An 87 percent drop in income before taxes from CHS Inc.’s Ag Business segment for the fiscal year 2009 ending Aug. 31 was the pivotal factor in dropping company-wide net income by 55.5 percent. Ag Business earnings were down to $73.1 million on sales of $17.2 billion from 2008’s $568.3 million and $19.7 billion, respectively.
CHS said the performance varied widely in the Ag Business, which includes crop nutrients, grain marketing, and retail operations. CHS said a dramatic drop in crop nutrient prices, combined with weather-driven lower demand, resulted in significant losses due to reduced inventory values. Grain marketing and local retail operations both achieved strong performance due to continued global grain demand and successful use of market risk management tools.
CHS said that earnings from its wholesale crop nutrient business for the year were $235.8 million less than for FY 2008. The company took an inventory write-down during the year of $92 million, of which $8.6 million remained as of Aug. 31. In addition, reduced performance by Agriliance LLC, partially offset by a net gain on the sale of a Canadian agronomy equity investment, resulted in a $10.6 million net decrease in earnings from these investments, net of allocated internal expenses.
Wholesale crop nutrient revenues were $2 billion, down from the year-ago $2.7 billion. This $648.6 million decrease was due to $676.7 million attributable to decreased volumes, partially offset by $28.1 million due to increased average fertilizer selling prices during fiscal 2009 compared to fiscal 2008. This slightly favorable price variance was created by high-priced sales contracts with customers before the collapse in crop nutrient prices in the fall of 2008. The average sale price of all fertilizers sold reflected an increase of $6 per ton (1 percent) compared with fiscal 2008. However, volumes decreased 25 percent, mainly due to higher and volatile fertilizer prices and adverse weather conditions during the fall of 2008 that continued into the spring of 2009.
Retail crop nutrients, crop protection, seed, feed, and processed sunflowers products all saw increased revenues in fiscal 2009, with the revenues driven by incremental volumes sold through facilities acquired during the year.
Company-wide, FY 2009 net income was down 52.5 percent, to $381.4 million on sales of $25.7 billion, versus the year-ago $803 million and $32.2 billion. It was still the company’s fourth-highest earnings in its 80-year history. Fourth-quarter net income was off 33 percent, to $97.3 million on sales of $6.7 billion, versus the year-ago $145.4 million and $9.4 billion.
“Given the overall weak global economy and the extreme volatility many of our businesses experienced during fiscal 2009, we are very pleased with these results,” said John Johnson, CHS president and CEO. “Many of our businesses achieved near-record performance in 2009.” Earnings were led by the Energy segment, which saw strong refining margins and a growing retail presence. FY 2009 Energy earnings were $359.5 million, up from the year-ago $299.7 million.
During the fiscal year, CHS reflected a $74.3 million loss on its investment in VeraSun, an ethanol producer that declared bankruptcy in October 2008. The write-off eliminated the company’s remaining investment in VeraSun. A $71.7 million impairment in VeraSun had been reflected in fiscal 2008.
Based on 2009 earnings, CHS is expected to return about $220 million to owners in the form of patronage in fiscal 2010, the fourth-highest return in CHS history. In 2009, based on 2008 earnings, CHS paid record patronage of $347.2 million.