CHS Releases Earnings

Giant agricultural cooperative CHS Inc. has released their latest earnings.

Since there are no common shares outstanding, but they have 5 preferred stock issues outstanding I thought I would post this note. All of their preferred issues trade at huge premiums to the $25/share liquidation value. You can see the issues here.

As expected the earnings were pretty soft as the energy sector (refining) had substantially lower revenue and earnings. Ag revenue jumped, but earnings remain soft–with the huge jump in corn and soybean prices in recent months I would expect earnings in the ag sector to recover strongly come springtime

The company 10-q can be read here.

18 thoughts on “CHS Releases Earnings”

  1. Guys you are kind of missing the point. CHS is a co-op that is dedicated to meeting the needs of its members who are kind of like shareholders. Members at the Co Op get kickbacks of what they spend but in the form of securities to be redeemed in about 20 years. What do farmers need? Fuel for their tractors, butane for the same, ammonia for fertilizer and ethanol to survive politically. Those are probably the majority of a small farmer’s budget. Given all the new hydrocarbons coming out of the Dakotas, it makes sense to refine some in the Midwest and save on transportation.

    In exchange, CHS probably has one of the most loyal customer bases in business.

    1. Totally off-topic, but: wow, I had no idea tractors can burn butane.

      Lived on a small farm in Colbert, WA as a kid, but all we raised were 4H projects (sheep and a pony;-).

      1. Bur,
        As the former owner of an LP Gas business in Arkansas, I can attest that tractors have been able to burn both butane and propane. This started in the 1950s when gasoline powered tractors that were much smaller than what are used today were converted to LPG. I could recite quite a history of the business since my family was in it for over 50 years starting in 1934. Today however in the Eastern Arkansas delta where I used to live and work, most farm implements are fueled by diesel fuel. I sold the family business in the 1980s and relocated to Northwest Arkansas that I fell in love with as a student at the University of Arkansas. Haven’t looked back. Oh well, back to preferreds.

        1. Thanks, this story made my day. Fayetteville! I have a positive memory of breakfast there while driving through back in 1990 on a round-the-country trip. I’d camped by a lake somewhere in Northeastern OK the night before, got up early and headed across the border the next day. Always meant to return…

    2. Potter, I agree with what you have posted, particularly the part where they have a very loyal base.

      Unfortunately, the previous CEO made some mistakes, especially the failed fertilizer plant, and now the Fertilizer JV, which has yet to prove its worth.
      They sure took their time to get rid of him, but at least they did, finally.

      I am hopeful the current management will do what it can to recover from those mistakes.

      1. Co-ops are notoriously weak forms of business government. In the 70’s I worked on the conversions of mutual SAvings and Loans. Typically the CEO of the S& L was the dumber son in law of the mayor. 😁

        1. Potter,
          The thing that “bothered” me about Co-ops in the past was their tax free status. Back in the day , the C corp tax rate was 46 percent, depreciation rates were not as “good” as they are now and of course no Sec 179 deductions although there were periodic tax credits. If you were a Sub S that could help at times although I think pre Reagan the top personal rate was 70 percent (down from 90 percent pre JFK) so the Sub S didn’t always solve everything. And tax brackets were much different so many smaller firms found themselves in the 70 percent bracket as a Sub S.
          So it was a challenge for a family business – in my case – the propane business to compete against a Co-op. The rebates for their farm customers reduced the farmer’s expense but the way farmers manipulate income re timing the sale of crops it didn’t really translate into taxable income for them. Bottom line in my day the playing field wasn’t level in my industry as I saw it.
          Personally, other than that I never discerned incompetent management in co-ops.
          And ironically where as many family propane businesses were acquired by major marketers when they wanted to sell (think Amerigas or Suburban), today in some areas like Arkansas, many remaining family owned propane companies have sold out to MFA Oil a large Missouri based co-op, Go figure.

    3. The fact that CHS preferred dividends rank ahead of patronage payments is what makes me feel pretty secure despite the lack of ratings.

  2. I am invested in the CHS preferreds, but am somewhat disappointed that they appear to have shifted focus from the AG sector to the energy sector over the past several years.

    Will continue to hold for the yield, but am seriously considering lightening what I have, as I feel the energy sector has a poor future, with all the emphasis ( political, and financial ) for climate change, and New Green Deals.

    1. It is an agri co-op., owners and agri operators have agri products plus refinery as Tim opined. I have just 300 shares for my SWAN segment. YTC in the 4.2% range. Perhaps I should sell it, Tim’s AATRL for example, gets 5.2% range. Gridbirds SLUMP 5.66%.

      1. John: What is Gridbird’s SLUMP? Can’t find anything on that one.

        Incorrect ticker? Are you referring to SLMBP? Thanks!

          1. Tim, I am sorry that I can’t find the Sandbox posting. Please forgive me to post this weird High Yield Preferred position herewith. My biggest position is the smallest bulker shipper, SB, Safe Bulkers, Inc.. Many years ago, SB was almost universally agreed that they would be filing for bankruptcy. I had Navio Maritime NM-C and D, another Greek shipper, as SB. To make the long story short, the two Greek brother owners of SB, used their own private company’s money to buy large scale, fuel efficient custom made Japanese ship and lease the ship back to the public company. I went back to buy the sold shares later when Morgan Stanley gave BUY signal. Many analysts urged Safe Bulkers to suspend the dividend to the preferred shareholders. Owner insist that the Name Sake Safe Bulkers imply that shareholders money with SB is safe. In recent time, they finally brought an independent director and added the word on Earnings Call Transcript “the Board of Directors will review and approve … dividends.” The company paid one or two quarters of 1 penny to common shareholders. Then the CEO or COO insist that it is best NOT to declare dividend to the common shareholders for long term profit goals. They did not do well last quarter. They used lots of money to send their crew to their home when the port closed down due to COVID 19. Analysts asked why? COO and CEO got upset and said “Ethics more important.” They spend millions of dollars having many of ships retrofit with European environmental control device to get US Coast Guard certification. Some of the LNG shippers always told the analysts that they will use either the more expensive fuel OR have the scrubber installed all to be paid by the company which hires the ships.
            One SA writer, Michael Boyd another subscription seeker posted an article.
            https://seekingalpha.com/instablog/32642925-michael-boyd/5540841-shipping-looking-extremely-attractive-in-2021?utm_medium=email&utm_source=seeking_alpha&mail_subject=michael-boyd-shipping-looking-extremely-attractive-in-2021&utm_content=link-1
            Some asked J Mintzmyer well qualified but NUTS huge gambler on COMMON stocks of shippers on NM. Navia Maritime, CEO trashed her preferred shareholders repeatedly. SB and SB C and D are thinly traded. SB gapped up (used to be around $1.0 to $1.2 or so. 52 week range: 0.74 to $1.75. C and D are preferred 8% coupon QDI, in mid to high $20 range. Recently they bought another new large scale ship, using private company’s money and lease it back. Earnings per share, either fractional loss or fractional gain on GAAP. Very tightly run, almost having their crew employed. Most recent headwinds opined in Earnings Call transcript (1) COVID 19 (2) Trade war against China. Every so often I nibbled a little more. Some of my portfolio have unrealized cap loss, got carried away. The ones I went back to buy sold positions plus more had fantastic unrealized gain. I sold some to finance a moderately priced compact SUV one year. In my mind, the biggest risk is the health of the two super honest Greek brother owners. Typically the upside gain is probably limited UNLESS they declare 1 penny dividend to the common. The brothers own huge number of common and preferreds. SB-B had a mandatory call. They offered the holders cash + common OR all cash. I sold my B long ago and bought C and then D. It was the best of bulkers when they introduced their preferreds to American investors. Please read carefully the HISTORY of ALL their Earnings and EBITDA on their well constructed website. Safebulkers.com. This is NOT a SWAN unlike CHS co-op. I believe the current CEO of CHS Co-op is honest and reasonably capable. At least IMHO, farmers are generally honest people.
            Disclosure: I probably will not buy more SB C or D (same coupon, C is thinly traded at times in comparison to the larger float D. Never good to put too many eggs in one basket as I did with the late Michael Karfunkel’s Amtrust preferreds.

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