Rooted in a Rich History of Farmer-Owned Cooperation
CHS Inc. traces its origins back to 1929 when it was founded as the Farmers Union Cooperative Marketing Association. The cooperative was formed by a group of farmers looking to band together to market their crops and negotiate better prices. Over the years, the company has undergone numerous mergers and acquisitions, strategically expanding its reach and capabilities to better serve its member-owners. In 1998, the company adopted its current name, CHS Inc., to reflect its evolving role as a diversified agribusiness cooperative.
A significant milestone in CHS's history came in 1963 when it opened its first oil refinery in Laurel, Montana, marking the beginning of the company's move into the energy sector. This expansion continued with the addition of a second refinery in McPherson, Kansas in the 1980s, further solidifying CHS's presence in the energy business.
During the 1980s and 1990s, CHS faced significant challenges as it navigated a turbulent agricultural economy and dealt with the fallout from the farm crisis. The company survived this difficult period through strategic acquisitions and divestitures that allowed it to focus on its core strengths in grain, agronomy, and energy. CHS also demonstrated its resilience during the 2008 financial crisis, weathering the storm relatively well thanks to its diversified business model.
Today, CHS operates in three primary business segments: Energy, Ag, and Nitrogen Production. The Energy segment produces and distributes petroleum products, while the Ag segment purchases, processes, and resells grain and oilseeds, and the Nitrogen Production segment consists of the company's equity method investment in CF Nitrogen, LLC. As a Fortune 100 company, CHS operates grain terminals, fertilizer production facilities, and energy refineries across the United States, serving farmers, ranchers, and rural communities.
Navigating Challenging Market Conditions
The past few years have presented CHS with a series of challenges, including volatile commodity prices, supply chain disruptions, and geopolitical tensions. During the three months ended November 30, 2024, the company's Energy segment experienced a significant decline in earnings due to decreased crack spreads and WCS crude oil discounts, reflecting less favorable global market conditions.
However, CHS's diversified business model has helped mitigate the impact of these headwinds. The company's Ag segment, for instance, demonstrated moderately lower earnings during the same period, as softening oilseed crush margins were partially offset by strong performance from the company's equity method investments, particularly its stake in CF Nitrogen.
Financial Resilience and Liquidity
As of November 30, 2024, CHS reported a current ratio of 1.50, indicating a strong liquidity position. The company's working capital stood at $3.29 billion, providing ample resources to fund its operational and strategic initiatives. CHS has also maintained a disciplined approach to capital allocation, with a focus on funding capital expenditures, preferred stock dividends, and equity redemptions for its member-owners.
In terms of solvency, CHS's debt ratios remain well within industry norms. As of November 30, 2024, the company's debt-to-equity ratio stood at 0.21, and its long-term debt-to-capitalization ratio was 0.13, demonstrating a prudent capital structure.
The company's financial performance for the most recent quarter (Q1 2025) shows a revenue of $9,294,112,000, which represents an 18.4% decrease compared to the same quarter last year when revenue was $11,390,000,000. This decrease was primarily driven by lower selling prices across most product categories due to global market conditions, partially offset by increased sales volumes for certain products. Net income for the quarter was $244,790,000, while operating cash flow (OCF) and free cash flow (FCF) were both negative at -$293,984,000.
CHS maintains a strong liquidity position with $450,490,000 in cash and cash equivalents as of November 30, 2024. Additionally, the company has access to a $2.8 billion committed revolving credit facility that expires in April 2028, of which no amount was utilized as of the balance sheet date. The company's current ratio of 1.5 and quick ratio of 0.9 further underscore its solid financial footing.
Segment Performance
The Energy segment, which primarily produces and distributes petroleum products through two refineries in Laurel, Montana and McPherson, Kansas, faced significant challenges in the first quarter of fiscal 2025. Income before income taxes (IBIT) for this segment decreased by 92.6% from $266.83 million to $19.76 million, primarily due to lower crack spreads and decreased WCS crude oil discounts. This was partially offset by lower costs for renewable identification numbers (RINs) in the refined fuels business.
The Ag segment, which encompasses CHS's grain, oilseed, agronomy, and renewable fuels operations, experienced a slight decrease in IBIT of 1.8% from $169.72 million to $166.65 million. This was mainly due to lower oilseed processing margins and decreased wholesale and retail agronomy margins, partially offset by temporary mark-to-market gains on commodity derivatives.
The Nitrogen Production segment, consisting of CHS's equity method investment in CF Nitrogen, LLC, saw a 30.8% decrease in IBIT from $36.46 million to $25.24 million. This decline was attributed to lower selling prices of urea and higher interest expense, partially offset by decreased natural gas costs.
The Corporate and Other category, which includes the company's financing and hedging businesses, as well as nonconsolidated investments in Ventura Foods, LLC and Ardent Mills, LLC, reported a 7.6% increase in IBIT from $43.83 million to $47.18 million.
Navigating the Energy Transition and Evolving Agricultural Landscape
CHS is actively addressing the challenges and opportunities presented by the ongoing energy transition and the evolving agricultural landscape. The company has invested in renewable fuels, such as ethanol production, and is exploring ways to integrate sustainable practices into its operations.
Furthermore, CHS is leveraging its global reach and deep industry expertise to capitalize on emerging trends in precision agriculture, digital farming solutions, and the growing demand for sustainable food production. The company's strategic investments and cooperative connections are positioning it to adapt and thrive in the face of these industry-wide transformations.
Conclusion
CHS Inc. (CHSCL) is a resilient and adaptable cooperative that has navigated numerous market cycles and industry shifts throughout its long history. Despite facing headwinds in recent quarters, the company's diversified business model, strong liquidity, and prudent financial management have enabled it to weather the storm.
The company's performance in the first quarter of fiscal 2025 reflects the challenging market conditions, particularly in the Energy and Ag segments. However, CHS's diversified business model and strategic investments, such as its equity stake in CF Nitrogen, have helped to partially offset these headwinds.
As CHS continues to navigate the evolving agricultural and energy landscapes, its focus on strategic investments, sustainable practices, and cooperative connections positions it well to create long-term value for its member-owners and shareholders. With a keen eye on innovation and a steadfast commitment to its cooperative roots, CHS is poised to capitalize on the opportunities that lie ahead while managing the risks inherent in its dynamic operating environment.