives marketing wheat and grain sorghum and wheat, barley and oats, respectively. Most cooperatives in the study were diversified, also handling farm supplies and providing related services. Fill in the blanks for your cooperative and see how it measures up.
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