CHS Inc., the nation's top-grossing cooperative, is returning an eye-popping $1 billion in patronage pay and equity redemption to its member-owners — by far the largest annual payout in company history.
That's four times the amount that CHS paid out to its owners last year. And well above the annual average over the previous decade, a period when CHS returned $3 billion to them.
The payout amount, announced Wednesday morning, reflects the windfall reaped by CHS over the past year.
Following a rocky 2021 fiscal year, the market conditions turned in the cooperative's favor this past year, said Olivia Nelligan, chief financial officer.
"It will be the largest annual distribution to owners in CHS history," Nelligan told the Star Tribune.
Inver Grove Heights-based CHS' three major business units are oil, agriculture commodities and nitrogen production, a key fertilizer ingredient. All three sectors benefited from the market volatility of the past year.
The price of corn, wheat, oil and nitrogen surged in the wake of Russia's invasion of Ukraine and soaring global demand for food and fuel.
"We definitely had a more favorable operating environment in 2022 than 2021 from the energy markets, to the crop inputs and crop protection marketplace, and very strong demand globally for oil and grains," Nelligan said.
Many farmers buy their fertilizer in the fall for the next spring's planting and are now doing the math on how much that's going to cost them.
"Anybody who makes fertilizer is seeing profitability," said Jason Ward, a commodities analyst with Minneapolis-based Northstar Commodity. "It's phenomenal for CHS and its members. And then for the growers. There has never been a higher cost to put the corn in the ground than there will be for 2023."
Fertilizer costs are currently running between $240 and $270 for every acre of corn, crushing the previous high of $140 per acre of corn for last spring's corn planting, Ward said.
Ward said the outlook for this year's corn harvest in Minnesota is upbeat, potentially putting many of the state's farmers in a good financial position.
In this market, there is high risk — with input costs and interest rates up, making farm borrowing more expensive — but also high reward as farmers in the United States, South America and Ukraine aim to plant more grains next spring to replenish the world's depleted supply, he said.
Farmers in Minnesota and much of the U.S. experienced a large jump in income last year, a second year of improved profitability after seven years of breaking even.
The cooperative's member-owners will be paid $500 million in cash over the coming year, with another $500 million to be distributed in equity redemptions.
Specific payout amounts are based on how much business a member-owner, which can be smaller cooperatives and individual farmers, did with CHS in the prior fiscal year. In addition to cash, member-owners can build up patronage equity with CHS and receive payouts in the form of equity redemptions.
Last year, owners received $50 million in cash patronage pay and $100 million in equity redemptions. Another $100 million was distributed to association members and individual producers or their estates.
CHS is "committed to maintaining a strong balance sheet and being fiscally prudent," Nelligan said. "But one of the key tenants of the cooperative system is the ability for our members to earn patronage for doing business with the company."
The board of directors considers multiple factors when determining patronage pay each year, including cash flow, the past year's results and the next year's outlook. So far this year, Nelligan said, the company is in good shape financially.
For the first three quarters of fiscal 2022, CHS posted a net income of $1.2 billion.
Nelligan said CHS executives believe it's important that members are rewarded for their loyalty when the cooperative is anticipating a strong year.