Today giant Ag Cooperative confirmed that the ag economy is extremely soft and that the threat of tariffs is bringing more uncertainty to their business. More than once in the last month or two I stated that we would likely see this market softness hit CHS earnings in the next couple of quarters. Of course we know that CHS is as much a oil refiner as they are a grain merchant–so earnings can still remains respectable.
An article in the local newspaper today outlines some of their challenges. This article is timely as I am going to start to add some more shares of the CHS preferreds to the portfolio. I currently own two issues (the CHSCM 6.75% issue and the CHSCN 7.10% issue) and will continue to add more shares at favorable prices starting tomorrow. If I am to own more perpetuals at this moment–these are pretty much the most stable issues that can be found. That earnings will likely be down in the next few quarters is only a minor consideration as it has been shown time and again that CHS can go these cycles and while they can be a bit painful the coop will survive just fine.
Tomorrow I will add some of the CHSCM 6.75% to current holdings around $25.17/share. Recall that this issue was originally a reset issue, which has now been fixed at 6.75% because of the change from libor to sofr. If share prices fall I will consider further purchases. The CHSCN 7.10% issues currently trades at $25.55 which is not a price which I am willing to pay at this time–but 25 cents lower it becomes a consideration.
Steve, none of these businesses are going away. This may just give us an opportunity to buy into some good companies when others panic. I agree and am just going to watch for now and see where things go.
agree
I’m with Tim on this one. recently have had a number of the remaining securities I have exposure to be called in or are in process. The only preferred I’ve purchased in a long time is the CHSCN issue inside of 1 dividend payment above par.
I’ll push back as well on the health of farmers a bit. Don’t compare their plight to the 1980’s. Debt/cap ratios are night and day now versus then. The industry learned its lesson and has effectively maintained a more conservative balance sheet. Downturns are common in commodities, but they’re used to it and will manage through.
At one point I was looking to buy a farm when interest rates went to what I thought crazy low in 2010. What I learned essentially was that standard procedure was to allow no more than 50% mortgage debt on a farm. That’s kind of an amazing concept when homes with no stated purpose to derive income, are allowed almost to go all the way via mortgage debt. I’m sure there are examples of those who are able to go higher through numerous lending sources, but overall as a group they’ve remained steady and low for decades now: https://www.ers.usda.gov/amber-waves/2023/august/u-s-farm-sector-financial-measures-show-little-variation-from-prepandemic-expectations/
This period could suck, but historically you never see the turn until afterwards when it comes to farming. Basically stuff happens all the time, and they should be ok. All the best. –NCSI
Farmers have also been very effective lobbyists since the 1980s.
If row crop farmers get the sniffles, the government gets out the subsidy bazookas before they figure out if it’s just a cold or something worse.
NCSI—you are right on relative to farmers. Still some big spending around here on land in particular–;the larger folks here have plenty of coin in the bank. This isn’t the 1980’s for sure.
Tariffs may impact the cost of oil and natural gas coming in from Canada. Do not see this as positive for their oil refinery business. Could be worst of both worlds.
I will wait to see what really happens with tariffs.
Tim; For some reason I thought you owned their CHSCL.
Chuck, I have 3% of my wife’s account in the L that is max for me. Average cost about 25.50 This was one of Grid’s specials for trades. I don’t trade this one. I am more of a buy and hold, even if it is called and I lost any unrealized capital gains I would still be ahead.
ChuckP–I think I did at one time, but it hasn’t been recently–I am pretty goosy when shares get a buck or two over $25 and if I had it I probably took my money and left.
The CHSCM under par would be worth considering. As Tim has pointed out there is a possibility the next couple quarters will show weakness in earnings and this can cause investors to sell. No hurry to buy unless you want to catch the next dividend.
I will just mention it again. Farmers not only have to deal with the weather but also the commodity cycles and now a good chance with tariffs. There are other countries that supply corn, wheat, and soybeans and rice to world markets. If the Ukraine war ever ends give it about 2 to 3 years for their exports to get up to speed.
This could affect everything from farm equipment sales to banks lending money to crop storage and barge and rail traffic. Willie Nelson will need to do a second Farm Aid tour.
I agree and believe that across the boarf tariffs ( back the 1800s) to raise tax revenue is close to insanity. We had an election, it is what it is. Most times what is said is never enacted. So, I cam wait to see before investing.
Tariffs will definitely cause me to wait-see if they get hammered.
my thoughts also. fair chance of a future market overreaction.