Sales and net income climb
for local farm co-ops in 2004
By Beverly L. Rotan, Economist
USDA Rural Development
Beverly.rotan@usda.gov
Editor’s note: Cooperatives in this study
were classified by size: small, medium,
large and super (table 1). The cooperatives
were further classified into four types based
on the percentage of their farm supply sales
(see table 1 for the precise criteria).
ocal farm supply cooperatives
reaped higher sales
and income during 2004,
according to a USDA
survey of the financial
statements of 263 co-ops. Average sales
per local co-op were just under $18.07
million in 2004, an increase of 3.2 percent
from $15.96 million in 2003.
Farm supply sales (including feed,
seed, fertilizer, chemicals and petroleum)
by co-ops increased 14.7 percent
(table 2). Feed sales registered the
strongest gain, increasing about 20
percent. Fertilizer sales shot up 18.3
percent and petroleum sales climbed
by almost 17 percent.
Grain sales —
including corn, soybeans,
sorghum, oats
and wheat (winter,
durum, spring, and
rye) were strong in
2004, increasing 11
percent. Grain production
was down
(with the exception of
sorghum, spring
wheat and soybeans).
Prices per bushel
climbed for corn and
most types of wheat.
Prices for sorghum
and soybeans
decreased during the
two–year period.
Income jumps in 2004
The average operating
income (from commodity marketing,
farm supplies and service) rose
almost 13 percent in 2004. Grains represent
almost 98 percent of total marketing
sales by the local co-ops studied.
Average net income per local co-op
was $296,810. This was a 45-percent
increase from $204,864 in 2003.
Total revenue was up 13 percent,
although service income decreased 3
percent. A sizable decrease in patronage
refunds was attributed to write-off
of equity, due to the demise of some
regional cooperatives in 2003. This
phenomenon continued into 2004.
Patronage refunds were an important
source of revenue and affected the
net income of some of the local co-ops
(both positively and negatively).
A unique situation occurred in 2003
that also affected the net income of
some locals in 2004. Patronage refunds
were up 140 percent in 2004 because
of negative patronage refunds in 2003.
In past years, patronage refunds created
an opportunity for cooperatives
with losses to have a net gain.
Patronage refunds saved 30 of 58
cooperatives from having local losses.
Seven percent of local cooperatives
that originally had positive net
incomes ended up with losses because
of negative patronage refunds. The
remaining 41 percent of cooperatives
ended up with net losses.
Cost of goods sold was up about 14
percent. Cost of goods sold averaged
about 89 percent of total sales in 2004.
Co-op assets show gains
Both current assets and total assets
were up slightly, 6 and 5 percent,
respectively. All aspects of current
assets increased during the period of
2003–2004. Farm inventory had the
greatest increase, at 14 percent.
Current liabilities jumped nearly 6
percent, while revolving equity
redeemed had the largest increase, 58
percent. This was followed by dividends
on equity (23 percent). Current
term-debt and short-term
(seasonal) debt
decreased.
Total expenses were
also up about 6 percent,
paced by a 5-percent
increase in wages, which
represent almost 50 percent
of total expenses.
Wage expense included
payroll/salaries, employee
benefits (including retirement)
and payroll taxes.
Co-ops in the study
had an average of 39
employees (part- and
full-time) in 2003 and
38 employees in 2004.
At the same time, salaries increased 5
percent. Employees earned an average
annual salary of $26,187 in 2004.
Directors’ fees and expenses were a
small part of total expenses. However,
director compensation is an important
factor that helps many cooperatives
convince producers to devote time
each month to help guide their cooperative.
Co-op boards averaged 7
members, who were paid an average of
$905 per year. Directors’ fees were up
7 percent.
Monitoring performance
Some performance factors are within the control of
cooperative management, but others are not. One way to
monitor the performance of your cooperative is through
financial statements and ratios. Ratios for the surveyed
cooperatives remained relatively unchanged from 2003 to
2004 (table 3).
Financial ratios that help assess your cooperative’s performance
include:
- Liquidity ratios — focus on a company’s ability to pay
bills when due. If liquidity ratios remain relatively high
for a prolonged period, too much capital may be invested
in liquid assets, such as cash, short-term investments,
accounts receivable and inventory, while too little
capital is devoted to increasing member equity.
These ratios should equal one or more. On average,
surveyed cooperatives had quick and current ratios of
slightly more than one.
- Leverage ratios — reveal a company’s use of borrowed
funds (rather than members’ equity for investment)
to expand its business. The goal is to borrow
funds at a low interest rate and invest in business
activity that produces a high rate of return, exceeding
the target rate of return for investment. Debt-to-equity
ratio measures the long-term solvency of a company
by comparing debt to net worth. A company with a high
debt-to-equity ratio could have trouble meeting fixed
interest/debt payments if business falters or does not
grow as planned. Most lenders would prefer this ratio
to be 3 or lower
- Activity ratio turnover — also called “efficiency
ratios,” measure activity or changes in certain assets.
The inventory turnover ratio measures how quickly
inventory is sold and replaced each year. An inventory
turnover of 12 means inventory is turned over once
each month. The times-interest-earned ratio measures
a company’s ability to make interest payments on debt.
If the ratio does not exceed the interest rate on current
debt, the business may not be making enough to pay
interest expenses.
- Profitability ratios — vary from industry to industry and
should be compared to a company’s ratios for prior
years/periods. The return-on-total assets measure how
well a company is using its assets to generate net profits.
The return-on-total equity ratio measures a company’s
return on members’ money. Marketing cooperatives’
gross margin was lower than cooperatives in the
surveyed group. This may be an indication of lower
demand for their products or higher production of marketed
products (crops).
