Ag cooperative CHS (Cenex Harvest States) has released a new investor presentation.
The coop has many preferred issues outstanding which can be seen here so this presentation may be of interest.
The slideshow can be seen here.
One thing to keep in mind with CHS is that the ag economy has improved drastically in the last 6 months. Commodity prices have risen 20-30% and farmers are in the black once again. It would seem logical that the ag end of the CHS business should improve dramatically in the quarters ahead. Recall that the company has been ‘carried’ by their refinery business for a few years now so some balance to net income would be a welcome development.
Where would CHS get the cash to call over 12 million outstanding shares in 2023?
Interesting terminology on slide 12. ‘Cash patronage’: a form of dividend? ‘Nonqualified equity certificates’: a form of warrant?
Bur
When you are a member, you get a “kickback” at the end of the year based on your purchases. You don’t get cash but some form of an equity interest, loosely a preferred stock. They may not redeem the equity interest for twenty years. It’s like the original customer loyalty program. So the customers own a common equity interest and much of the Co-Op’s preferred is held by the same people. That may be why all but the FF’s didn’t fall very far this last Spring.
A friend of mine is from an old line farming family in Iowa and he says that farmers are all smiling with corn above $4 and ‘soybeans in the teens.’ Watch out for machinery sales and farmland prices.
It has been a long wait the past few years, thankfully the previous CEO was replaced with a more competent individual.
With the tough times hopefully coming to an end, we can once again hope for better prices for their Preferred issues. I am still holding CHSCP & CHSCM.
Lust watch the reset cliff on CHSCM. Looking at a 240 bps drop in coupon down the road.
Also, QOL shows CHSCP being callable 7/18/23. Is the thinking here that the call date will be extended again?
RE: CHSCP
I would say why take the chance? Go to CHSCL. Current yld about the same, YTC much better, no built in rate drop.
CHSCP was supposed to be called a while back – maybe 2 years ago? No longer remember.
But this issue is primarily held by co-op farmer members, and many were not happy that their high yield note was to be terminated. CHS decided to extend the call date to 2023, probably to keep their members happy.
I have no idea what will happen in 2023, but I suspect the yield will still be high at that time compared to other alternatives, so one can hope that CHS will decide to extend it further. The co-op members do have clout.
I will tackle the issues of CHSCP and CHSCM later, as they both have a few more years to run. There are far bigger ( and more urgent ) problems in my life to be attended to, at this time.
I like co-op issues. Too bad that 2 of the best – Landolakes and Oceanspray – are both 144 issues and can’t be bought by mortals, even at IBKR.
I don’t know of another case where a company extended the call date on a preferred issue, i.e. gave the shareholders something of value for no consideration. They added 10 years to the clock.
Not exactly the same, but a few years back when Exor acquired PRE, the PRE preferred holders got to make exchanges for new issues with the same coupons and extended call protection. In addition, they a got a special dividend. Not sure why this was done, as preferred holders, as far as I know, didn’t have any voting rights (if they did, no one asked me), but it was a nice unexpected sweetener.
I’m surprised they did not review their balance sheet data in the presentation.