Overview of CHS Inc.

CHS Inc. is a diversified cooperative that provides grain, food, agronomy, and energy resources globally. The company operates in three main segments: Energy, Ag, and Nitrogen Production. CHS also has financing, hedging, and joint venture businesses in its Corporate and Other category.

As a cooperative, CHS is owned by farmers, ranchers, and member cooperatives across the United States. The company also has preferred shareholders who own its publicly traded preferred stock.

Financial Performance Highlights

For the second quarter of fiscal 2025, CHS reported a net loss of $75.8 million, compared to net income of $170.3 million in the prior year period. This decline was driven by weaker performance in the Energy and Ag segments:

• The Energy segment saw a significant drop in earnings, with a loss of $83.5 million compared to income of $51.6 million a year earlier. This was due to lower refining margins and crack spreads from less favorable global market conditions.

• The Ag segment also reported a loss of $45.6 million, down from income of $56.9 million in the prior year. Margins declined across the grain, oilseed, and oilseed processing product categories.

The company’s Nitrogen Production and Corporate and Other segments saw decreases in earnings as well, primarily due to lower equity income from investments.

For the first six months of fiscal 2025, CHS reported net income of $169.0 million, down from $693.2 million in the prior year period. The drivers of the year-over-year decline were similar to the second quarter results.

Revenue and Profit Trends

CHS’s revenues declined 14.6% in the Energy segment and 17.1% in the Ag segment for the first half of fiscal 2025 compared to the prior year. This was largely due to lower selling prices across most product categories, reflecting the challenging global market conditions.

The company’s gross profit margin contracted significantly, from 4.0% to 1.0% in the second quarter and from 4.9% to 2.8% in the first half. This margin compression was the primary driver of the sharp decline in profitability.

CHS was able to partially offset the revenue and margin declines through lower marketing, general, and administrative expenses, as well as reduced interest expense. However, these cost savings were not enough to overcome the substantial drop in gross profit.

Strengths and Weaknesses

Key strengths of CHS include:

• Diversified business model spanning energy, agriculture, and nitrogen production
• Ownership structure as a cooperative, providing access to a large customer base of farmers and ranchers
• Strong balance sheet, with $433 million in cash and $2.9 billion in working capital as of February 2025
• Investments in joint ventures and equity method investments, which have provided a steady stream of income

Weaknesses and challenges facing CHS include:

• High exposure to volatile global commodity markets, leading to significant swings in profitability
• Reliance on refining margins and crack spreads in the Energy segment, which have been under pressure
• Competitive pressures in the Ag segment, resulting in margin compression
• Uncertainty around macroeconomic factors like trade policy, interest rates, and energy/agricultural commodity prices

Outlook and Future Prospects

CHS expects the challenging market conditions in the energy and agricultural sectors to persist or potentially worsen through the remainder of fiscal 2025. The company anticipates continued margin pressure from factors such as:

• Changes and uncertainty in U.S. trade policy, including tariffs and retaliatory actions
• Ongoing geopolitical tensions, including the war between Russia and Ukraine
• Shifts in global trade flows for commodities, impacting the competitiveness of U.S. exports
• Volatile interest rate environment
• Pricing pressures on labor, freight, and materials costs

In addition, regional factors like unpredictable weather conditions and the cost of renewable energy credits could further impact demand and pricing for agricultural inputs and outputs.

To navigate these challenges, CHS is focused on executing its enterprise priorities for fiscal 2025, including pursuing strategic growth investments, leveraging its financial strength, and maintaining cooperative connections. The company believes its diversified business model and financial resilience will help it weather the current market turbulence.

However, given the high level of uncertainty, CHS is unable to predict the duration or magnitude of the financial and operational impacts it may face. The company expects the trend of significantly reduced margins for energy and agricultural commodities to persist or accelerate through the rest of the fiscal year.

Conclusion

CHS Inc. faced a very difficult operating environment in the first half of fiscal 2025, with substantial declines in profitability across its Energy and Ag segments. The company’s diversified business model and financial strength have provided some insulation, but global macroeconomic factors and competitive pressures have taken a significant toll on margins and earnings.

Looking ahead, CHS expects the challenging market conditions to continue, potentially worsening in the coming months. The company is focused on executing its strategic priorities and leveraging its cooperative structure to navigate the turbulence, but the duration and severity of the impacts remain highly uncertain.

Investors and stakeholders will need to closely monitor CHS’s performance and ability to adapt as the global energy and agricultural markets continue to evolve. The company’s financial resilience and diversification may prove critical in weathering the current storm and positioning itself for future success.