CHS Inc. Navigates Challenging Market Conditions in Fiscal 2024

CHS Inc., a diversified agricultural cooperative, faced a mixed financial performance in fiscal year 2024 as it navigated volatile global energy and agricultural commodity markets. While the company remained solidly profitable, its results declined from the record-breaking levels seen in the prior year.

Overview of Financial Performance

For the fiscal year ended August 31, 2024, CHS reported revenues of $39.3 billion, down 14% from $45.6 billion in the prior year. Net income attributable to CHS was $1.1 billion, a 42% decrease from $1.9 billion in fiscal 2023.

The company’s three main business segments - Energy, Ag, and Nitrogen Production - all experienced year-over-year declines in profitability. The Energy segment saw a 60% drop in income before income taxes (IBIT) due to lower crack spreads and crude oil discounts. The Ag segment’s IBIT fell 17% as oilseed crush margins and grain export margins weakened. The Nitrogen Production segment, which consists of CHS’s equity investment in CF Nitrogen, also saw a 42% decrease in IBIT.

Despite the overall decline, CHS maintained a strong balance sheet, ending the year with $794.9 million in cash and cash equivalents and $10.8 billion in total equity. The company’s current ratio, a measure of liquidity, remained healthy at 1.6.

Segment Performance

Energy Segment The Energy segment, which includes CHS’s two refineries, saw revenues decline 13% to $8.8 billion. IBIT fell 60% to $429.1 million. This was primarily due to lower crack spreads, which measure the price difference between refined products and crude oil. Crack spreads for Group 3 gasoline and diesel fuel fell from $36.17 per barrel and $34.25 per barrel, respectively, in fiscal 2023 to $21.97 per barrel and $20.60 per barrel in fiscal 2024.

The segment also faced higher repair and maintenance costs, as well as lower margins on seasonal refined fuel products. However, these declines were partially offset by lower costs for renewable fuel credits (RINs) in the company’s refining business.

Ag Segment Revenues in the Ag segment, which includes grain, oilseed, agronomy, and renewable fuels, fell 14% to $30.4 billion. IBIT decreased 17% to $342.7 million.

The primary driver of the segment’s lower profitability was decreased margins in oilseed processing and grain and oilseed exports. Oilseed crush margins declined due to higher global supplies of canola and soybean meal and oil, while grain and oilseed export margins were compressed by competitive global market conditions.

These margin declines were partially offset by improved margins and higher volumes in the wholesale and retail agronomy business, as well as increased volumes for grain, oilseed, and oilseed processing products.

Nitrogen Production Segment The Nitrogen Production segment, which represents CHS’s equity investment in CF Nitrogen, saw a 42% decrease in IBIT to $151.2 million. This was primarily due to lower selling prices for urea and urea ammonium nitrate (UAN) fertilizers, partially offset by decreased natural gas costs.

Outlook for Fiscal 2025

Looking ahead, CHS expects the challenging market conditions that impacted its fiscal 2024 performance to persist in the coming year. The company anticipates various macroeconomic factors will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as financial markets.

These factors include the ongoing war between Russia and Ukraine, shifts in global trade flows, potential changes in U.S. trade policy, rising interest rates, and continued cost pressures from inflation. CHS also noted the potential for unpredictable weather conditions due to climate change to impact agricultural supply and demand.

Given these headwinds, CHS expects global supply and demand factors impacting energy and agricultural commodities to be less favorable in fiscal 2025, leading to continued margin pressure and lower profitability across its business segments. The company is forecasting capital expenditures of approximately $837 million for the year, including over $200 million for potential business acquisitions, as it continues to invest in maintaining and enhancing its operations.

Strengths, Weaknesses, and Outlook

CHS’s diversified business model, spanning energy, agriculture, and nitrogen production, has historically provided some insulation against volatility in any one market. However, the broad-based nature of the current challenges facing the company’s core markets has tested this resilience.

A key strength is CHS’s financial position, with a strong balance sheet and ample liquidity to weather the storm. The company’s focus on managing margins and cash flow optimization has also served it well during difficult market conditions.

On the other hand, CHS’s reliance on global commodity markets leaves it vulnerable to factors outside of its control. The company’s profitability can swing dramatically based on factors such as weather, trade policies, and supply/demand imbalances.

Looking ahead, CHS’s ability to navigate the uncertain environment will depend on its continued operational excellence, cost discipline, and strategic investments to enhance its competitive position. The company’s cooperative structure and close ties to its farmer-owners also provide some insulation, as it can leverage these relationships to weather cyclical downturns.

Overall, fiscal 2024 was a challenging year for CHS, but the company’s diversified business model, financial strength, and strategic focus position it to weather the storm. As global market conditions remain volatile, CHS will need to rely on its operational agility and financial discipline to protect profitability and deliver value to its member-owners.