Abstract

Corn Belt Grain Cooperatives Adjust to Challenges

of 198Os, Poised for 1990s

David E. Cummins

Agricultural Cooperative Service

U.S. Department of Agriculture

This report presents information for 1983 through 1991

on the physical and financial structure adjustments

made by local first- handlers-of-grain cooperatives in

the Corn Belt. They had annual total sales of at least

$5 million, more than half in grain. Most associations

also handled farm supplies and all provided related

services.

Local cooperative grain handlers were faced with

abrupt changes in export markets for grains and

oilseeds, shifts in Government policy, and occasional

drought, accompanied by wide swings in grain prices.

Most associations represented in this report adjusted

successfully to changing economic conditions through

sound financial management of particularly long-term

debt and operating capital. Most even improved their

economic position, with substantial assistance in

the latter half of the period from their regional

cooperatives.

Keywords: cooperative, grain, adjustment, expenses,

debt, patronage

ACS Research Report Number 117

August 1993
Preface

This report is based on balance sheet and operating

statement data from cooperatives’ annual reports

requested by USDA’s Agricultural Cooperative Service

(ACS) as part of an annual survey of grain marketing

cooperatives. By ACS definition, grain cooperatives are

those whose sales of grains and oilseeds account for

more than half of total sales. Other types of information

such as volume of grain handled and storage capacity

were obtained directly from first-handler cooperatives.

Report information is for two sizes of local first-handler

associations located in the Corn Belt. Large

cooperatives had $15 million or more in total sales.

Medium-sized ones ranged from $5 million to $14.9

million. Collectively, both groups accounted for an

estimated 90 to 95 percent of fiscal 1991 total grains

and oilseeds sales by local grain cooperatives.

All these cooperatives specialized in handling corn and

soybeans. Most also handled wheat and/or oats. Most

cooperatives were diversified, also handling farm

supplies. All provided related services.

Information for this report is based on condensed

balance sheets and operating statements. Adjustments

were made in financial reports to ensure data

comparability because of variations in accounting,

auditing practices, and terminology. Some detail was

lost in the process.

Information in this report can help cooperative

managers and boards make sound business decisions

as they adjust to variations of old problems and

consider the need for increased capital for improved or

new facilities and/or services. Information can be used

to compare your cooperative with others of similar size.
Glossary of Terms

Current assets-Value of assets readily converted

into cash without interfering with normal business

operations.

Investments-Dollar value of investments in other

businesses, mainly cooperative associations, and

deferred patronage.

Fixed assets-Dollar value of property, structures and

equipment (less depreciation), land, construction in

progress, and capital leases.

Other assets-All other assets such as bond cost

amortization and deferred and prepaid expenses.

Current liabilities-Dollar value of liabilities, including

that portion of long-term debt due in a year or less and

patronage refunds payable.

Long-term liabilities-Value of all debts with a

maturity of more than 1 year, such as debentures,

notes, industrial revenue bonds, and mortgage notes.

Total debt-Dollar value of all long-term liabilities plus

the current portion of those liabilities, seasonal loans,

and debenture notes.

Net worth or equity capital-Dollar value of owners’

equity listed in the equity sections. Includes common/

capital/preferred stock, allocated/unallocated earnings,

per-unit retains, and certificates of indebtedness and

membership.

Unallocated reserves-Equity capital generally, but

not exclusively, viewed as available for investment in

facility expansion or growth. Comparable terminology

includes capital and general reserve; unallocated

patronage; retained savings, earnings, margins, and

income; and surplus.

Gross margins-Dollar value of sales of grains and

oilseeds and farm supplies less cost of goods sold.

Other operating income+Dollar value of storage and

handling fees, service revenue, load-out fees, cleaning,

drying, mixing, commissions, finance charges, etc.

Nonoperating income-Dollar value of net interest

income/expenses, gain or loss from sale of assets,

dividends on stock, and patronage refunds from other

cooperatives.

Gross income-Dollar value of gross margins plus

other operating and nonoperating income.

Total expenses-Dollar value of labor, administrative,

and other general expenses such as depreciation,

repairs, utilities, and property taxes,

Labor expense--Dollar value of salaries and wages

and fringe benefits, including Social Security, workers’

compensation, unemployment, retirement,

hospitalization, bonuses, and other expenses directly

related to labor.

Net savings (losses)--Dollar value of gross income

minus total expenses before income taxes.

Allocation of net savings-Dollar value (1) paid in

cash as patronage refunds, (2) paid in cash as

dividends or interest on stock, (3) allocated to patrons

on the book, (4) retained as equity or unallocated

retained earnings, (5) allocated to an educational fund,

and (6) set aside for Federal and State income taxes.
Contents

Highlights and Conclusions .................................................................................................................................. iv

First-Handler Characteristics.. ............................................................................................................................... 1

Net Savings ............................................................................................................................................................. 2

Income and Expenses ............................................................................................................................................ 7

Sales and Margins .............................................................................................................................................. 9

Grain Marketings and Prices Received .............................................................................................................. 11

Other Income Sources.. ...................................................................................................................................... 11

Patronage Refunds ...................................................................................................................................... 12

Operating Expenses ........................................................................................................................................... 12

Role of Labor ................................................................................................................................................ 12

Other expenses ............................................................................................................................................ 13

Snapshot of Cost Structure .......................................................................................................................... 18

Grain Storage Capacity and Turnover Rate ....................................................................................................... 18

Balance Sheet ......................................................................................................................................................... 19

Assets ................................................................................................................................................................. 19

Equity Capital ..................................................................................................................................................... 19

Debt Structure .................................................................................................................................................... 22

Financial Statement Analysis ................................................................................................................................ 24

References.. ............................................................................................................................................................. 28

Appendix A .............................................................................................................................................................. 29

Appendix B .............................................................................................................................................................. 30

Appendix C .............................................................................................................................................................. 32

. . .

III
Highlights and Conclusions

This report presents information for 1983 through

1991, except for 1984, on the physical and financial

structure of local first- handlers-of-grain cooperatives in

the Corn Belt with total sales of at least $5 million.

Annual survey data and cooperatives’ annual records

for their operations revealed:

Net savings per association for both large and midsized cooperatives bottomed out in 1985, rose

sharply during the next 2 years, and averaged

slightly lower through 1991.

Early-period declines in net savings were largely

related to the sharp dropoff in grain exports after

expansion in the late 1970s; mid-period rises

resulted from the Government storage program; and

latter-period leveling off was due to regional

cooperative influence.

Although almost nonexistent in the early 198Os,

patronage refunds received from largely regional

cooperatives were substantial dollar-wise and

contributed 40 to 50 percent to total net savings

during 1989-91.

The incidence of losses reported by medium-sized

and large cooperatives was highest in 1985, at

about one-fourth. The rate dropped sharply the next

2 years when cooperatives benefited from the

Government storage program. Net savings for those

cooperatives that reported a savings averaged

highest during this period, despite sharply falling

grain prices.

Farm supply sales were the stabilizing factor for

many cooperatives throughout the period,

particularly for the large ones, whose grain sales

varied considerably.

Grain accounted for at least 70 percent of total

sales, almost entirely corn and soybean marketings.

Total and grain margins as a proportion of total

sales averaged higher for the large first-handlers,

peaking during the period of heaviest Federal

Government grain storage program activity. Grain

margins were generally low.

Large associations extensively reduced long-term

debt. Cooperatives in both size groups had cut their

debt to manageable levels by the late 1980s.

Member equity for medium-sized cooperatives was

about $2 million throughout the period, but

increased gradually for the large ones. Member

equity as a proportion of total assets declined for

both gro.ups.

Net savings allocations shifted from unallocated

reserves to patronage during the period. Level of

savings improved due to long-term debt reduction

and better control of expenses.

Despite closer management of operations in the

198Os, labor costs increased in dollar terms and as

a proportion of total expenses.

Early-period grain storage capacity expansion was

more prevalent among medium-sized cooperatives.

Large ones tended to scale back operations. Those

that did expand tended to be undersized. Latterperiod expansion was mostly among large

cooperatives.

Substantial change occurred during the 1980s. Firsthandlers in the Corn Belt adjusted to abrupt changes in

export markets for grains and oilseeds, Government

policy shifts, and drought conditions, all accompanied

by wide swings in grain prices. The key to

cooperatives’ adjusting to such conditions is sound

financial management, particularly of debt and

operating capital.

Considerable effort is still needed to manage debt and

operating capital and grain merchandising. Financial

management is probably the most important, complex,

and yet rewarding managerial activity in operating

grain-handling cooperatives. Grain merchandising

probably is a close second. The experiences of the

1980s should contribute significantly as grain-handling

cooperatives meet the challenges of the 1990s and

beyond.
Corn Belt Grain Cooperatives Adjust to

Challenges of 198Os, Poised for 1990s

David E. Cummins, Agricultural Economist

First-Handler Characteristics

This study analyzes changes in the financial structure These Corn Belt cooperatives, concentrated in Iowa,

and related operating characteristics of Midwest local Illinois, and Indiana, specialized in handling corn and

cooperatives that are first-handlers of grain (also soybeans and in most cases limited volumes of small

referred to as first- handlers, grain cooperatives, or grains such as wheat and/or oats (fig. 1).

associations). They had annual sales of at least $5

million, more than half from grain. Most cooperatives

were diversified, handling both farm supplies and grain.

All provided related services.

Figure 1

Location of Selected Types of First-handler Grain Cooperatives
Net Savings

Net savings per association for both medium-sized and

large grain cooperatives declined in the early 198Os,

bottomed out in 1985, rose sharply in each of the next

2 years, and averaged slightly lower through 1991 (fig.

2). Declines largely resulted from a sharp dropoff in

grain exports and failing prices. This was followed by a

recovery period featuring a Government storage

program and generally rising prices. The subsequent

leveling off of savings was influenced heavily by

regional cooperatives.

Local net savings reveals an interesting pattern for the

period. Until 1989, the influence on total net savings of

other sources of income had a “worse off” effect on the

local grain handlers. The opposite was true in

successive years (fig. 3). The relative contribution of

the sources of nonoperating income, referred to as

adjustments to local net savings, varied considerably

during the period (fig. 4). A discussion of these

appears later.

Allocations of total net savings revealed two distinct

trends. Net savings allocated as patronage generally

increased during the period, while unallocated reserves

declined (fig. 5 and table 1). The proportion of

patronage retained, particularly by the large

cooperatives, was noticeably higher during the latter

years of the period compared with earlier years (fig. 6).

In other words, local grain-handling cooperatives in the

Corn Belt paid out considerably more earnings as

patronage during the latter years, but also retained an

increasing proportion as unallocated reserves for

investment in the business. This was particularly true

for the large locals.

While net savings bottomed out in 1985, the incidence

of losses reported by both size groups of grain

cooperatives was highest. The rate dropped sharply

the next 2 years because of high income from the

Government storage program. Net savings for those

cooperatives that reported a savings averaged highest

during this period, despite sharply falling prices from

grain and soybean marketings (figs. 7 and 8).

Figure 2

Net Savings Realized by Corn

Corn-Soybean First-Handler Co-ops

Medium

$ Thous.

300

200

100

0

lL- i

-

-!I1’-

-1

Large

600

500

400

300

200

100

0

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.
Figure 3 Figure 4

Local and Total Net Savings

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

0.4 _ Local net savings

c-10 Total net savings

Large

0.6

0.6

0.5

0.4

0.3 I

I

0.2 I

d

0.1

0 I I I I I I I I

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

0.5

0.4

0.3

0.2

0.1

0

-0.1

-0.2

-0.3

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales. Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales

Local Net Savings and Adjustments

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

0.3

0.2

0.1

0

-0.1

Large

0.8

0.7

Patronage refund

Local net savings

Other nonoper. inc.

3
Figure 5 Figure 6

Allocation of Net Savings Allocation of Patronage Earned

Corn-Soybean First-Handier Co-ops Corn-Soybean First-Handler Co-ops

Medium

Percent

Unallocated reserves yJ$ Other

W Patronage

8C

60

40

20

0

Large

80

60

nnnnnnnn

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales. Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

Medium

Percent

100

80

60

40

20

0

Large

100

80

60

40

20

0

..:.:.::.a:=

.‘” ‘.‘.::r::z:z. :&g~.~~~~~

.:. . ...‘. ..;

.::.: .,...y::

:iii::..;‘:,‘:::~

:>$;m;g

w:s

‘:::::s;&> p$::$&

::.::.:.:t$&;:>

:::::::>:Yjy+ii

:i::jj.:.:::::i ..,::: . .

;~““;‘j:;i’i’i’:’

.: ..,

{:;;;;:s;j;.$

. ::.:::s.%:F

$:g@ ‘.‘..: . . . . _

S&Z:::$$ p.:,::: _

.~ .‘~.;..::~;:

:::::/ ;$$

..‘.“.:::::::/::::,

:..::, ,:::,.::.

“‘;::‘:‘:.::: ::::

‘:::::.:‘;.i;i:‘,::

: ..: ..:::.i::

.::.... . .

1983 85

rl I

86 87 88 89 90 91

Fiscal year

4
Table I-Allocation of net savings (loss) of corn-soybean first-handlers-of-grain cooperatives,

by total sales group, 1983-91*

Item Unit 1983 1985 1986 1987 1988 1989 1990 1991

NET SAVINGS’ Dollars 139,491

Patronage, total Percent 53.1

Paid in cash Percent 33

Retained Percent 67

Other2 Percent 9.1

Unallocated reserves Percent 37.8

NET SAVINGS’ Dollars 327,740 160,145 354,629 573,001 548,261 483,421 542,473 538,916

Patronage, total Percent 55.2 80.6 51.4 55.6 60.7 66.6 66.8 69.4

Paid in cash Percent 45 44 36 33 30 30 3 1 32

Retained Percent 55 56 64 67 70 70 69 68

Other2 Percent 10.5 11.9 13.9 15.4 11.5 11.5 11.0 9.6

Unallocated reserves Percent 34.3 7.5 34.7 29.0 27.8 21.9 22.2 21 .o

$5- 14.9 million

43,195 124,232 223,227

82.2 60.3 53.0

40 34 32

60 66 68

17.8 13.9 14.8

- 25.8 32.2

$15 million or more

210,305 124,305 193,183 186,021

54.4 73.8 67.5 68.5

29 3 1 34 34

7 1 69 66 66

12.4 9.7 11.4 8.3

33.2 16.5 21.1 23.2

‘1984 data not available.

‘Savings before income taxes and allocations.

%cludes dividends/interest on equity capital, an educational provision, and Federal and State income taxes.

5
Figure 7

Co-ops Had Savings and Average Savings

Corn-Soybean First-Handler Co-ops

Medium

$ Thous.

700 r

Percent

1100

Large

700

B Average savings

01 ti Prop. rptd. savings

600

500

Ip- \ /

- P

I \

I \ /

b

/

I

I

I

I

d

1001

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

85

80

95

90

85

80

75

70

Figure 8

Prices Received per Bushel Grains Sold

Corn-Soybean First-Handler Co-ops

Medium

Dollars

3.8

3.6

c

0

3.4 -

3.2 -

3.0 -

2.8 -

2.6 -

2.4 _ I I I I I I I I

Large

3.8

3.6

0F

3.4

3.2

3.0

2.8

2.6

2.4 1 I I I I I I I I

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales

6
Income and Expenses

Key factors underlying the 1983-91 changes in net Gross income movement for corn-soybean

savings were grain prices and sales volumes, regional cooperatives was most active in the mid-eighties, rising

cooperative relationships, and Government program nearly 41 percent from 1985 to 1987 for the mediumimpacts on the income side and labor expenses on the sized ones and nearly 23 percent for the large ones

cost side. Income-related factors varied considerably (table 2 and fig. 9). Gross incomes and total operating

more than cost-related factors. costs averaged lower following their 1987 peaks.

Table 2-Selected physical facility and income statement data for corn-soybean first-handlers-of-grain

cooperatives, by size, 1983-91*

Item Unit

1983

Total sales group (million dollars)

$5-14.9

1985 1986 1987 1988 1989 1990 1991

Size characteristics:

Locations

Storage capacity

Grain sold

Turnover rate

Unit-trains

Employees*

Income statement items:

Grain sales

Farm supply sales

Total

Cost of sales

Margins on sales

Other oper. income

Nonoperating income

Gross income

Labor expenses

Other expenses

Number 1.43 1.50

Bushels 1 ,191,437 1,420,747

Bushels 2,030,491 1,756,411

Times 1.7 1.24

Percent - -

Number - 12.50

-1

-

2,105,917

-

- - 1.53 1.57 1.57

1,452,898 1,515,920 1,423,895

1,950,983 2,325,883 2,255,201

1.34 1.53 1.58

22.50 27.27 27.91

12.08 11.98 11.44

- -

2,445,149 2,033,421

- -

6,131,311 6,302,199 6,147,562 6,349,606 7,265,098 7,315,867 6,929,882

2,011,052 2,087,940 2,105,023 1,970,309 2,021,545 1,894,822 2,050,665

8,142,363 8,390,139 8,252,585 8,319,915 9,286,643 9,210,689 8,980,547

7,636,241 7,860,487 7,689,898 7,773,475 8,740,697 8,663,690 8,452,OOl

506,122 529,652 562,687 546,440 545,946 546,999 528,546

364,654 590,672 640,620 413,414 301,312 353,125 347,548

-54,793 -88,541 -55,897 -4,514 26,250 43,342 68,078

Dollars 7,137,771

Dollars 1,971,930

Dollars 9,109,701

Dollars 8,583,833

Dollars 525,868

Dollars 373,597

Dollars -42,356

815,983 1,031,783 1,147,410 955,340 873,508 943.466 944.172

321,851 369,475 377,290 322,977 330,751 330,131 333,994

450,937 538,076 546,893 422,058 418,452 420,152 424,157

Dollars 857,109

Dollars 295,728

Dollars 421,890

Dollars 717,618

Dollars 139,491

Total 749,203 750,283 758,151

NET SAVINGS3

772,788 907,551 924,183 745,035

43,195 124,232 223,227 210,305 124,305 193,183 186,021

Relationships:

Gross income/$ expense Dollars

Total sales/$ assets Dollars

Total sales/$ labor exp. Dollars

Total sales/employee Dollars

Margins of total sales Percent

Net savings of equity Percent

Grain of total sales Percent

Labor of total expenses Percent

1.19 1.06 1.14 1.24 1.28 1.17 1.26 1.25

3.08 2.91 2.68 2.65 2.62 3.25 2.91 2.91

30.80 25.30 22.71 21.87 25.76 28.08 27.90 26.89

651,389 768,762 753,529 793,901

6.31 6.82 6.57 5.88

6.2 11.23 11.89 6.86

75.1 74.5 76.3 78.2

40.7 40.8 43.4 44.2

5.94 5.89

10.08 10.03

5.77 6.22

8.37 2.39

79.4 77.2

44 44.1

78.4 75.3

41.2 41.6

Continued

7
Table 2-Selected physical facility and income statement data for corn-soybean first-handlers-of-grain

cooperatives, by size, 1983-91* (continued)

Item Unit

1983

Total sales group (million dollars)

$15 or more

1985 1986 1987 1988 1989 1990 1991

Size characteristics:

Locations

Storage capacity

Grain sold

Turnover rate

Unit-trains

Employees 2

Income statement items:

Grain sales

Farm supply sales

Number 3.39 3.51 - 1 - - 3.37 3.51 3.64

Bushels 3555,391 3,618,023 - - - 4,084,654 4,107,043 4,240,562

Bushels 5828,276 5,238,655 5,691,583 6,111,116 6,139,832 6,417,114 7,214,451 7,011,965

Times 1.64 1.45 - - - 1.57 1.78 1.65

Percent - - - - - 66.09 78.65 75.89

Number - 38.31 - - - 35.95 37.4 37.79

Dollars 20,419,681 18,693,506 17,714,308 15,763,693 19,279,072 22,939,341 21,517,726 21,396,922

Dollars 6,268,554 6,644,227 7,079,790 6,816,576 6,998,661 7,100,736 7,030,823 73454,236

Total Dollars 26,688,235 25,337,733 24,794,098 22,580,269 26,277,733 30,040,077 28,548,549 28,851,158

Cost of sales Dollars 25,009,273 23,601,728 23,029,472 20,940,884 24,414,136 28,165,978 26,744,678 26,962,509

Margins on sales Dollars 1,678,962 1,736,005 1,764,626 1,639,385 1,863,597 1,874,099 1,803,871 1,888,649

Other income oper. Dollars 1,033,605 931,930 1,464,165 1,556,384 1,145,869 881,439 941,655 1,039,857

Nonoperating income Dollars -145,306 -144,455 -205,579 -99,098 -100,595 31,101 86,960 163,390

Gross income Dollars 2,567,261 2,523,480 3,023,212 3,096,671 2,908,871 2,786,639 2,832,486 3,091,896

Labor expenses Dollars 879,004 978,830 1 ,146,989 1,083,551 1,001,960 995,742 1,013,153 1 ,130,454

Other expenses Dollars 1,360,517 1,384,505 1,521,594 1,440,119 1,358,650 1,307,476 1,276,860 1,422,527

Total Dollars 2,239,521 2,363,335 2,668,583 2,523,670 2,360,610 2,303,218 2,290,013 2,552,981

NET SAVINGS3 Dollars 327,740 160,145 354,629 573,001 548,261 483,421 542,473 538,915

Relationships:

Gross income/$ expense Dollars 1.15 1.07 1.13 1.23 1.23 1.21 1.24 1.21

Total sales/$ assets Dollars 3.04 3.2 3.07 2.81 2.69 3.47 3.17 2.87

Total sales/$ labor exp. Dollars 30.36 25.89 21.62 20.84 26.23 30.17 28.18 25.52

Total sales/employee Dollars 661,387 835,607 777,135 770,766

Margins of total sales Percent 6.29 6.85 7.12 7.26 7.09 6.24 6.32 6.55

Net savings of equity Percent 7.68 4 7.96 12.58 12.78 10.61 11.62 10.94

Grain of total sales Percent 76.5 73.8 71.4 69.8 73.4 76.4 75.4 74.2

Labor of total expenses Percent 39.2 41.4 43 42.9 42.4 43.2 44.2 44.3

“1984 data not available.

Cells with - means data not available.

*Full-time equivalent.

%avings before income taxes and allocations.
Figure 9

Operating Cost of Gross Income

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

1.5 r

Large

3.5 r

3.0

2.5

2.0

1.5

1.0

0.5

0

A Gross income

Net savings

Total operating cost

r-l

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

When viewing the relationship of gross income to total

expenses as an efficiency measure, medium-sized

grain cooperatives in the Corn Belt tended to be more

efficient than the large ones (fig. IO). Operating

efficiency improved more rapidly and rose to a higher

level for the medium-sized ones during 1983-91. This

suggests there is no widespread pressure on local

Corn Belt grain cooperatives to increase scale of

operations.

Sales and Margins

Total sales per association largely mirrored grain sales

movements for both size groups. Farm supply sales

provided stability over time (fig. 11 and table 2). The

coefficient of variation (CV)l for farm supplies sales

was 3.2 percent and 4.8 percent for the medium-sized

and large grain cooperatives, respectively. The

variation in grain sales was much greater during the

period, with comparable CVs of 7.2 percent and 11

percent.

Year-to-year variation in total gross margins was

relatively small and similar to farm supply sales (fig.

12). Annual average grain gross margins CVs were

11.8 percent and 16.3 percent for the medium-sized

and large associations, respectively. Comparable total

gross margins CVs were 5.6 percent and 6.5 percent.

Cooperatives often may be operated with “target” total

gross margins in mind when dealing with unpredictable

annual variations in grain market prices and volumes. If

so, most of the margins adjusting and stability would

be associated with farm supplies. Thin grain

merchandising margins that typified 1983-91 placed

considerable pressure on the grain marketing activity

for volumes sufficient to offset the low per-unit margins.

This was difficult to accomplish during this period of

declining exports.

Margins as a percentage of total sales were

consistently higher for large than for medium-sized

associations. This reflects the large cooperatives’

consistently higher proportion of farm supply sales

(table 2).

’ The coefficient of variation expresses the standard deviation of a

set of data as a percentage of its mean or average. This statistic is

used in determining the relative variation of two or more sets of data.

9
Figure IO Figure 11

Gross Income Per Dollar of Operating Cost

Corn-Soybean First-Handler Co-ops

Medium

Dollars

1.30 r

Large

1.30 r

I .25 L

1983 84 85 86 a7 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

Grains and Farm Supply Sales

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

Large

35

30

25

20

15

10

5

0

-

-1

1983 85

[ 1 Grains/oilseeds

I

yyf$~ Farm s”pp,y

-

..::+: -:::;;i

:‘:,:::‘::,?J’

. ;;,>..

. .

:y :::: x ..,.i

-1 y$$

~

: ::,.:.

”

.:. ::. . .

‘. :

86 -

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales

10
Fiaure 12

Grain and Farm Supply Margins

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

Large

2.5

Grain margins

& Farm supply margins

1983 85 86 87 88 89

Fiscal year

90 91

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total Sales. Large = $15 mil. @US total Sales.

Grain Marketings and Prices Received

Grain marketings by medium-sized cooperatives varied

narrowly and averaged about 2.1 million bushels per

year during the study period (table 3). Marketings by

large cooperatives, however, clearly climbed and

averaged about 17 percent larger during 1988-91 than

during 1983-87 (fig. 13). Corn and soybean marketings

accounted for a steady 94 percent of the total for both

size groups, but the mix changed with a shift from

soybeans to corn.

Seasonal average prices received for corn and

soybean marketings peaked in 1983, bottomed out in

1986, and rose to a lower peak in 1988 (fig. 14 and

appendix A). Most of the variation in corn prices was

related to Government program effects on production

(and on ending stocks and Commodity Credit

Corporation (CCC) grain storage operations) and

exports (CCC-stored grain drawdowns to satisfy other

Government program needs). Soybean prices varied

largely in response to export demand factors.

Other Income Sources

Operating income from sources other than margins on

sales was largely from the grain storage function and

related services (e.g., drying, cleaning, and treating).

This income normally contributed 40 percent and 35

percent, respectively, of total operating income for

medium-sized and large cooperatives (fig. 15). Corn

Belt grain cooperatives prospered under the Federal

Government’s grain storage program in 1986 and 1987

(fig. 16 and table 2). Medium-sized cooperatives

benefitted proportionally more than their large

counterparts. The program’s short-term effect was

dramatic. Storage-related income averaged about 67

percent more than in 1983 and 54 percent more than in

1985. Subsequent storage incomes for both size

groups averaged about the same as during the pre1986 period.

Nonoperating income-largely the combined effect of

small patronage refunds received from other cooperatives and a net interest adjustment-was a negative

component in the earlier years and positive in the latter

years (fig. 17 and table 2). In earlier years, cooperatives were burdened with paying off substantial debt

with its associated interest cost, plus having to absorb

partial or full writeoffs of the value of investments in

their respective regional cooperatives. This situation

turned around during the latter years. Considerable

debt was repaid and substantial contributions were

made by regionals in the form of patronage refunds.

11
Table 3-Types of grains marketed by corn-soybean first-handlers-of-grain cooperatives, by total sales

group, 1983-91*

Item Unit 1983 1985 1988 1987 1988 1989 1990 1991

$5- 14.9 million

Grain marketed, total Bushels 2,030,491 1,756,411 2,105,917 2,445,149 2,033,421 1,950,983 2,325,883 2,255,201

Wheat Bushels 59,010 57,343 81,388 64,468 38,129 55,500 56,913 65,778

Corn Bushels 1,392,294 1,218,388 1,393,685 1,843,891 1,418,421 1,448,065 1,722,385 1,613,523

Soybeans Bushels 532,319 442,342 555,451 679,464 541,461 415,155 497,574 525,361

Sorghum Bushels 9,512 7,196 9,606 1,308 '2,072 5,798 11,316 7,402

Barley Bushels 296 93 26,211 2,986 830 549 1,443 5,282

Other' Bushels 37,060 31,049 39,576 53,032 32,508 25,916 36,252 37,855

$15 million or more

Grain marketed, total Bushels 5,828,276 5,238,655 5691,583 6,111,116 6,139,832 8,417,114 7,214,451 7,011,965

Wheat Bushels 179,420 165,976 219,975 134,692 337,077 192,795 127,096 224,192

Corn Bushels 4,145,753 3,635,236 3,731,211 4,180,574 4,334,721 4,870,645 5,563,184 5,095,497

Soybeans Bushels 1,429,269 1,310,269 1,631,310 1,498,776 1,292,435 1,230,977 1,340,726 1,474,390

Sorghum Bushels 18,194 82,518 48,909 245,314 145,514 91,965 140,272 171,588

Barley Bushels 3,299 67 389 0 0 65 165 659

Other' Bushels 52,341 44,589 59,789 51,760 30,085 30,667 43,008 45,639

l 1984 data not available.

'Includes oats, sunflowers, rye, and flaxseed.

Patronage Refunds-Most patronage refunds

received since 1988 came from regional cooperatives.

They were an important and even “saving” source of

income for local grain cooperatives (fig. 18).

Patronage from other cooperatives went from meager

dividends in the early 1980s to almost nonexistent in

the mid-l 980s. Several regional cooperatives had

substantial losses in the form of investment writedowns

and writeoffs. In turn, many locals were forced to take

similar measures.

The grain industry began an upswing in the latter

1980s. Patronage refunds became an increasing

proportion of the locals’ profits (figs. 19 and 20). This

income source continues to be sizeable, largely

because of regional cooperative activity in value-added

products. Regionals, largely through joint ventures,

mergers, and acquisitions involving other cooperatives

and investor-owned firms (IOFs), have been shifting

resources to the production of larger-margin, valueadded commodities.

This situation is likely to typify the 1990s. The regionals

continue to position themselves to be competitive in

the production of value-added products. While these

margins may weaken somewhat as competition

intensifies, they will continue to far exceed grain

merchandising margins in the forseeable .future and

generate significant patronage dividends for member

locals.

Operating Expenses

Total operating expenses (TOE) were reasonably

stable during the period for both sizes of grain-handling

cooperatives, with the exception of 1986-87 (fig. 9 and

table 2). Operating expenses averaged significantly

higher in 1986-87 than during the pre- and postperiods, corresponding to the substantially greater

grain storage activity in 1986-87.

Role of Labor-Labor cost (including benefits), except

for 1986-87, gradually increased for both sizes of

cooperative, despite efforts to curb rising labor costs,

particularly the benefits portion. Labor cost as a

proportion of total expenses rose for both size groups

during the period (fig. 21).

One measure of labor efficiency, total sales per dollar

of labor expenses, describes the same distinct pattern.

12
Figure 13 Figure 14

Breakdown of Total Grains Sold

Corn-Soybean First-Handler Co-ops

Medium

Bushels (ML)

Large

- d

Other

Wheat

Soybeans

Corn

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

Seasonal Average Prices Received

By Commodity, Corn Belt

$fbu.

01 I I I I I I I I I

1982 83 84 85 86 87 88 89 90 91

Marketing year*

‘Corn-l O/1-9/30 Soybeans-9/l -8131

Source: USDA, N.A.S.S.. Agricultural prices, Washington, D.C.,

Annual summary issues.

It was essentially at the same level in most years for

both size groups (fig. 22). Labor efficiency dropped

steadily from 1983 to 1987, more because of declining

sales than because of rising labor costs for the large

cooperatives. The reverse was true for the mediumsized cooperatives. For the large first-handlers, the

sharp improvement in labor efficiency during 1988-89

was largely because of increased grain sales. For

medium-sized cooperatives, efficiency increased

largely because of lower labor costs in 1988 and

increased sales in 1989. Entering the 199Os, sales

were slipping-to-flat and labor costs were generally

rising.

Other Expenses-Other operating expenses declined

during the period, attributable largely to efforts to

reduce overhead costs. Many grain associations had to

adjust to operating more efficiently and generating

higher profits given the excess fast-loading, unit-train

shipping capacity acquired and/or constructed in the

latter 1970s and early 1980s. This expanded

infrastructure was largely unit-train grain shipping

capability and additional grain storage capacity. (See

appendix B and reference (2) for detailed information

on cooperatives operating with unit-train capability).

13
Figure 15 Figure 16

Nonmargin of Total Operating Income Other Operating Income

Corn-Soybean First-Handler Co-ops Corn-Soybean First-Handler Co-ops

Medium Medium

Percent $ Mil.

60 0.8

50

40

30

20

IO

0

0.6

0.4

0.2

0

Large

1.6

1.4

Large

60 1.2

50

40

30

20

IO

0

F-7

1.0

0.8

0.6

0.4

0.2

0

1983 85 86 87 88 89 90 91 1983 85 86 87 88 89 90 91

Fiscal year Fiscal year

Fiscal year 1984 not available Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales. Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

14
Figure 17 Figure 18

Gross Income Sources Patronage Refunds Received

Corn-Soybean First-Handler Co-ops Corn-Soybean First-Handler Co-ops

Medium Medium

$ Mil. $ Thous.

1.5 i50 r

Large

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

-0.5

-

ti

Nonmargin operating

. . . . . . Margins on sales

Nonoperating

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales. Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales

100

50

0

Large

300

250

200

150

100

50

0

1---lnl II

l-l

-

r

-

1983 85 86 87 88

Fiscal year

r

89 90 91

15
Figure 19 Figure 20

Proportion Patronage Refunds Received

of Net Savings

Corn-Soybean First-Handler Co-ops

Medium

Percent

Patronage Refunds Received and Total Net Savings

Corn-Soybean First-Handler Co-ops

Medium

$ Thous.

300

200

100

0

c

I

60

50

40

30

20

10

0 11

-

-

-

-

-

-

-

-

EL:j:;q:: :,“::,:,::/::

:,,,. .: :.:::.::::::::::::::::

Other net savings

Patronage refunds

Large

600 r

500

400

300

200

100

0

LIl r

-

mg&

87

Large

60

50

40

30

20

10

0

j@@j_

1983 85 86 87 88 89 90 91

Fiscal year

-

-

1983 85 86 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total Saks.

16

Fiscal year 1984 not available

Medium - $5.0 - 14.9 mil. total sales. Large - $15 mil. plus total sales.
Fioure 21

Labor Cost and Proportion of Total Cost

Corn-Soybean First-Handler Co-ops

Medium

$ Thous.

1200 r

Percent

1

45

1 1 OO - -Labor expenses I

c- 10 Labor of total cost /

-we44

1000 - /

900 - f

I - 43

800 - I

I

700 - I - 42

600 o500 t

- 41

_ 140

I

Large

1200

1100

1000

900

800

700

600

500

400

300

200

45

43

42

I I I I I I I

41

40

39

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total Sales.

Figure 22

Total Labor Cost 81 Sales Per Dollar Labor

Corn-Soybean First-Handler Co-ops

Medium

Dollars Dollars (Thsnd)

31 c 1200

30 MSales per $ labor 1100

c- 10 Labor expenses

29 1000

900

800

700

600

500

400

300

20 I

I I I I I I I I 200

Large

31 I30.

29 [

28

27’

26 -

25 -

24 -

23 -

22 -

21 -

20 - I I I I I I I

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total SE&S. Large = $15 rd. pIUS total Sales.

 200 ~

I100

IO00

900

800

700

600

500

400

300

200

17
Expansion was generally in response to growth in grain

exports during the latter 1970s and to expectations of

continued growth well into the 1980s. U.S. corn exports

peaked in 1980 at about 2.4 billion bushels and

dropped to about 1.1 billion bushels in 1986. Similarly,

soybean exports peaked in 1982, at about 0.9 billion

bushels, and dropped steadily to about 0.6 billion

bushels in 1985. This translated into a tremendous

change in operating efficiency and profitability in grain

merchandising.

Snapshot of Cost Structure-Time series operating

cost data exist for only the labor and other operating

expenses breakdown presented above. A detailed

breakdown of costs prepared for 1989 under three

major categories- labor, facility, and general/

administrative-is contained in appendix C. Cost

distributions are similar, yet different, for both mediumsized and large cooperatives.

Labor and general/administrative expenses are a

higher proportion of total operating cost for mediumsized than for large local grain cooperatives. Facility,

interest, and income taxes account for a higher

proportion of the total for large cooperatives. The

breakdown of total labor cost reveals similar

percentages for wages/salaries (84 percent), fringe

benefits (9 percent), and taxes (7 percent) for both size

groups.

Grain Storage Capacity

Grain storage capacity data are not available for local

grain cooperatives for 1986-88, but data available for

the remaining years largely mirror the national pattern.

The decline in U.S. grain exports in the early 1980s

was accompanied by a buildup in U.S. grain stocks,

which peaked in 1986-87 at 8.4 billion bushels. This

buildup, accompanied by Government agricultural

program incentives, in turn, led to an increase in U.S.

grain storage capacity. It reached a record 22.9 billion

bushels on Dec. 1, 1988. Grain storage capacity has

been declining and grain stocks have dropped sharply

since. This has resulted in considerable excess grain

storage capacity, and reduced storage income.

Cooperative grain storage capacity per association for

both size groups shows early period increases,

accompanied by declines in marketings and turnover

rate (tables 1 and 3). Storage levels for 1989-91

averaged about 12 percent and 16 percent higher than

for 1983-85 for medium-sized and large associations,

respectively. Rising turnover rates in the 1990s largely

reflect the pickup in grain merchandising.

18
Balance Sheet

Assets

Total value of assets per association varied narrowly

and averaged about $3 million for the medium-sized

firms during the study period and was about $8 to

about $10 million for the large firms (table 4). Net book

value of fixed assets-physical facility and related

equipment operated-tended to decline throughout the

period for both groups (fig. 23).

Current assets per association increased and

averaged significantly higher in value in the latter half

of the period-26 percent and 41 percent, respectively,

for medium-sized and large cooperatives. This

coincides with the grain industry shift from a storage

mode in 1985-86 involving largely Government-owned

grain to the marketing mode involving primarily

privately owned grain and accompanying inventory

buildup that has prevailed since. The variation in total

current assets value is attributable mostly to changes

in the inventory value of crops.

Local first-handler investments, mostly in other

cooperatives, slid until turning and reversing the

decline beginning in 1989. The early half-period drop

corresponded to the decline in the value of their

regionals’ assets. Despite this pattern, the level of the

locals’ investments in the early 1990s had not returned

to early levels. This was particularly true for the

medium-sized firms.

Member ownership (equity) of total assets varied

between 60 and 65 percent for the medium-sized

cooperatives while declining beginning in 1985 (fig.

24). Medium-sized associations owned a noticeably

higher proportion of their assets than larger

counterparts. Member ownership of assets for large

firms climbed through 1987, but then dropped almost

as fast as it had risen.

Equity Capital

Equity capital represents the member-ownership and

control of the cooperative. It serves as a buffer for

creditors in absorbing operating losses and declines in

asset values. Many cooperatives found themselves

adjusting to both during 1983-91.

Equity capital usually takes the form of stock (common

and preferred), the noncash portion of patronage dividends declared (allocated), and unallocated reserves.

The relative importance of these forms of equity varied

considerably between the two size groups (fig. 25).

Fiaure 23

Total Assets Categories

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

4rI

II inr

Large

12

IO

8 1

Current assets

1983 85

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

19
Table 4-Selected balance sheet data for corn-soybean first-handlers-of-grain cooperatives, by total

sales group, 1983-91*

Item Unit 1983 1985 1986 1987 1988 1989 1990 1991

1,112,149

610,693

1,056,585

22.571

2,801,998

$5-14.9 million

1,203,939 1,306,669 1,701,487

650,212 537,601 454,946

1,264,406 1,254,793 1,007,548

15,672 18,404 9,437

3,134,229 3,117,467 3,173,418

1,343,643 1,607,462 1,561,155

489,056 499,233 522,316

1,017,618 1,053,110 989,316

9,830 10,639 10,400

2,860,147 3,170,444 3,083,187

689,886

305,695

1,806,417

802,703 845,560 1,212,182

326,847 283,537 188,046

29004,679 1,988,370 1,773,190 - -

3,134,229 3,117,467 3,173,418

883,982 1,094,272 1,066,527

163,215 160,562 161,801

1,812,950 1,915,610 1,854,859

2,801,998 2,860,147 3,170,444 3,083,187

422,263 401,236 461,109 489,305 459,661 513,190 494,628

537,848 550,042 531,315 782,586 440.819 619.654 476,668

Current assets

Investments

Fixed assets

Other assets

Total

Current liabilities

Long-term liab.

Equity

Total

Working capital'

Total debt

Ratios:

Current

Liab./equity

Equity/total assets

Debt/total assets

Debt/equity

Dollars 1,319,916

Dollars 563,496

Dollars 1,060,432

Dollars 17,236

Dollars 2,961,080

Dollars 899,086

Dollars 394,528

Dollars 1,667,466

Dollars 2,961,080

Dollars 480,830

Dollars 737,811

Number 1.47 1.61 1.50 1.55 1.40 1.52 1.47 1.46

Number 0.78 0.55 0.56 0.57 0.79 0.58 0.66 0.66

Number 0.56 0.64 0.64 0.64 0.56 0.63 0.6 0.6

Number 0.25 0.19 0.18 0.17 0.25 0.15 0.2 0.15

Number 0.44 0.30 0.27 0.27 0.44 0.24 0.32 0.26

$15 million or more

3,453,062 3,807,460 5,744,014

1,587,166 1,420,794 1,280,511

2,986,887 2,768,860 2,704,669

37,804 46,827 35,175

8,064,919 8,043,941 9,764,369

2,377,782 2,732,809 4,751,804

1,229,972 756,413 721,119

4,457,165 -~4,554,719 4,291,446

8,064,919 8,043,941 9,764,369

1,075,280 1,074,651 992,210

1,933,607 1,539,949 2,959,679

Current assets Dollars 3,965,367 3,419,267

Investments Dollars 1,619,485 1,604,271

Fixed assets Dollars 3,166,766 2,764,174

Other assets Dollars 37.434 122.179

Total Dollars 8,789,052 7,909,891

Current liabilities Dollars 3,055,353 2,491,826

Long-term liab. Dollars 1,466,769 1,414,821

Equity Dollars 4,266,930 4,003,244

Total Dollars 8,789,052 7,909,891

Working capital' Dollars 910,014 927,441

Total debt Dollars 2,833,951 2,318,339

Ratios:

Current

Liab./equity

Equity/total assets

Debt/total assets

Debt/equity

Number 1.30 1.37 1.45 1.39 1.21 1.29 I .29 1.26

Number 1.06 0.98 0.81 0.77 1.28 0.90 0.93 1.04

Number 0.49 0.51 0.55 0.57 0.44 0.53 0.52 0.49

Number 0.32 0.29 0.24 0.19 0.30 0.19 0.19 0.17

Number 0.66 0.58 0.43 0.34 0.69 0.35 0.36 0.35

49523,147 4,762,783 5,607,911

13384,535 1,423,612 1505,324

2,712,647 2,760,945 2,923,094

31,425 50,771 29.588

8,651,754 8,998,111 10,065,917

4,467,709

670,363

3,516,805 3,678,547

577,057 652,966

4,557,892 4,666,598 4,927,845

8,651,754 8,998,111 10,065,917

1,006,342 1,084,236 1,140,202

1,616,717 1,671,124 1,723,965

'1984 data not available.

Current assets minus current liabilities.

20
Figure 24 FiCrure 25

Member Equity of Total Assets Breakdown of Member Equity

Corn-Soybean First-Handler Co-ops Corn-Soybean First-Handler Co-ops

Medium Medium

Percent Percent

65

60

55

Large

60

55

50

45

40

l-

,

I -

0

I I I I I I I I

1983 84 85 86 87 88 89 90 91

Fiscal year

1983 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales. Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

80

70

60

50

40

30

20

10

0

Large

100

90

80

70

60

50

40

30

20

IO

0

r

a

Stocks

.,,::;;$j$ Unallocated

Allocated

21
Common stock, generally linked to voting or

membership by grain cooperatives, is an important

source of equity capital for those in the Corn Belt.

Stock as a proportion of total member equity was about

29 percent at both ends of the period, varying between

29 and 33 percent in between, for medium-sized firms

(table 5). The rate for large firms was about the same

as for medium-sized firms at the beginning of the

period, but then declined and varied mostly in the lowto-mid 20s. There was a definite shift from allocated

capital credits, mostly patronage refunds, to

unallocated reserves during the period for mediumsized grain cooperatives. The unallocated reserves

proportion also climbed for large firms, but represented

a shift away from stock capital.

Debt Structure

Reduction of long-term debt was an important objective

and accomplishment for local grain cooperatives during

1983-91. Medium-sized and large firms had achieved

manageable levels of debt by the end of the period (fig.

26 and table 6). In fact, long-term debt in the early

1990s averaged less than 50 percent of 1983-85 levels

for both size groups. The exception was 1988, when

short-term debt associated with an unusually large

buildup of grain inventories increased sharply,

particularly among large cooperatives.

Figure 26

Breakdown of Debt

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

1.0

0.5

0

Largf

3.0 -

2.5 -

2.0 -

1.5 -

1.0 -

0.5 -

O_

e

-

n

1983 85 86 87

1

1 1 Short-term

m Long-term

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

22
Table 5-Amount and types of member equity capital of corn-soybean first-handlers-of-grain cooperatives,

by total sales group, 1983-91*

Item Unit 1983 i 985 1986 i 987 i 988 1989 1990 1991

$5-14.9 million

MEMBER EQUITY

Stock’

Allocated

Unallocated

Dollars 1,667,466 1,806,417 2,004,679 i ,988,370 1,773,i 90 1 ,ai 2,950 1,915,610 i,a54,859

Percent 29.5 29.0 29.7 27.3 33.5 33.0 30.4 29.3

Percent 43.0 43.2 44.7 42.9 32.0 31.5 34.2 32.5

Percent 27.5 27.8 25.6 29.8 34.5 35.5 35.4 38.2

$15 million or more

MEMBER EQUITY Dollars 4,266,930 4,003,244 4,457,165 4,554,719 4,291,446 4,557,892 4,666,598 4,927,845

Stock’ Percent 27.2 29.3 24.7 21.2 22.0 24.2 23.6 24.8

Allocated Percent 50.4 47.6 49.1 53.3 51.6 46.9 47.8 45.8

Unallocated Percent 22.4 23.1 26.2 25.5 26.4 28.9 28.6 29.4

*1984 data not available.

1 Common, capital, and preferred stock, plus stock credits and fractional shares.

Table 6-Debt structure of corn-soybean first-handlers-of-grain cooperatives, by total sales group, 1983-91*

Type of debt Unit i 983 i 985 1986 i 987 i 988 i 989 1990 1991

Short-term Dollars 343,283 232,153 223,195 247,778 594,540 277,604 459,092 314,867

Long-term Dollars 394,528 305,695 326,847 283,537 i 88,046 163,215 160,562 161,801

Total Dollars 737,ai 1

Long-term Percent 53.5

Short-term

Long-term

Total

Long-term of

total

Dollars 1,367,182

Dollars 1,466,769

Dollars 2,833,95i

Percent 51.8

$5- 14.9 million

637,848 550,042 531,315

56.8 59.4 53.4

$15 million or more

903,5i a 703,635 783,536

i ,414,82i 1,229,972 756,413

2,238,560 1,039,660 i,oia,i58 1,053,601

721.119 577.057 652.966 670,363

2,318,339 1,933,607 1,539,949 2,959,679 1,616,717 1,671 ,I 24 1,723,965

61 .O 63.6 49.1 24.4 35.7 39.1 38.9

782,586 440,ai 9 619,654 476,668

24.0 37.0 25.9 33.9

l l 984 data not available.

23
Financial Statement Analysis

Analysis of a financial statement entails isolating

various factors and constructing key relationships,

usually ratios, for evaluating overall economic

condition. Important factors to consider are an

association’s ability to (1) meet current obligations, (2)

earn a competitive return on investment, (3) cope with

external and internal financial problems, (4) raise

needed capital, and (5) operate efficiently.

Ratios showing relationships between items in the

financial and income statements of a business

operation are constructed to aid in analyzing a

cooperative’s economic and financial situation.

They are largely descriptive and can indicate problem

areas, but they cannot be used to solve problems.

Ratios are used as guidelines for planning purposes

and as a meaningful aid in formulating actions. Caution

must be exercised in their use because both items in a

ratio are subject to considerable variation. Their

interpretation is largely subjective in the absence of

fixed standards or hard and fast rules.

Ratios, at best, are approximations. Their application is

limited because of differences attributed to factors like

cooperative size, time-of-year closing, different

accounting procedures, and use of financial resources.

Several different ratios are meaningful in analyzing the

cooperatives represented in this study.

The ratio that probably best measures the

cooperative’s ability to meet its current financial

obligations in a timely way is the current ratio. Despite

the increase in working capital during 1983-91,

calculation of the current ratio reveals an accompanying general worsening of the short-run liquidity

situation for first-handlers of grain (fig. 27 and table 4).

Even though liquidity is reflected for both size groups,

medium-sized firms were in a better liquidity situation

than large ones. This discouraging trend suggests that

a number of the particularly large cooperatives might

have been experiencing or headed for a short-run

liquidity problem. Although ratio values greater than

1 .O:l technically mean short-run liquidity, widely

accepted guideline values are around 1.7:1 to 1.8:1.

The current ratio position can be misleading in

isolation. It should be interpreted with caution

regarding the overall financial health of an individual

cooperative or group of cooperatives. A current ratio

should be analyzed in conjunction with other

24

Figure 27

Current Ratio and Working Capital

Corn-Soybean First-Handler Co-ops

Medium

Number

1.65 r

Dollars (Thsnd)

1

1.2

_ Current ratio

*10 Working capital

1.25 o1.20 I

,p%’

oI+ I I I I 0.4

Large

0.8

0.6

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.
information pertaining to the cooperative’s ability to

generate sufficient revenue to meet current debt

obligations.

The liabilities-to-net worth (eauitv) ratio measures the

amount of money members owe creditors in relation to

how much they have invested. It was significantly

different for the two size groups. This ratio varied

mostly between 55 and 66 cents owed per $1 invested

for medium-sized firms (fig. 28 and table 4). On the

other hand, large corn-soybean cooperatives owed

creditors about as much as or more than members had

invested during most of the period. Considerable longterm debt and current liabilities (mainly crop

inventories) typified the early years. Despite sharply

reduced long-term debt levels and rising equity in the

latter years, the considerably higher current liabilities

levels due to the increased grain volumes handled kept

the ratio close to 1 :l into the 1990s.

The debt-to-eauity ratios reveal general improvement

in the amount of debt capital in relation to the amount

of member investment dollars. This increased solvency

was attributed to debt reduction for medium-sized local

grain cooperatives and a combination of debt reduction

and increasing member equity for large cooperatives

(fig. 29 and table 4).

The debt-to-equity ratio reflects not only the universal

importance of debt to a cooperative’s solvency, but

also its influence on profitability. Associations with

higher debt-to- equity ratios averaged significantly

lower net savings than those with lower ratios. This

was as true for the 1990s as it was for 1983 and 1985

(table 7). This also was the pattern for net savings as a

percentage of member equity (return to equity). Rates

of return averaged nominal and even negative in 1985

for most association groups with debt-to-equity ratios

of at least 0.7O:l.

Calculation of the net savinas-to-equity ratio, the one

used most often to measure return on member

investment, shows generally increasing returns. The

pattern of change in this ratio during 1983-91 was

similar for both size groups, with rates of return

generally 1 to 2 percentage points higher for the large

cooperatives (fig. 30 and table 2). Returns for both size

groups were highest during the Government storage

mode period, followed by the 1990s.

Figure 28

Member Equity and Total Liabilities

Corn-Soybean First-Handler Co-ops

Medium

$ Mil.

Large

12

IO

1-

8 -

6 -

Total liabilities ../.,

/:’ ,::.ii Member equity

1983 85

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mii. plus total sales.

25
Figure 29 Figure 30

Debt/Equity Ratios Net Savings of Member Equity

Corn-Soybean First-Handler Co-ops Corn-Soybean First-Handler Co-ops

Medium

Number

0.5 r

Medium

Percent

14

01 I I I I I I I I

Large

10 Long-term

0.6

0.5

0.4

0.3

0.2

0.1

0

\

b

\

\

L-0‘\r--0

I I I I I I I I

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

u Short and long-term

Large

14 r

12 -

10 -

6

4

1983 84 85 86 87 88 89 90 91

Fiscal year

Fiscal year 1984 not available

Medium = $5.0 - 14.9 mil. total sales. Large = $15 mil. plus total sales.

26
Table 7-Net savings and return to member equity for corn-soybean

first-handlers-of-grain cooperatives by debt/equity ratio,

by total sales group, 1983,85,90,91

Debt/equity ratio Unit 1983 1985 1990 1991

zero

.Ol-.39

.40-969

.70 plus

zero

.Ol-.39

.40-.69

.70 plus

zero

.Ol-.39

.40-.69

.70 plus

zero

.Ol-.39

.40-.69

.70 plus

NET SAVINGS

$5- 14.9 million sales

Dollars 196,994 165,385 268,371 199,420

Dollars 200,867 78,689 225,i 85 218,110

Dollars 105,315 -4,023 128,432 137,264

Dollars 59,143 -120,233 90,408 48,864

$15 million or more sales

Dollars 633,694 503,163 1,240,765 908,089

Dollars 488,610 280,099 603,914 567,707

Dollars 486,479 221,226 407,353 577,103

Dollars 41,267 -83,670 356,063 319,772

RETURN TO EQUITY

$5- 14.9 million sales

Percent 16.05 8.49 14.21 11.22

Percent 10.52 4.13 10.96 11.10

Percent 6.40 -1.11 7.47 7.28

Percent 4.43 -11.07 5.63 3.96

$15 million or more sales

Percent 20.67 9.96 16.62 20.62

Percent 12.08 6.88 12.54 10.99

Percent 9.95 4.44 10.05 11.24

Percent 0.96 -2.77 8.23 8.54

27
References

(1) “Patronage Refunds Boost Income of Local Grain

Cooperatives,” Farmer Cooperatives magazine. David

E. Cummins, ACS, September 1991, pp. 7-9.

(2) “Co-ops Using Unit-Trains Lead Corn Belt

Recovery,” Farmer Cooperatives magazine. David E.

Cummins, ACS, August 1991, pp. 6-7.

(3) “Led by Larger Cooperatives, Grain Handlers Turn

the Corner,” Farmer Cooperatives magazine. David E.

Cummins, ACS, July 1990, pp. 8-10.

(4) Comparative Financial Profile of Cooperatives

Handling Grain: First-Handlers With $1 Million or More

in Sales. David E. Cummins and Francis P. Yager,

ACS Research Report 63, June 1987.

(5) Financial Profile of Cooperatives Handling Grain:

First- Handlers, $1 Million to $4.9 Million in Sales.

Francis P. Yager and David E. Cummins, ACS

Research Report 58, January 1987.

(6) Financial Profile of Cooperatives Handling Grain:

First- Handlers, $5 Million to $14.9 Million in Sales.

David E. Cummins and Francis P. Yager, ACS

Research Report 55, May 1986.

(7) Financial Profile of Cooperatives Handling Grain:

First- Handlers, $15 Million Sales or Larger. Francis P.

Yager and David E. Cummins, ACS Research Report

53, January 1986.

(8) Cooperative Involvement in Grain Marketing. David

E. Cummins, Francis P. Yager, Charles L. Hunley,

Michael D. Kane, and Bruce J. Reynolds, ACS

Research Report 38, August 1984.

(9) Regional Grain Cooperatives, 1980 and 1981.

Stanley K. Thurston and David E. Cummins, ACS

Research Report 27, April 1983.

28
Appendix A

AoDendix A-Fiaure 1 ADoendix A-Figure 3

Corn for Grain All Wheat

Prices Received by Farmers and Ending Stocks in U.S.

Bushels (mil.) $/bushel

Prices Received by Farmers and Ending Stocks in U.S.

$/bushel

5.0 r *

1

Seasonal avg. pr? I\ c”.^I:-

4.5 t

2.0t- A; ! ;\/

1

4

0

/3

3.4

3.2

3.0

2.8

2.6

2.4

2.2

2.0

1.8

1.6

1.8

1977 79 81 83 85 87 89 91 93’

Marketing year*

‘Estimated.

*September l-August 31

ADDendix A-Fiaure 2

Soybeans

Prices Received by Farmers and Ending Stocks in U.S.

Bushels (mil.) $/bushel

1

8.0

P

, Ending stocks

I

0.25 - i

u

i

0.10 I I I I I I I I I I I I I I I 14.5

1977 79 81 83 85 87 89 91 93’

Marketing year*

‘Estimated.

‘September 1 -August 31

2.0

1.8

1.6

0.8

0.6

0.4 I I I I I I I I I I I I I I I I 12.2

1977 79 8 1 83 85 87 89 9 1 93’

Marketing year*

‘Estimated.

“June I-May 31

29
Appendix B

Appendix B Table l-Selected physical facility and income statement data for corn-soybean

first-handlers-of-grain cooperatives, by unit-train status, by size*,

1991

Item Unit

Total sales group (million dollars)

$15 or more

Unit-train Other co-ops Unrt-trarr?-‘4’g . . Other co-ops

Size characteristics:

Locations Number 3.58 3.48 1.57 1.46

Storage capacity Bushels 4,711,111 2,933,391 1,749,757 1,247,522

Grain sold Bushels 7,563,483 5,166,472 2,688,360 2,008,321

Turnover rate Times 1.61 1.76 1.54 1.61

Unit-trains Number 1.59 - 1.04 -

Employees’ Number 37.56 37.01 11.71 11.17

Income statement items:

Grain sales

Farm supply sales

Dollars 22,783,883 16,813,921 8,492,484 6,389,724

Dollars 7,480,883 7,366,184 1,963,331 2,080,854

Total Dollars 30,264,766 24,180,105 10,455,815 8,470,578

Cost of sales Dollars 28,355,436 22,359,792 9,911,514 7,947,478

Margins on sales Dollars 1,909,330 1,820,313 544,301 523,100

Other oper. income Dollars 1,077,724 914,731 388,556 333,372

Nonoper. income Dollars 191.526 70.421 90.539 60,313

Gross income Dollars 3,178,580 2,805,465 1,023,396 916,785

Labor expenses Dollars 1,134,447 1,117,261 357,174 325,981

Other expenses Dollars 1,468,038 1,272,143 457.672 412,571

Total Dollars 2,602,485 2,389,404 814,846 738,552

NET SAVINGS* Dollars 576,095 416,061 208,550 178,233

Relationships:

Gross income/$ expense

Total sales/$ assets

Total sales/$ labor exp.

Total sales/employee

Dollars 1.22 1.17 1.26 1.24

Dollars 2.77 3.34 2.94 2.90

Dollars 26.68 21.64 29.27 25.98

Dollars 805.788 653.324 892,570 758,140

Margins of total sales Percent 6.31 7.53 5.21

Net savings of equity Percent 11.04 10.49 9.86

Grain of total sales Percent 75.3 69.5 81.2

Labor of total expenses Percent 43.6 46.8 43.8

6.18

10.10

75.4

44.1

'Size based on total sales for FY 1991.

'Full-time equivalent.

%avings before income taxes and allocations.

30
Appendix B Table 2-Selected balance sheet data for corn-soybean first-handlers-of-grain

cooperatives, by unit-train status, by size*, 1991

Item Unit

Total sales group (million dollars)

$15 or more $5-14.9

Unit-train Other co-ops Unit-train Other co-ops

Current assets Dollars 6,i 82,940 3,707,816 1,780,631 1,485,287

Investments Dollars 1,623,663 1 ,I 14,293 575,304 503,999

Fixed assets Dollars 3,086,941 2,381,688 1 ,189,565 920,095

Other assets Dollars 30,394 26,923 14,448 9,000

Total Dollars 10,923,938 7,230,720 3,559,948 2,918,381

Current liabilities Dollars 4,999,523 2,710,411 I,21 6,808 1 ,014,579

Long-term liab. Dollars 705,699 553,603 227,875 138,961

Equity Dollars 5218,716 3,966,706 2,115,265 1,764,841

Total Dollars 10,923,938 7,230,720 3,559,948 2,918,381

Working capital Dollars 1 ,I 83,417 997,405 563,823 470,708

Total debt Dollars 1,799,436 1,474,583 527,118 459,229

Ratios:

Current

Liab./equity

Equity/total assets

Debt/total assets

Debt/equity

Number 1.24 1.37 1.46 1.46

Number 1.09 0.82 0.68 0.65

Number 0.48 0.55 0.59 0.60

Number 0.16 0.20 0.15 0.16

Number 0.34 0.37 0.25 0.26

“Size based on total sales for FY 1991.

31
Appendix C

Appendix C Table 1 -Selected operating statement cost and income data, by

size*, corn-soybean first-handlers-of-grain cooperatives,

1989

Cost/income Total sales group (million dollars) All

item $15 or more $5-14.9 cooperatives

EXPENSES:

Labor

Facility

GeneraVadm.

884,244

1 ,013,263

172,426

Subtotal 2,069,933

Interest 262,928

Subtotal 2,332,861

Income taxes 50,941

Total 2,383,802

INCOME/SALES:

Gross income

Per $ exp.’

Net savings

Of sales

Total sales

Per $ exp.’

Grain sales

Of total

Price/bu.2

Bushels sold

Bushels storage

Turnover rate3

2,861 ,169

1.23

477,367

29,368,038

23,161,416

3.49

6,635,245

4,288,056

Dollars Percent Dollars

37.09 324,847

42.51 337,717

7.23 71,921

86.83 734,485

11.03 70,001

97.86 804,486

2.14 10,559

100.00 815,045

942,357 1,760,589

1.17 1.21

127,312 276,584

1.63 1.36 1.55

9,345,050 17,883,381

12.59 11.62 12.28

7,331,957 14,082,056

78.87 78.46 78.74

3.71 3.55

1,975,639 3,962,618

1,414,301 2,639,746

1.55 1.4 1.5

Percent Dollars Percent

39.86 563,388 37.96

41.44 625,788 42.17

8.82 114,779 7.74

90.12 1,303,955 87.87

8.59 152,270 10.26

98.71 1,456,225 98.13

1.29 27,779 1.87

100.00 1,484,004 100.00

* Size based on cooperative total sales for FY 1989.

1 Includes interest paid; excludes Federal/state income taxes paid.

2 Weighted average price per bushel received for all grain sold.

3 Ratio of bushels grain sold to bushels grain storage capacity.
Appendix C Table 2-Total operating costs, by major cost category, by size*,

corn-soybean first-handler grain cooperatives, 1989

cost

category

Total sales group (million dollars) All

$15 or more $5-14.9 cooperatives

Dollars Percent Dollars Percent Dollars Percent

Labor 884,244 37.90 324,847 40.38 563,388 38.69

Facility 1 ,013,263 43.44 337,717 41.98 625,788 42.97

GeneraVadm. 172,426 7.39 71,921 8.94 114,779 7.88

Subtotal 2,069,933 88.73 734,485 91.30 1,303,955 89.54

interest 262,928 11.27 70,001 8.70 152,270 10.46

Total 2,332,861 100.00 804,486 100.00 1,456,225 100.00

*Size based on cooperative total sales for FY 1989.

Appendix C Table 3-Total operating costs, by major cost category, by size*,

corn-soybean first-handler grain cooperatives, 1989

cost

category

Total sales group (million dollars)

$15 or more $5-14.9

All

cooperatives

Dollars Percent Dollars Percent Dollars Percent

Labor 884,244 42.72 324,847 44.23 563,388 43.21

Facility 1 ,013,263 48.95 337,717 45.98 625,788 47.99

GeneraVadm. 172,426

-

8.33

-

71,921

-

9.79 114,779 8.80

Total’ 2,069,933 100.00 734,485 100.00 1,303,955 100.00

* Size based on cooperative total sales for FY 1989.

1 Excludes interest paid.

33
Appendix C Table 4-Labor/labor-related cost, by cost category, by size*,

corn-soybean first-handler grain cooperatives, 1989

cost

category

Total sales group (million dollars) All

$15 or more $5-14.9 cooperatives

Dollars Percent Dollars Percent Dollars Percent

Wages/salaries 745,798 84.34 272,417 83.86 474,279 84.18

Benefits 75,262 8.51 28,834 8.88 48,632 8.63

Taxes 63,184 7.15 23,596 7.26 40,478 7.19

Total 884,244 100.00 324,847 100.00 563,389 100.00

*Size based on cooperative total sales for FY 1989.

Appendix C Table 5-Facility operating cost, by cost category, by size*,

corn-soybean first-handler grain cooperatives, 1989

cost

category

Total sales group (million dollars)

$15 or more $5-14.9

All

cooperatives

Repairs 146,212 14.43 37,694 11.16 83,969 13.42

TrucWtrac./auto 109,618 10.82 36,393 10.78 67,618 10.81

Dryer fuel 10,405 1.03 6,812 2.02 8,344 1.33

Plant supplies 21,897 2.16 7,224 2.14 13,481 2.15

Grain weighing 7,950 0.78 1,863 0.55 4,459 0.71

Pest treatment 592 0.06 282 0.08 415 0.07

Nongrain testing 477 0.05 422 0.12 445 0.07

Licenses/fees 3,736 0.37 2,676 0.79 3,128 0.50

Insurance 104,069 10.27 44,571 13.20 69,943 11.18

Taxes 89,709 8.85 32,841 9.72 57,091 9.12

Utilities 98,689 9.74 30,794 9.12 59,747 9.55

Telephone 15,668 1.55 4,429 1.31 9,222 1.47

Rents/leases 37,327 3.68 6,387 1.89 19,581 3.13

Misc. 6,425 0.63 2,432 0.72 4,135 0.66

Depreciation 360,488 35.58 122,896 36.39 224,211 35.83

Dollars Percent Dollars

Total 1 ,013,263 100.00 337,717 100.00 625,788 100.00

Percent Dollars Percent

*Size based on cooperative total sales for FY 1989.

34
Appendix C Table 6-GeneraVadmin. operating cost, by cost category, by

size*, corn-soybean first-handler grain cooperatives,1 989

cost Total sales group (million dollars) All

category $15 or more $5-14.9 cooperatives

Directors fees

Bookkeeping

Legal

Prof. services

Data processing

Office supplies

Advertising

Dues/subscriptions

Meetings/travel

Annual meeting

Public relations

Bad debt

Electron. services

Misc. services

Misc. taxes

Bank charges

Miscellaneous

Total 172,426 100.00 71,921 100.00 114,779 100.00

Dollars Percent Dollars Percent Dollars Percent

5,803 3.37

1,233 0.72

24,527 14.22

11,677 6.77

31,070 18.02

25,265 14.65

5,769 3.35

16,456 9.54

1,870

9,924

1,996

4,135

228

92

32,381

1.08

5.76

1.16

2.40

0.13

0.05

-

18.78 -

2,716 3.78 4,032 3.51

128 0.18 73 0.06

186 0.26 632 0.55

12,681 17.63 17,733 15.45

5,271 7.33 8,003 6.97

12,720 17.69 20,545 17.90

10,151 14.11 16,596 14.46

2,291 3.19 3,774 3.29

6,780 9.43 10,906 9.50

8 0.01 4 0.00

845 1.17 1,282 1.12

5,709 7.94 7,506 6.54

892 1.24 1,363 1.19

915 1.27 2,288 1.99

402 0.56 328 0.29

105 0.15 100 0.09

10,121 14.07 19,613 17.09

‘Size based on cooperative total sales for FY 1989.
U.S. Department of Agriculture

Agricultural Cooperative Service

P.O. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of

farmers and other rural residents. It works directly with cooperative leaders and

Federal and State agencies to improve organization, leadership, and operation

of cooperatives and to give guidance to further development.

The agency (1 ) helps farmers and other rural residents develop cooperatives to

obtain supplies and services at lower cost and to get better prices for products

they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve

services and operating efficiency; (4) informs members, directors, employees,

and the public on how cooperatives work and benefit their members and their

communities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues Farmer

Cooperatives magazine. All programs and activities are conducted on a

nondiscriminatory basis, without regard to race, creed, color, sex, age, marital

status, handicap, or national origin.