University of Wisconsin Center for Wisconsin
Rural Cooperatives, September/October 1996, pp. 11-15.
Published by the Rural Business and Cooperative Development Service 

Largest Co-ops Post Record Revenues in 1995

David Chesnick
USDA/RBS Cooperative Service
Agricultural Economist



Editor's Note: This is the first of three articles providing an overview of the financial performance of the nation's 100 largest agricultural co-ops in 1995. Part II of the series follows on page 16 of this magazine. Part lil will appear in the November/December issue of "Rural Cooperatives."

Revenue for the 100 largest agricultural cooperatives in the United States set a record in 1995, surpassing $63 billion for the first time. This is an increase of more than $5 billion in total net revenues from the previous year. This new economic landmark indicates that mergers and other agreements between cooperatives the past few years are starting to pay off. These agreements and mergers not only promote higher sales, but are also leading to increased operating efficiencies. Higher grain prices also helped propel revenue upward for the Top 100 cooperatives in 1995.

Co-ops' Total Sources of Revenues, 1995

Leading this increase was Harvest States Cooperatives, St. Paul, Minn., MidAmerican Dairymen Inc., Springfield, Mo., Farmland Industries Inc., Kansas City, Mo., and Pro-Fac Cooperative Inc., Rochester, N.Y. These four cooperatives alone had a total increase in net revenues of more than $3.4 billion. Farmland maintained the No. 1 position while Harvest States established itself more firmly in a strong second place.

1995 Operations

In 1995, the Top 100 earned $63 billion in total operating revenues from marketing, farm supply and other operations (table 1 and figure 1). This $5.3 billion (9.2 percent) increase in total operating revenue surpassed the previous record of $58.3 billion set in 1981. This increase marks the third straight year of higher sales for the Top 100.

Revenues among the Top 100 ranged from more than $7 billion for the top-ranked cooperative to $82 million for the cooperative occupying the 100th position.


Table 1 - Consolidated Statement of Operations, 1994-95, Top 100 Cooperatives
Operating statement 1995 1994

----------Thousand Dollars----------
Difference Percent Change
Revenues
Marketing
45,377,442
40,448,151
4,929,291 12.2
Farm Supply
16,944,229
16,651,131
293,098 1.8
Total Sales
62,321,671
57,099,282
5,222,389 9.1
Other Operating Revenues
718,921
629,456
89,465 14.2
Total Operating Revenues
63,040,592
57,728,738
5,311,854 9.2
Cost of Goods Sold
55,494,706
51,092,430
4,402,276 8.6
Gross Margin
7,545,886
6,636,308
909,578 13.7
Expenses
Selling and Administrative
3,656,018
3,347,319
308,699 9.2
Other Operating Expenses
2,311,393
2,050,580
260,813 12.7
Net Operating Margins
1,578,475
1,238,409
340,066 27.5
Other Revenues (Expenses)
Interest Expense
498,993
399,012
99,981 25.1
Interest Revenue
101,022
83,802
17,220 20.5
Other Income
122,053
85,491
35,562 42.8
Other Expenses
26,538
34,069
(7,531) -22.1
Patronage Revenue
136,623
90,736
45,887 50.6
Net Margins from Operations
1,412,642
1,065,357
347,285 32.6
Other Margin Interest
(16,679)
11,305
(27,984) -247.5
Discontinued Operations
15,511
11,506
4,005 34.8
Loss Carry Forward
11
4
7 175
Changes in Accounting
2,392
(3,829)
6,221 -162.5
Net Margins
1,413,877
1,084,343
329,534 30.4
Declared Distribution of Net Margins
Cash Patronage Dividends
438,022
305,561
122,461 38.8
Nonqualified Noncash Patronage
30,253
37,214
(6,961) -18.7
Dividends
27,860
21,721
6,139 28.3
Allocated Equity
542,605
427,327
115,278 27
Unallocated Equity
241,046
167,742
73,304 43.7
Income Tax
134,091
114,778
19,313 16.8
Total Distribution
1,413,877
1,084,343
329,534 30.4

Marketing sales (derived from sales of crops and livestock either as raw commodities or value-added products) climbed nearly $5 billion (12.2) percent. Marketing sales represent 72 percent of the Top 100's 1995 operating revenue, up from 70 percent in 1994. Supporting this trend was a combination of more marketing cooperatives and higher grain prices (which moved several more grain cooperatives into the Top 100).

Net Margins

Farm supply sales remained virtually flat, with only a 1.8 percent increase from the prior year. This increase occurred despite a large farm supply cooperative converting to an investor-owned business and thus being dropped from the Top 100. The share that farm supply cooperatives contribute to total revenue declined to 27 percent, down from 29 percent in 1994.

Gross margins also hit a record high of $7.5 billion, an increase of 14 percent over the previous year, eclipsing the previous record, set in 1989, by $738 million. The gross margin percent (the percent of gross margins to total revenue) was up to 12 percent, one-half percent higher than the previous year.

Indirect expenses (selling and administration) were up $308 million from 1994. However, these expenses remained constant throughout the last two years at 5.8 percent of total revenue. Other direct operating expenses displayed a slight increase as a percent of total revenue. In 1995, 3.7 percent of total revenue was used to cover these other operating expenses, compared to 3.6 percent in 1994.

Other Revenues and Expenses

Patronage refunds received from other cooperatives (both cash and non-cash) increased by 51 percent from 1994. This marks the first increase in patronage refunds since 1993.

Interest expense increased by 25 percent between 1994 and 1995, currently standing at just under $500 million. This marks the second year of substantial increases in interest payments. Although interest rates did increase during this time, cooperatives were also carrying more debt.

Total Revenues by Commodity Group

The interest income trend continued sharply upward. In 1995, interest income was $101 million, a 21-percent increase from 1994. This was the highest amount in the 16-year history of USDA's tracking the Top 100 cooperatives. Interest income surpassed the previous high, set in 1990, by nearly $3 million.

Other income from non-operating sources was $97 million, up $26 million (37 percent) over the prior year. These sources include revenues and expenses not directly related to cooperative operations. These include items such as changes in accounting, income and losses from joint ventures and other unconsolidated subsidiaries, gains and losses from the sale of fixed assets, and revenue and expenses from discontinued operations.

Total net margins increased to $1.4 billion, 39 percent more than 1994. These were the highest net margins reported since USDA began tracking the Top 100. Out of 100 co-ops, only six reported net losses for the year. This compares with 13 cooperatives with net losses last year.

Net margins before losses were $1.446 billion in 1995, a $335 million increase from 1994 (figure 2). However, on the negative side, the six co-ops that reported losses had a higher net loss then the previous year. The total loss in 1995 was $32 million compared to $27 million in 1994.

Table 2 - Total Revenue by Commodity Group, Top 100

Cooperatives Net Income Difference/Change

1995 1994 1995 1994

----number----
--------------------------$thousand --------------------------
Percent
Cotton
6
4
2,797,393
2,162,472
634,921
29
Dairy
28
31
15,843,762
15,060,750
783,012
5
Diversified
5
5
14,271,453
13,518,029
753,424
6
Farm supply
12
13
8,145,767
7,700,396
445,371
6
Fruit & vegetable
18
19
7,105,032
6,464,601
640,431
10
Grain
21
18
11,528,177
9,698,628
1,929,549
20
Poultry & livestock
3
3
1,175,679
1,228,566
(52,887)
(4)
Rice
3
3
1,156,810
1,095,033
61,777
6
Sugar
4
4
1,016,519
900,263
116,256
13

Total
100
100
63,040,592
57,728,738
5,311,854
9

Table 3 - Net Margins by Commodity Group, Top 100

Cooperatives Net Margin Difference/Change

1995 1994 1995 1994

----number----
--------------------------$thousand --------------------------
Percent
Cotton
6
4
65,812
56,892
8,920
15.7
Dairy
28
31
182,138
169,729
12,409
7.3
Diversified
5
5
334,403
217,318
117,085
53.9
Farm supply
12
13
506,656
395,617
5,983
5.2
Fruit & vegetable
18
19
121,763
115,780
5,983
5.2
Grain
21
18
200,480
123,336
77,144
62.5
Poultry & livestock
3
3
355
2,997
(2,642)
-88.2
Rice
3
3
10,211
10,265
(54)
-0.5
Sugar
4
4
(7,941)
(7,591)
(350)
4.6

Total
100
100
1,413,877
1,084,343
329,534
30.4


Table 4 - Net Margin Distribution, 1991-95, Top 100

1991 1992 1993 1994 1995

$ million percent $ million percent $ million percent $ million percent $ million percent
Cash patronage dividends 258.3 32 258.3 34 187.1 29 315.6 29 438.0 31
Qualified noncash patronage 334.1 42 305.6 40 297.8 46 427.3 39 542.6 38
Nonqualified noncash patronage 42.5 5 51.5 7 17.4 3 37.2 3 30.3 2

Total Allocated 634.9 79 615.4 81 502.3 77 780.1 72 1,010.9 71
Unallocated 54.0 7 24.1 3 73.6 11 167.7 15 241.0 17
Dividends 14.1 2 20.3 3 19.0 3 21.7 2 27.9 2
Income tax 96.4 12 104.0 13 57.6 9 114.8 11 134.1 10
Total distribution 799.4 100 763.8 100 652.5 100 1084.3 100 1,413.9 100

Revenues by Commodity Groups

Only one out of nine commodity groups suffered a revenue decrease in 1995 (figure 3 and table 2). The two groups that had the largest increase also had increases in the number of representatives in the Top 100.

Two more cotton co-ops joined the Top 100, and the cotton group revenue increased 29 percent. Likewise, three new grain co-ops joined the Top 100 and grain group revenue increased 20 percent.

Both the cotton and grain groups had a healthy increase in net margins (figure 4). As table 3 shows, the cotton group had net margins of $65.8 million, strengthening its bottom line by $9 million more than in 1994. The surging grain market helped the grain group end 1995 with $200.5 million in net margins, or 62.5 percent more than in 1994.

However, increases in revenue do not always mean higher margins. Two groups —rice and sugar—had an increase in total revenue but a decrease in net margins. Sugar cooperatives were the only group to show a net loss for the year, losing nearly $8 million. Both groups maintained the same number of cooperatives in the Top 100.

The dairy group had the largest decrease in number of cooperatives in the Top 100. This was due primarily to mergers as the dairy industry continued to consolidate in 1995. Thus, some cooperatives that disappeared from the Top 100 are still included, but under another name. Some temporary situations also caused some dairy co-ops to drop from the Top 100 which will likely return in the next few years.

Despite the decline in numbers, the dairy group continued to post the highest total revenue for all groups at $15.8 billion, a 5.2- percent increase from 1994. Dairy net margins of $182 million also showed a modest 7.3 percent increase from 1994.

The diversified group maintained the No. 2 ranking among commodity groups with $14.2 billion in total revenue, a 5.6percent increase. The number of co-ops in the diversified group remained unchanged from 1994. However, net margins for the diversified group shot up a whopping 53.9 percent, to $334.4 million, again the second highest of any group.

Farm supply cooperatives, while losing one member in the Top 100, achieved a 5.8percent increase in revenues and a 28.1percent increase in net margins. The farm supply group ended the year with net margins of $586.7, the highest of any group.

Fruit and vegetable cooperatives ended the year with $7 billion in total revenue, a 9.9-percent increase from 1994. However, this increase added only a modest 5.2percent increase to the group's bottom line as it ended the year with $121 million in net margins.

The last group, poultry and livestock, saw total revenue slip from the previous year. Sales for this co-op sector were down 4.3 percent, to less than $1.2 billion—a $53 million decline. Poultry and livestock co-ops also saw net margins plunge 88 percent, from $3 million in 1994 to only $355,000 in 1995.

Distribution of Net Margins

Total allocated equity increased for the second year in a row (figure 5). Equity allocated to members exceeded $1 billion for the first time since USDA began tracking the Top 100. Allocated equity totaled $1.011 billion, up $231 million (30 percent) from 1994 (figure 6). However, the amount of equity allocated as a percent of total net margins continue to drop. In 1995, 71 percent of net margins were allocated to members compared with 81 percent in 1992. Table 4 displays the distribution of earnings for all cooperatives in 1995.

Allocated equity varies tremendously between the commodity groups and with the pooling status of a cooperative. Some groups have traditionally allocated a higher percent of earnings back to their members.

Rice and fruit and vegetable cooperatives usually allocate the least amount of equity. These groups also tend to have a higher concentration of pooling cooperatives. Those cooperatives that operate on a non-pooling basis (farm supply, dairy, grain, and diversified) will generally allocate a larger percent of earnings back to members.

Patronage refunds paid in cash increased 39 percent, to $438 million, in 1995. This was a record amount of allocated equity paid in cash. The Top 100 have a history of returning a large percentage of earnings as cash to members and 1995 was no exception. Forty-three percent of allocated equity was returned as cash to members. Cotton, dairy and farm supply cooperatives continue to lead the way in cash refunds.

The non-cash portion of allocated equity can be either qualified or non-qualified. How a cooperative operates and the type of function it performs has a distinct bearing on how the cooperative allocates its equity. Fifty-nine cooperatives used qualified, non-cash refunds totaling just over $500 million. This represents 38 percent of total earnings distributed. Grain and diversified cooperatives typically retain a higher percent of allocated equity to be revolved out later.

Non-qualified, non-cash patronage refunds are refunds allocated to members. However, the members will not receive any cash payments for this allocation (unlike qualified refunds). The cooperative is responsible for paying taxes on non-qualified allocated equity. When that amount is returned to members, the members will then be responsible for paying taxes on it and the cooperative will deduct that amount from its earnings.

Distributions of Net Margins and Patronage Refunds

There are several reasons why a cooperative may want to use non-qualified refunds. It adds flexibility to the cooperative to tailor its allocation to members' needs. It increases the taxable income of the cooperative that may have tax credits. It can be used to allocate tax- paid earnings from non-patronage business to maintain cooperative character.

The use of non-qualified refunds over the years has varied tremendously. In the 1980s, up to 15 percent of earnings distributed was non-qualified. It was used by 15 of the Top 100. Currently, 10 of the Top 100 use non-qualified allocations. These 10 cooperatives allocated $30 million as nonqualified refunds, 2 percent of total Top 100 earnings distribution. Fruit and vegetable cooperatives have a higher percent of nonqualified allocation to total distribution than any of the other cooperative groups.

Unallocated equity is the amount of earnings retained by the cooperative. These funds are used as risk or growth capital and are also used as a cushion to protect member equity from losses. Usually unallocated equity is generated by non-patronage source income. This income can include rent, investment revenues, gains on the sale or exchange of depreciable property and capital assets, and revenue from business done with non-members but not distributed.

Cooperatives retained $241 million (17 percent) of their earnings in 1995. This was an increase of 44 percent over 1994 when unallocated equity accounted for 15 percent of total earnings. Earnings that are not allocated are taxed at the cooperative level. Rice cooperatives tend to retain a higher percent of their equity as unallocated. However, as mentioned earlier, coops handling rice tend to be pooling cooperatives and generally average lower net margins.

The largest 100 cooperatives paid $134 million in income taxes to federal, state and local governments in 1995. These cooperatives paid 17 percent more taxes in 1995 compared to 1994. However, taxes only consumed 9 percent of net margins in 1995, down from 11 percent in 1994.


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