University of Wisconsin Center for Wisconsin
Rural Cooperatives, September/October 1996, pp. 16-20.
Published by the Rural Business and Cooperative Development Service 

Record Expansion Undertaken by Nation's Major Cooperatives

David Chesnick
USDA/RBS Cooperative Service
Agricultural Economist



Editor's Note: this is the second article in a three part series which focuses on the 1995 financial performance of the 100 largest agricultural co-ops. Part I appears on page 12 of this issue. Part III will appear in the November/December issue.

The future strength of any business lies in its balance sheet. The balance sheet reveals not only the type and amount of resources available to a business, but also those who lay claim to these resources. Over the past two years, the top 100 agricultural cooperatives have been building their asset base more quickly than in the prior 15 years (table 1). While both debt and equity positions have increased, most of the expansion throughout 1995 was due to higher liabilities.

Strong Growth in Assets

The asset base for USDA's Top 100 agricultural cooperatives grew by $2.3 billion in 1995, to $23.2 billion—an 11-percent increase. The Top 100's strong surge in asset accumulation marks the first time that assets increased more than $2 billion. This is the second year in a row for a sizable growth in the asset base of the Top 100.

This growth in 1994 and 1995 contributed to nearly 60 percent of the total asset growth during the 16-year history of the Top 100. In 1994, assets grew 10 percent. However, a large part of this asset growth during the past two years was due to merges and acquisitions. Figure 1 shows the composition of assets for the Top 100.

Current Assets Lead the Way

A 14-percent increase in current assets was the largest contributor to the increase in the asset base of the Top 100 (figure 2). The growth in inventories ($800 million)

and accounts receivable ($518 million) accounted for 56 percent of the surge in total assets. Cash on hand in 1995 increased $42 million (5 percent), to $936 million. Other current assets increased 25 percent, to $1.1 billion. Total current assets at the end of 1995 stood at $13.2 billion.

Composition of Assets for 1995

If the increases in inventory levels and accounts receivable are a reaction to a greater demand, then it should be no cause for concern. However, the rise in these current assets could be a cause for concern if the build-up of inventory is due to lower than expected sales and if higher accounts receivable are caused by members' tight cash-flow.

Looking at inventory and accounts receivable as a percentage of total sales, the ratios have not changed much in the past five years. Accounts receivable remained steady at 8 percent of sales and inventory levels in 1995 and have been between 9 and 10 percent of sales for the past five years. Therefore, these increases do not seem to pose a problem for cooperatives. A more in-depth analysis of operational efficiencies will be provided in Part III of this series.

The grain, farm supply, fruit and vegetable and diversified cooperative groups accounted for more than 88 percent of the increases in current assets. Each of these four commodity groups saw total current assets increase by more than $325 million.

These three commodity groups also accounted for 70 percent of the increase in accounts receivable. Grain cooperatives had the largest increase with $128 million, followed by fruit and vegetable with $120 million and the diversified group with $115 million.

Nearly 70 percent of the $800 million increase in inventories was due to increased inventories held by the grain group ($247 million) and diversified cooperatives ($298 million).

Non-current Assets Also Rising

Investments in cooperatives and other businesses increased by 13 percent, to $2.5 billion (table 2). The largest increase in investments was in the less-than-20-percent investment group for both cooperatives and non-cooperative businesses.

Table 1 - Combined Balance Sheet-Top 100 Cooperatives, 1994-95

All Cooperatives
Assets 1995 1994 difference % change

thousand $

Current assets
Cash
935,526
893,465
42,061
5
Accounts receivable
5,047,867
4,530,020
517,847
11
Inventories
6,105,893
5,306,009
799,884
15
Other current assets
1,111,832
892,497
219,335
25
Total current assets
13,201,118
11,621,991
1,579,127
14
Investments
Bank of Cooperatives
396,290
386,391
9,899
3
Other cooperatives
1,199,786
1,011,728
188,058
19
Other businesses
204,235
220,625
(16,390)
(7)
Other type of investment
731,651
606,424
115,409
19
Total investments
2,531,962
2,234,986
296,976
13
Net PP&E
6,542,033
6,171,513
370,520
6
Other assets
945,556
850,293
95,263
11
Total assets
23,220,669
20,878,783
2,341,886
11
Current liabilities
Short-term debt
Current portion of long-term debt
394,928
479,978
(85,050)
(18)
Banks for Cooperatives
1,853,855
1,420,988
432,867
30
Commercial banks
631,648
465,904
165,744
36
Notes issued by cooperative
248,458
196,338
52,120
27
Other nonfinancial entities
24,394
24,176
218
1
Commercial paper
147,767
139,862
7,905
6
Government sources
27,407
28,041
(634)
(2)
Total short-term debt
3,332,572
2,760,270
572,302
21
Accounts payable
3,189,495
2,855,297
334,198
12
Members payable
440,304
329,016
111,288
34
Patron and member liabilities
1,495,447
1,406,604
88,843
6
Other current liabilities
1,494,367
1,282,290
212,077
17
Total current liabilities
9,952,185
8,633,477
1,318,708
15
Long-term debt
Bank for Cooperatives
2,261,505
2,009,934
251,571
13
Bonds issued by cooperatives
1,070,379
903,733
166,646
18
Commercial banks
398,325
505,096
(106,771)
(21)
Insurance companies
484,678
511,676
(26,998)
(5)
Industrial development bonds
209,171
224,109
(14,939)
(7)
Capital lease
54,656
83,858
(29,202)
(35)
Other nonfinancial entities
7,024
21,298
(274)
(67)
Government source
2,040
2,116
(76)
(4)
Other source
132,730
104,552
28,178
(27)
Total long-term debt
4,620,508
4,366,372
254,136
6
Total long-term debt less current portion
4,225,580
3,886,394
339,186
9
Other liabilities and deferred credits
632,681
508,506
124,175
24
Total non-current liabilities
4,858,261
4,394,900
463,361
11
Total liabilities
14,810,446
13,028,377
1,782,069
14
Minority interest in subsidiaries
193,962
119,543
74,419
62
Member equity
Preferred stock
1,623,915
1,402,491
221,424
16
Common stock
569,214
563,196
6,018
1
Equity certificates and credits
4,442,243
4,446,055
(3,812)
0
Unallocated capital
1,580,889
1,319,121
261,768
20
Total equity
8,216,261
7,730,863
485,398
6
Total liabilities and equity
23,220,669
20,878,783
2,341,886
11

However, 93 percent of the increase in investments in cooperatives was due to joint ventures by seven cooperatives. Four cooperatives accounted for 92 percent of the total increase in investments in noncooperative businesses.

Fixed assets increased by 6 percent from 1994. This increase marks the first time that net fixed assets totaled more than $6.5 billion. Although the fixed-asset base did not expand as much as in 1994 (8.6 percent), it was the second year in a row when net fixed assets increased.

Net Property, Plant, and Equipment for All Commodity Groups

Leading the way was the diversified commodity group with an increase of $133 million (11 percent) in fixed assets. Farm supply ($72 million), fruit and vegetable ($120 million) and dairy ($72 million) groups had increases in net fixed assets despite having fewer representatives in the Top 100. Dairy had three less cooperatives in the Top 100 while both farm supply and fruit and vegetable cooperatives each lost one cooperative (figure 3).

On the other hand, the grain group added three cooperatives to the Top 100 yet realized a 10.7 percent drop in total net fixed assets. The cotton group—which expanded its presence in the Top 100 by two co-ops in 1995—had total net fixed assets of $34 million, a 31.5-percent increase. This was the largest increase for any commodity group in the Top 100.

Sugar, rice and poultry and livestock cooperatives maintained the same number of cooperatives in the Top 100 and posted mixed results. The sugar group added 9 percent ($30 million) to its net fixed-asset base while rice cooperatives gained only 1.5 percent ($2 million). Poultry and livestock was the only other group to have less net fixed assets in 1995 ($16.6 million) than in 1994 ($16.8 million).

Current Liabilities Support Asset Growth

Total current liabilities for the Top 100 expanded by 15 percent, to nearly $10 billion. Figure 4 shows the composition of current liabilities for 1995. This is the largest amount of current liabilities ever recorded for the Top 100. However, this year's growth in current liabilities did not out-pace growth in current assets, as it did in 1994. The major increase was in short-term debt. This marks the second time since 1991 that short-term debt was higher than trade accounts payable.

Short-term debt includes operating loans, current portion of long-term debt, government programs and other short-term loan obligations. At $3.3 billion, short-term debt is at its highest level in the 16-year history of the Top 100. The only other times this debt exceeded $3 billion was in 1981 and 1982. Figure 5 presents the sources of short-term debt over the past five years.

Loans from banks for cooperatives and commercial banks are the largest source of short-term-debt funding for cooperatives. Together, these two sources provide nearly 75 percent of the total outside funding for cooperatives.

Banks for cooperatives supplied more than 55 percent of the total amount of short-term debt to the Top 100 in 1995. This is up from 51 percent in 1994, an

increase of $433 million. Commercial banks are the next largest supplier of funds to cooperatives. In 1995, commercial banks provided cooperatives with $632 million in short-term funds.

Commercial banks are increasingly becoming important to cooperatives for short/term loans. In 1991, only 7 percent of total short-term loans were provided by commercial banks. By 1995 they were providing 19 percent of short-term loans. Other sources of short-term debt have become less relevant for the Top 100.

Table 2 - Cooperative Investment from 1991-95, Top 100 agricultural cooperatives

1991 1992 1993 1994 1995

thousands $
Bank for Cooperatives
362,081
371,593
363,897
386,391
396,290
Other cooperatives
20 percent or less
633,152
689,603
753,412
783,110
921,209
More than 20 percent
342,649
139,478
180,727
228,618
278,577
Other businesses
20 Percent or Less
23,087
41,252
39,024
62,137
142,335
More than 20 percent
140,702
200,616
100,437
158,488
61,900
Other investment
475,646
459,800
454,874
616,242
731,651
Total investment
1,977,317
1,902,342
1,892,371
2,234,986
2,531,962

Long-term debt as a percentage of total debt for the top 100 is close to a 15-year low. The current portion stood at $395 million (12 percent) of total short-term debt in 1995. Only 1993 saw the current portion of long-term debt at a lower level—$394 million.

The value of bonds issued increased by 27 percent, to $248 million. However, this remains 7 percent of total short-term debt. Commercial paper increased 6 percent, to $148 million, but dropped from 5 to 4 percent of total short-term debt outstanding in 1994. Other sources of funds, including the government, made up only around 2 percent of total short-term debt.

Trade accounts payable increased 12 percent, to $3.2 billion—the highest level in the 16-year history of the Top 100. Also reaching record highs were cash payments to members declared, but not yet paid, and pooling liabilities. Together, these two member/patron payable liabilities increased by 12 percent, to $1.9 billion and represent 19 percent of current liabilities.

Long-term Debt Increases Again

With lower interest rates over the past few years, cooperatives have increased their holding of long-term debt (figure 6). The 9-percent increase in 1995 matched the increase in 1994. The Top 100 held $4.2 billion worth of long-term debt, up $339 million from 1994. This is the highest amount of debt held by the Top 100 since the early 1980s. However, long-term debt as a percent of total debt declined to 31 percent, down from 33 percent in 1994.

CoBank and the St. Paul Bank for Cooperatives continue to provide the bulk of long-term debt funding. These sources have increased the amount of funds provided by 18 percent, to $2.3 billion. This represents 49 percent of total long-term debt outstanding.

Cooperatives also issued a record amount of debt in 1995. Bonds and notes issued and outstanding by cooperatives were more than $1 billion for the first time in the 16-year history of the Top 100. This amount was an 18-percent increase from 1994. Together, these two sources of long-term debt contributed to just under 75 percent of total long-term debt.

All other sources of long-term debt have decreased since 1994. Insurance companies as a long-term funding source declined 21 percent, to $398 million. Likewise, industrial development bonds decreased 5 percent, to $209 million. Other types of debt, including government sources and long-term leases, totaled $196 million or more than 4.5 percent of total long-term debt.

Cotton, sugar, rice and poultry and livestock groups relied almost exclusively on the cooperative banking system for their total debt. Cooperative banks provided 87 percent of total borrowed long-term funds for these groups.

This contrasts with the diversified cooperative group, which relied on notes and bonds for most of their debt financing. These notes and bonds made up 50 percent of the diversified group's total borrowed long-term funds and represented 75 percent of the total amount of all notes and bonds issued by the Top 100. Cooperative banks supplied only 21 percent of this group's long-term debt. The other cooperatives, while also relying heavily on the cooperative banks, use a variety of sources of long-term financing to fund their operations.

Minority Interest Nears Record

When a cooperative holds more than a 50-percent equity position in a subsidiary, the cooperative must consolidate the financial statements of the subsidiary with its own statements. If the cooperative does not own 100 percent of the subsidiary, there will be a minority interest that represents interest of outside investors in the subsidiary that is consolidated into the parent cooperative.

Current Liabilities, 1995 (left graph) and Sources of Short-Term Debt (right graph)

This situation can also arise within the cooperative framework. In a federated cooperative or marketing-agency-in-common, one cooperative can hold more than 50 percent of the total equity. The majority cooperative is required to consolidate the financial statements. While both are equal partners, the other cooperative will be considered the minority interest.

Eleven cooperatives in the Top 100 reported minority interest. Minority interest increased 62 percent from 1994, to $194 million. The only other time this interest was greater was in 1992, when it reached $201 million.

Farm supply, diversified, and grain cooperatives accounted for 98 percent of the total minority interest outstanding. However, grain cooperatives showed a 351 percent increase in minority ownership.

Member Equity Continues Upward

Total member equities averaged a steady increase of 3.7 percent per year over the past 16 years (figure 7). In 1995, total equity reached $8.2 billion, an increase of $485 million (6.3 percent) from 1994.

Common stock is generally used as the initial investment in a cooperative. Each cooperative member purchases a single voting share, which usually accounts for less than 5 percent of total equity. However, in five cooperatives, common stock represented more than 20 percent of total outstanding equity.

The importance of common stock has been steadily dwindling. In 1995, common stock represented 7 percent of total equity, down from 17 percent in 1980. However, common stock rebounded slightly from a record low in 1994. The value of common stock was up $6 million to $569 million.

The diversified and fruit and vegetable cooperative groups had the highest value of common stock, accounting for 93 percent of the Top 100's total.

Equity certificates and credits were down $4 million from the record high of $4.4 billion in 1994. Yet, equity certificates and credits still account for the major portion of the Top 100's total equity and represent 54 percent of the total.

Farm supply cooperatives were the major cause for the decline. The value of equity for farm supply cooperatives dropped 28 percent, or $155 million. However, the drop in farm supply equity certificates and credit was more than compensated for by an increase in their value of preferred stock.

Both preferred stocks and unallocated equities reached record highs in 1995. Preferred stock was up $221 million (16 percent), to $1.6 billion. This represents 20 percent of the Top 100's total equity. Leading the increase was the farm supply group, with a $209 million increase. Unallocated equity increased 20 percent, to $1.6 billion. All cooperatives increased their amount of unallocated equity except the sugar cooperatives. Unallocated equity was used to absorb most of the operating losses.

Sources of Long-Term Debt (left graph) and Growth in Equity, 1980-95 (right graph)

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