University of Wisconsin Center for Wisconsin Rural Cooperatives, November/December 1998, pp. 12-17.
Published by the Rural Business and Cooperative Development Service 

Financial Position of Nation's Largest Co-ops Stronger Despite Lower Sales

David S. Chesnick

USDA/RBS Cooperative Services
Agricultural Economist

Editor's Note: This is Part II of Chesnick's report on the 1997 financial performance of the nation's 100 largest agricultural cooperatives. How do these results compare with your own co-op's financial operations? Part I ran in the September/October 1998 issue of Rural Cooperatives. Part III begins on page 18 of this issue.

From joint ventures to assets growth, from member payables to long-term debt, USDA studied the 1997 financial results of the nation's largest 100 agricultural cooperatives. Final figures reveal that the top 100 co-ops (based on financial reports) improved their financial position in 1997, despite declining revenues. Assets continued to post record amounts and the percent of equity financing improved for the first time since 1990.

The tremendous increase in sales and opportunities in the mid-199Os caused the cooperatives' asset base to swell. However, as margins and then sales began to slide, so too did the growth in assets. Figure 1 illustrates the growth and composition of the Top 100's combined assets. Table 1 shows the combined balance sheet for the top 100 cooperatives for 1996 and 1997.

Current assets decline

Current assets declined for the first time in five years. Total current assets fell 2 percent to $13.6 billion (Figure 2). Leading the declines were grain cooperatives with a hefty 24-percent drop in current assets. Farm supply (down 7 percent) and cotton cooperatives (down 3 percent) were the only other commodity groups with lower current assets. All other commodity groups showed increases in their current assets. However, they were not enough to offset the $554- million drop in the grain cooperative's current assets.

Cash and cash equivalent were the only current asset accounts that showed an increase. Cash balances increased by 2 percent to end the year at $871 million. The dairy and grain cooperatives increased their cash flow mostly through operations. Poultry/livestock, rice and sugar cooperatives relied on financing to increase their cash balances. Even though cotton, farm supply and fruit/vegetable cooperatives had positive cash flows through their operations, they were not enough to offset the outflow of cash from their financing and investing activities.

Accounts receivable and inventory made up 85 percent of total current assets. Accounts receivable fell 1 percent to $5.6 billion while inventory dropped 3 percent to $6.2 billion.

(left graph) Asset Composition, Top 100 Cooperatives 1993-94; (right graph) Combined Current Assets, Top 100 Cooperatives

Grain and dairy cooperatives were the only commodity groups with lower accounts receivable, represented by a $156million and a $21-million decline, respectively. The other seven commodity groups combined for a $109-million increase in accounts receivable.

Sugar, rice, fruit/vegetable and diversified cooperatives increased their inventories by $281 million. However, they were not enough to offset the decline in grain inventories of $388 million. Cotton, dairy and farm supply also had declining inventories although they were not as dramatic as grain cooperatives.

Other assets include but are not limited to short-term investments and prepaid expenses. Except for one large farm supply cooperative, most cooperatives had little change in their other current asset account. The one farm supply cooperative seems to have cashed in its short-term investments to the tune of $136 million to help fund their expansion of fixed assets, thereby pushing down other assets 9 percent to $970 million.

Investments expand

The biggest area of assets growth was attributed to investments. Total investments increased 19 percent to $3.2 billion, up from $2.7 billion in 1996 (Table 2). Given the changing environment in agriculture, cooperatives are finding benefits in cooperating with others. This is evident in the number of mergers and joint ventures pursued by cooperatives. Nearly 40 percent of all top 100 cooperatives indicated they invested in some form of merger or joint ventures over the past two years.

Net Property, Plant, and Equipment, By Commodity Group

Investment in other cooperatives jumped 22 percent to $1.9 billion. Leading the increase were dairy, farm supply, diversified and grain cooperatives. Dairy cooperatives had $154 million more invested in 1997, a 63-percent increase. However, most of this increase was due to the continued changing structure and consolidation within the dairy industry. Farm supply cooperatives had an 18-percent increase to end the year with $625 million invested in other cooperatives, the highest total of all commodity groups. Diversified cooperatives, which have the second highest value of equity in other cooperatives, increased their equity position in other cooperatives by $65 million, a 15-percent increase. Sugar cooperatives were the only commodity group with a lower investment in other cooperatives, dropping 65 percent to $11 million.

Investment in non-cooperatives jumped $118 million to finish 1997 at $847 million. The largest contributors to non-cooperative investment were grain cooperatives with a 105-percent increase to $164 million. However, most of that increase came from two cooperatives' joint ventures. Similar to grain cooperatives, two dairy cooperatives pushed non-cooperative investments for the whole dairy commodity group up 49 percent to $99 million. Farm supply cooperatives also increased their investments by 22 percent to $86 million, mostly through the effort of two cooperatives.

Table 1-Combined balance sheet-Top 100, 1996-97
Assets 1997 1996 Difference % Change

thousand $

Current Assets

Cash 871,159 852,259 18,900 2
Accounts Receivable 5,596,253 5,664,132 (67,879) -1
Inventory 6,159,222 6,332,260 (173,038) -3
Other Current Assets 970,002 1,065,524 (95,522) -9

Total Current Assets 13,596,636 13,914,175 (317,539) -2

Investments 13,596,636 13,914,175 (317,539) -2

Total Current Assets

Cooperative Banks 489,377 435,686 53,691 12
Other Cooperatives 1,862,951 1,524,852 338,099 22
Other Investments 847,102 729,255 117,847 16

Total Investments 3,199,430 2,689,793 509,637 19

Net PP&E 8,118,892 7,647,571 471,321 6
Other Assets 1,499,947 1,292,162 207,785 16

Total Assets 26,414,905 25,543,701 871,204 3

Current Liabilities

Short-term Debt

Current Portion of Long-term Debt 605,965 947,745 (341,780) -36
Cooperative Banks 1,518,084 1,752,115 (234,031) -13
Commercial Banks 678,977 721,864 (42,887) -6
Notes Issued by Cooperatives 257,674 319,492 (61,818) -19
Other Nonfinancial Entities 20,990 13,985 7,005 50
Commercial Paper 134,063 108,699 25,364 23
Government Sources 3,144 45,677 (42,533) -93
Other Sources 5,870 1,374 4,496 327

Total Short-term Debt 3,224,767 3,910,951 (686,184) -18

Accounts Payable 3,491,086 3,561,729 (70,643) -2
Member Payables 475,083 426,613 48,470 11
Patron and Pool Liabilities 1,317,814 1,390,514 (72,700) -5
Other Current Liabilities 1,627,877 1,610,641 17,236 1

Total Current Liabilities 10,136,627 10,900,448 (763,821) -7

Long-term Debt

Bank for Cooperatives 2,736,377 2,759,827 (23,450) -1
Bond Issued by Cooperative 1,706,776 1.298,594 408,182 31
Commercial Banks 600,971 683,703 (82,732) -12
Insurance Companies 599,137 403,165 195,972 49
Industrial Development Bonds 189,312 200,040 (10,728) -5
Capital Lease 63,169 57,754 5,415 9
Other Nonfinancial Entities 39,850 4,988 34,862 699
Government Source 1,020 1,064 (44) -4
Other Sources 165,548 157,840 7,708 5

Total Long-term Debt 6,102,160 5,566,975 535,185 10
Less Current Portion 5,496,195 4,619,230 876,965 19
Other Liabilities and Deferred Credits 797,855 726,288 71,567 10

Total Noncurrent Liabilities 6,294,050 5,345,518 948,535 18

Total Liabilities 16,294,050 5,345,518 948,532 18

Minority Interest 379,940 227,034 152,906 67
Member Equity

Preferred Stock 1,912,282 1,749,214 163,168 9
Common Stock 646,697 601,018 45,697 8
Equity Certificates and Credits 5,297,520 5,038,957 258,563 5
Unallocated Capital 1,747,689 1,681,512 66,177 4

Total Equity 9,604,288 9,070,701 533,587 6
Total Liabilities and Equity 26,414,905 25,543,701 871,204 3

Investment in cooperative banks increased 12 percent to $489 million. However, the amount of borrowed funds from these cooperative banks fell 6 percent. Dairy cooperatives were the main cause for the increase in investment in cooperative banks. They increased their investment 67 percent to $116 million. Their amount of seasonal loans from cooperative banks increased 42 percent in 1997. Grain cooperatives were the exception and not the rule. Nearly every grain cooperative had less net borrowing from cooperative banks, yet their investment increased by $8 million. All other commodity groups had minor changes in the amount invested in cooperative banks.

Fixed assets continue to grow

Net property plant and equipment increased by 6 percent to $8.1 billion in 1997 (Figure 3). However, more than 40 percent of the aggregate increase was attributed to a single cooperative, and the largest five cooperatives investing in fixed assets accounted for nearly 85 percent of the total increase. Grain and fruit/vegetable cooperatives both had declining values for fixed assets.

Other assets jumped $208 million to $1.5 billion in 1997. Other assets include such things as goodwill, patent rights and long-term receivables. Diversified, farm supply and grain cooperatives accounted for nearly all of the increase.

Current liabilities decline

Current liabilities fell for the first time since 1992 (Figure 4). Current liabilities dropped $764 million in 1997, a 7-percent decline from a record high of $11 billion in 1996. On the other hand, diversified ($260 million), rice ($22 million) and sugar ($119 million) cooperatives all increased the amount of current liabilities on their books. However, the huge $958 million, 40-percent drop from the grain cooperatives was the driving force behind the overall decline in current liabilities.

After double-digit increases since 1993, the largest cooperatives showed a decline in accounts payable in 1997. Accounts payable fell 2 percent to end the year at $3.5 billion. With the exception of diversified cooperatives, all commodity groups had lower accounts payables.

Member payables are cash payments owed to members for patronage refunds, dividends and revolving patronage retains. The balance of member payables in 1997 jumped 11 percent to end the year at $475 million. The only commodity group to have a decrease in member payables is the diversified group. The main cause for the diversified cooperatives' decrease in member payables is due to one cooperative. That cooperative appears to have increased the amount of debt and used some of that cash inflow to pay down the members' payable account.

Patron and pool liabilities reflect member liability, carried on the balance sheets of cooperatives operating on a pooling basis, and other significant member obligations arising from the cooperative form of business, such as member prepayments. This liability account fell $73 million, a 5percent drop. Grain, rice and sugar were the only commodity groups showing an increase.

Table 2-Co-op investment from 1993-1997, Top 100 agricultural cooperatives

1993 94 95 96 97

thousand $
Bank for Cooperatives 365,601 374,595 403,098 435,686 489,377
Other Cooperatives

20 percent or less
772,647 784,859 910,489 1,159,009 1,344,932
More than 20 percent
181,383 229,211 278,577 365,843 518,019
Other Businesses

20 percent or less
39,190 39,192 157,433 127,860 161,024
More than 20 percent
176,674 166,720 61,900 101,913 154,345
Other Investments 389,543 564,727 479,484 499,482 531,733

Total Investment 1,925,038 2,159,304 2,290,981 2,289,793 3,199,430

Lower short-term debt

Short-term borrowing was down $686 million, an 18-percent drop from 1996. Figure 5 compares the amount of various sources of short-term debt. Dairy, diversified, poultry/livestock, rice and sugar all had higher amounts of short-term debt. However, almost every grain cooperative used less short-term debt. One grain cooperative in particular accounted for 44 percent of the $958 million decline in short-term borrowing for grain cooperatives.

Current portion of long-term debt had the largest drop of all short-term borrowed funds, declining from $948 million in 1996 to $606 million in 1997. However, this decline is misleading. Usually lower current portions of long-term debt means either lower interest rates or less long-term borrowing. However, the amount of long-term debt actually increased by 19 percent. Upon further examination of the data, the main cause for the decline was due to one cooperative that was able to reclassify and refinance its debt currently due to long-term.

Operating loans from cooperative banks showed the second highest decline, dropping $234 million to $1.5 billion. However, of the nine commodity groups, only grain and fruit/vegetable had net declines in operating loans from cooperative banks. All but one grain cooperative and one half of the fruit/vegetable cooperatives decreased the amount of short-term debt from cooperative banks. The other seven commodity groups combined for a $300million increase in short-term borrowed funds from cooperative banks.

Twenty-one of the largest 100 cooperatives had short-term debt outstanding with commercial banks and only eight of those increased their holdings of debt. The main users of commercial banks continue to be the larger diversified cooperatives. These diversified cooperatives accounted for 68 percent of the $679 million in borrowed funds from this source in 1997, an increase of $22 million from 1996. The other cooperatives using commercial banks were spread throughout the other commodity groups and combined for $217 million, $65 million less than in 1996.

Twenty-four of the top 100 cooperatives issued their own notes for short-term financing. Total amount of debt issued by these cooperatives fell 19 percent to end the year at $258 million. Dairy, diversified and grain increased the amount of short-term notes by $29 million, a 30- percent increase. The amount of notes issued by fruit/vegetable and farm supply cooperatives declined by $91 million (40 percent) from 1996 to 1997. However, most of that $91 million decline can be attributed to one farm supply cooperative, which switched from issuing notes to financing with cooperative banks for funding its operations.

Only four cooperatives use commercial paper for short-term financing in the past two years. Out of those four, the only one to increase the amount of commercial paper was a lone sugar cooperative that did not use commercial paper for the previous five years. Out of the other three cooperatives, one decided not to issue commercial paper in 1997, and two cut their use by nearly one-third. The increase by the sugar cooperative caused the overall usage of commercial paper to increase by 23 percent to $134 million.

Long-term debt increases

Total long-term debt jumped 10 percent to end fiscal year 1997 with a record high of $6.1 billion. Figure 6 illustrates the amount and source of long-term debt for the largest agricultural cooperatives from 1993 to 1997.

By far, the top 100 largest agricultural cooperatives continue to have the majority of their debt held by cooperative banks. In 1997, cooperative banks held 45 percent of total long-term debt outstanding down from 50 percent in 1996. Total borrowing from cooperative banks stood at $2.7 billion, a 1-percent drop from 1996. Most of the decline can be traced to a single grain cooperative which paid off its cooperative bank loan and replaced those funds with its own issuance of bonds.

One of the largest growth areas in cooperative long-term financing is through issuance of bonds. In 1996, $1.3 billion worth of bonds were outstanding By 1997, the amount had jumped 31 percent to end the year at $1.7 billion. Twenty-eight percent of total outstanding debt came from bonds issued by cooperatives in 1997. Dairy, diversified, fruit/vegetable and grain accounted for 96 percent of total bonds issued, with grain having the largest increase. However, 94 percent of increase in grain cooperatives' issuance was caused by one cooperative that decided to issue its own bonds instead of using cooperative banks for debt financing.

Commercial banks hold $601 million worth of the top 100's total long-term debt, down 12 percent from 1996. This source of funds accounts for 10 percent of the total outstanding long-term debt. The main users of commercial banks continue to be the diversified cooperatives, which account for 63 percent of the total amount borrowed from that source. The diversified cooperatives increased the amount borrowed from commercial bank by $55 million, a 17-percent increase. However, one farm supply cooperative switched its source from commercial banks to cooperative banks, and one grain cooperative went through a capital restructuring and decreased its total amount of long-term debt. These two cooperatives accounted for a $161-million drop in commercial bank funding.

Even though only eight cooperatives use insurance companies for debt financing, these sources expanded their portfolio of cooperative loans, increasing from $403 million in 1996 to $599 million in 1997. Eighty-five percent of their loans are made to diversified and farm supply cooperatives. Most cooperatives using insurance companies for loans are using them as additional sources, and the amount comprises around 35 percent of their total debt outstanding. Insurance companies constitute 10 percent of total long-term debt outstanding.

Industrial revenue bonds continue to decline as a source of long-term debt. In 1997,25 cooperatives used this source for debt funding. However, 21 of those cooperatives decreased their use of funds from this source. The amount of loans from industrial revenue bonds fell 5 percent to $189 million, the lowest amount in the 18 years of tracking the top 100. Industrial revenue bonds make up 3 percent of total long-term debt outstanding.

Other sources of long-term debt include leases, government loan programs and other non-financial institutions. These sources represent 4 percent ($270 million) of total long-term debt outstanding in 1997. The top 100 cooperatives increased the amount of funding from these other sources by 22 percent ($48 million) from 1996. Most of this increase is attributed to a grain cooperative that reclassified a current liability to a long-term debt.

Minority interest is generated when an outside investor has a stake in a consolidated subsidiary of a cooperative. For instance, a cooperative owning more than 50 percent of a business must consolidate it as if it were a wholly-owned subsidiary. The remaining outside ownership still has claims to that business and this is what is considered minority interest. In 1997, the amount of minority interest jumped 67 percent to $380 million. Almost the entire increase can be ascribed to a dairy cooperative that was involved with several joint ventures in 1997.

Equity growth fuels asset expansion

While total assets grew at 3 percent in 1997, member equity expanded at two times that rate, with a 6-percent increase. This marks the first time since 1993 that the percentage of member ownership increased. Member ownership as a percent of total assets reached 36.4 percent in 1997, compared to 35.5 percent in 1996. Figure 7 illustrates the largest cooperatives' equity composition for the last 5 years.

The fastest growing equity is preferred stock. Preferred stock is usually used for member investment and patronage issues. This equity instrument increased 9 percent to $1.9 billion in 1997. Farm supply cooperatives issued the largest amount of preferred stock, with 76 percent of the total.

Most cooperatives continue to use equity certificates and credits as a way to allocate equity to members. This form of equity represents 55 percent of total equity and had the largest increase in dollar amount of all types of equity. Equity certificates and credits increased $259 million to end the year at $5.3 billion. Grain cooperatives had the largest increase in equity certificates at $215 million, a 23-percent increase.

Common stock represents 7 percent of the total outstanding equity and usually represents voting rights. However, some cooperatives issue common stock as notices of allocation. In 1997, common stock increased 8 percent to $647 million. Most of this increase was due to a diversified cooperative that used common stock for allocation of patronage refunds to patrons who do not meet membership criteria.

Unallocated equity is usually generated from net margins of non-member business. This form of equity can be used to protect member equity during adverse times. Totaling $1.7 billion, unallocated equity attained record levels in 1997, up 4 percent from 1996. Cotton, grain and sugar cooperatives combined had $78 million less of unallocated equity. All the other commodity groups had increases.

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