Propane demand helps offset difficult market conditions for cooperative

CHS Inc., a St. Paul, Minnesota-based agribusiness cooperative, on Jan. 8, reported net income of $177.9 million for the first quarter of fiscal year 2020 that ended Nov. 30, 2019.

This compares to net income of $347.5 million in the first quarter of fiscal year 2019, according to the company.

The results for the first quarter of fiscal year 2020 reflect:

• Revenues of $7.6 billion compared to revenues of $8.5 billion for the first quarter of fiscal year 2019.
• Strong supply chain performance in the propane business that was a positive contributor resulting from efficient sourcing of propane during significantly increased fall demand –brought on by unseasonably early cold and wet weather during harvest–for crop drying and home heating.
• Less advantageous market conditions in refined fuels business compared to the first quarter of fiscal year 2019, during which the company experienced historically wide pricing spreads between Canadian crude oil and crude oil from the United States. CHS processes Canadian crude oil at its refineries in Laurel, Montana, and McPherson, Kansas.
• · Poor weather conditions that occurred in fiscal year 2019 and the first quarter of fiscal year 2020 continued to negatively impact the segment’s operations, resulting in lower crop yields, poor grain quality in some areas and lower fall crop nutrients sales.
• Pressure on grain volume and margins due to slow movement of grain associated with unresolved trade issues between the U.S. and foreign trading partners.
• Decreased fertilizer volumes compared to the first quarter of fiscal year 2019 due to a slow harvest in the first quarter of fiscal year 2020.

"We are not immune to the challenges of our industry, and our first quarter results reflect the difficulties brought on by fall weather and ongoing trade tensions," said Jay Debertin, president and CEO of CHS Inc. "The cooperative system, however, provides CHS and its owners stability to withstand these difficult times. Our focus remains on building efficiencies in our supply chain and on operating in this challenging agricultural environment.

"During a cold and wet harvest, we leveraged our supply chain to meet the significant increase in propane needs of our owners and customers," Debertin continued. "Our focus on meeting the needs of our owners helped deliver the successful launch of two products—Acuvant and Trivar—that will be available for spring planting.

"We know the remainder of fiscal year 2020 will continue to present challenges, and we are confident in our ability to find opportunities in those challenges, to help our owners grow their businesses and to continue to strengthen our company," he said. "No one feels those challenges more than our owners. We remain committed to supporting communities and experts as they address the stress felt across rural America." 

The following segment results were reported for the first quarter of fiscal year 2020 as compared to the first quarter of fiscal year 2019.

The energy sector reported pretax earnings of $162.2 million in the first quarter of fiscal year 2020 compared to $232.5 million for the first quarter of fiscal year 2019.

The ag sector reported apretax loss of $13.9 million compared to pretax earnings of $80.3 million in the first quarter of fiscal year 2019 that also included lower margins in processing and food ingredients business.

In nitrogen production, pretax earnings of $16.5 million compared to pretax earnings of $23.7 million in the first quarter of fiscal year 2019 that showed lower equity income from an investment in CF Nitrogen, of which CHS has partial ownership, attributable to decreased market pricing of urea and urea ammonium nitrate, which are produced and sold by CF Nitrogen.

For corporate and other operations in the company, the pretax earnings of $20.7 million compared to pretax earnings of $30.8 million in the first quarter of fiscal year 2019 reflect results primarily from lower equity income from our investments in Ardent Mills and Ventura Foods and decreased income in financing and hedging businesses due to market-driven interest rate reductions and lower trading activity, respectively.