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Ag Co-ops Set Asset Record: Revenue dips, but co-ops remain profitable and financially stable.

Editor's note: This article presents highlights from USDA's 2016 survey of farmer, rancher and fishery cooperatives. The authors--an ag economist and support staff--thank all U.S. agricultural co-ops for their continued participation in the annual survey, the results of which demonstrate the important role ag cooperatives play in the nation's economy. It also provides benchmarking and comparative analysis that can help co-ops in many ways.

The full 2016 ag co-op statistics report should be available by late December in the cooperative publications section at: https://www.rd.usda. gov/publications/publications-cooperatives. Hard copies will be available in December. Send requests to: coopinfo@wdc.usda.gov.

USDA's annual survey of the nation's 1,953 farmer, rancher and fishery cooperatives shows that while revenue dropped for the second straight year, net income nearly matched the record high set in 2015. Service receipts and other operating income dropped very slightly in 2016, while total expenses dropped by 5 percent. Patronage received and non-operating income both increased, by 6 and 7.5 percent, respectively. Taxes dropped sharply, by 46 percent, in 2016 from 2015. Net income after taxes was $6.9 billion in 2016, 2 percent less than in 2015. Total business volume--comprised of sales, service receipts and other operating revenue, patronage income and non-operating income--was $191.1 billion, almost $21 billion less than in 2015 (Table 1 and Figure 1).

Lower prices for farm commodities (such as grain and poultry) and farm supplies (such as petroleum and fertilizer) were again the major factors in lower overall net sales. Farm commodities that reaped varying amounts of increased net revenue included cottonseed, dairy, fish, fruit/vegetables and wool. For farm supplies, only seed and "other" supplies increased in 2016.

Overall, total gross ag co-op business volume dropped by 9.9 percent in 2016 while net income dropped just 2 percent. Return on assets and member equity in 2016 were 8.5 and 29 percent, respectively, just slightly below 2015 levels.

Balance sheet remains strong

The combined balance sheet for the nation's ag co-ops remained strong, with record assets of $92 billion and record member equity of $40.9 billion in 2016 (Figure 2). This reflects an increase of $3.8 billion (4.3 percent) in assets and $385 million in members' equity. Investments in property, plant and equipment (fixed assets) by ag coops --including grain elevators, warehouses, farm supply stores, petroleum/convenience stores, fertilizer and feed plants, major food and beverage processing plants, etc.--also increased, to $26.5 billion, up $1.8 billion over 2015.

Total liabilities increased to $51.2 billion in 2016, up from $47.7 billion in 2015. Retained earnings also increased slightly, from $16.3 billion in 2015 to $16.9 billion in 2016.

Cotton, livestock revenue dips sharply

Cotton and livestock showed the largest declines in net business volume, both down 21 percent in 2016 (Table 2). Rice and poultry were the sectors with the next two biggest revenue declines, with both falling about 15 percent.

Net sales of cottonseed, dairy, fruit/vegetables, nuts and wool all increased in 2016, paced by cottonseed sales, which climbed 9.5 percent. Total net marketing declined almost 6 percent, down $6.87 billion, in 2016. This compares to the larger marketing drop of $22.9 billion from 2014 to 2015, a 17-percent decline. Figure 3 provides 10-year trends for dairy, grain, fruit/vegetables, livestock and sugar marketing by co-ops. It shows that coop grain sales dropped for three consecutive years, while livestock and sugar dropped for two straight years. Of these five commodities, only dairy inched upward in 2016.

Farm supply sales dropped almost 13 percent in 2016, with petroleum showing the biggest loss, down 20 percent. Petroleum was also the biggest supply loser in 2015.

The next biggest drops were for fertilizer (down 15 percent), crop protectants (down 11 percent), and feed (down 8 percent). Seed and other supplies both increased, by 7.4 percent and 5.3 percent, respectively. Figure 4 shows how sales of these farm supplies have trended over the past 10 years. Petroleum, feed, fertilizer and crop protectants sales dropped in both 2015 and 2016.

Co-op jobs inch upward; memberships dip slightly

Total employment in ag co-ops increased slightly in 2016, up by just 80 employees over 2015. Full-time employment increased by 1.7 percent while part-time jobs declined by 4.5 percent. Co-ops had 138,635 full-time employees in 2016 and 48,734 part-time or seasonal employees, for total employment of 187,369.

Producers held 1,901,418 memberships in cooperatives in 2016, a decrease of 1 percent from 2015. Not all farmers, ranchers or fishermen belong to a cooperative, but many producers--especially those with larger, commercial-scale operations--belong to several co-ops. For instance, a dairy farmer may market milk through a dairy foods cooperative while buying farm supplies from a supply coop. Most farmers and other rural Americans also get electricity through consumer-owned utility cooperatives. Many rural communities are even forming consumer-owned or community co-ops to keep a town's last grocery store, cafe or even movie theater in operation.

The number of farmer co-ops continues to decline. There are now 1,953 farmer, rancher and fishery coops, down from 2,047 in 2015. Ninety-four co-ops were dropped from the USDA database in the past year. While there are some co-op dissolutions each year, the major cause for the decline in numbers is the continuing trend of mergers and acquisitions among cooperatives. Co-ops are merging to gain further economies of scale for maximum efficiency and to better position themselves for growth.

Cooperative structural characteristics

Most of the nation's ag cooperatives are centralized cooperatives, mostly local or state-wide co-ops with individual farmer, rancher or fishery members. Some centralized co-ops operate over multi-state areas and provide more vertically integrated services, such as further processing products or manufacturing feed. Table 3 shows that the number of centralized co-ops dropped by 84, or 4.4 percent, in 2016.

The number of federated and mixed coops remained fairly stable, falling by just 3 and 7, respectively. In a federated cooperative, two or more member associations have organized to market products, purchase supplies or perform bargaining functions. In mixed co-ops, the membership includes co-op associations as well as direct memberships by individual farmers or ranchers.

Further analysis found that 1,040 coops predominately market farm products, while farm supply sales were the main source of revenue for 827 coops. Another 86 co-ops earn most of their revenue from services they provide (such as storage, transportation or agronomy service). The data was further divided into what is considered "mostly marketing co-ops" (those for which at least 75 percent of sales came from marketing commodities) and "mixed marketing" (co-ops that also sell substantial amounts of farm supplies, in addition to marketing farm commodities).

In 2016, 762 co-ops were categorized as "marketing," while 278 were labeled as "mixed marketing." Among farm supply cooperatives, 595 co-ops depended on supplies for 100 percent of their sales, while 232 co-ops also marketed commodities (most often grain), although supplies accounted for a majority of their sales.

Figure 5, which provides a breakdown of marketing co-ops by sector, shows that most were classified as grain co-ops (434), followed by fruit/vegetable (118), cotton/cotton gin co-ops (110) and dairy (109).

While cooperatives are categorized based on a majority of sales in specific areas, many co-ops have very diverse operations, conducting two or three primary functions for members. Some co-ops not only market their members' products--including crops, milk, livestock, fruit/vegetables, poultry and fish--but also do value-added processing and promotion, sell farm production supplies and/or provide members with a variety of services.

Home in all 50 states

All 50 states are home to at least one agricultural cooperative. Five states are home to the headquarters of more than 100 agricultural co-ops: Minnesota (with 178), Texas (166), North Dakota (134), Wisconsin (106) and California (103). These five states account for 35 percent of all U.S. ag co-ops.

Minnesota was also the leading state for co-op net business volume, at almost $20 billion (this includes income from all co-ops with operations in a state, not just those with headquarters there). Iowa ranks second with $16.8 billion, followed by Illinois with almost $12 billion. Then comes California ($10.5 billion), Wisconsin ($10.3 billion), Nebraska ($8.5 billion) and North Dakota ($7.9 billion).

Co-ops an important mainstay

Agricultural cooperatives have been a mainstay in rural America since the early 1900s. Now, though fewer in number, co-ops remain an efficient and sound marketing channel for their members' products, many adding value to products, further benefitting member-owners. Co-ops also continue to provide supplies and services members need to operate farms and ranches in an increasingly dynamic, challenging agricultural environment.

Overall, ag co-ops are well managed, efficient and financially solid, helping to provide a strong foundation for the viability of the rural communities in which most producer-members live and where many co-op facilities are located. Ag co-ops also boost the economies of many larger cities where co-ops may have offices, plants and other facilities. Co-ops are investing in their operations, as evidenced by the record fixed asset and total asset level attained in 2016.

The positive performance of ag coops --even in the face of two years of lower commodity and input prices (2015 and 2016)--shows that the time-tested, member-owned and governed co-op business structure remains as important as ever to rural America. Ag co-ops support large numbers of off-farm jobs, businesses and public and private services, all of which benefit from having cooperatives present in their local economies.

James Wadsworth, Charita Coleman, Judith Rivera

USDA Rural Business-Cooperative Service

e-mail: james.wadsworth@wdc.usda.gov

Caption: Bales of cotton outside United Ag Cooperative's Hillje Cotton Gin and Grain Elevator in El Campo, Texas. The co-op has added VOMAX microwave cotton moisture sensors to its transfer trucks, which determine the moisture of cotton modules. An immediate decision can be made to determine if the cotton can be efficiently ginned or should be taken to another location for additional drying. USDA photos by Lance Cheung

Caption: Figure 2--Assets, liabilities, & equity trends, 2007-2016

Caption: Inside United Ag Cooperative's Hillje Cotton Gin. Texas co-ops led the nation with $1.2 billion in sales of cotton and cottonseed in 2016.

Caption: Figure 4--Net sales of farm supplies, 2007-2016
Table 1

U.S. agricultural cooperatives, comparison of select data, 2016 and
2015

Item                    2016        2015        Difference   Change
                        Billion $   Billion $   Billion $    Percent

Income Statement
Marketing               114.587     124.893     (10.306)     (8.25)
Supplies                71.048      81.709      (10.661)     (13.05)
Service                 3.819       3.938       (0.119)      (3.02)
Gross operating         189.454     210.539     (21.085)     (10.01)
revenue
Cost of goods sold      165.628     185.282     (19.654)     (10.61)
Net operating revenue   23.826      25.257      (1.432)      (5.67)
Total expenses          18.298      19.262      (0.965)      (5.01)
Patronage income        0.888       0.838       0.050        5.95
Non-operating income    0.733       0.682       0.051        7.50
Taxes                   0.262       0.485       (0.223)      (46.02)
Net income              6.886       7.030       (0.144)      (2.05)
Total business          191.075     212.059     (20.984)     (9.90)
volume (1)
Balance sheet
Assets                  92.055      88.229      3.826        4.34
Liabilities             51.156      47.715      3.441        7.21
Members' equity         40.899      40.514      0.385        0.95
Liabilities and net     92.055      88.229      3.826        4.34
worth
Ratios (Percent)
Debt-to-assets          55.57       54.08       Total liabilities /
                                                total assets
Equity-to-assets        44.43       45.92       Total equity/ total
                                                assets
Return on total         8.53        9.31        (Net income before
assets                                          taxes + interest)/
                                                total assets
Return on member        28.69       29.01       (Net income after
equity                                          taxes)/allocated
                                                equity
Employees (Number)
Full-time               138,635     136,285     2,350        1.72
Part-time, seasonal     48,734      51,004      (2,270)      (4.45)
Total                   187,369     187,289     80           0.04
Membership (Number)     1,901,418   1,921,023   (19,605)     (1.02)
Cooperatives (Number)   1,953       2,047       (94)         (4.59)

(1) Total gross business volume is the sum of total assets, service
and other income, patronage income, and non-operating income.

Table 2

U.S. agricultural cooperatives net business volume (1), 2016 and 2015

Item                  2016        2015        Difference   Change
                      Billion $   Billion $   Billion $    Percent
Products marketed:
Bean and pea (dry     0.205       0.207       (0.002)      (0.95)
edible)
Cotton                1.835       2.332       (0.497)      (21.32)
Cottonseed            0.352       0.321       0.030        9.47
Dairy                 38.562      38.328      0.234        0.61
Fish                  0.228       0.224       0.004        1.70
Fruit and vegetable   5.913       5.889       0.024        0.41
Grain and oilseed     44.294      48.347      (4.053)      (8.38)
Livestock             3.779       4.792       (1.012)      (21.13)
Nut                   1.745       1.723       0.022        1.29
Poultry               0.672       0.788       (0.116)      (14.74)
Rice                  0.741       0.875       (0.134)      (15.31)
Sugar                 4.539       4.727       (0.188)      (3.97)
Tobacco               0.291       0.339       (0.048)      (14.22)
Wool                  0.005       0.005       0.000408     8.49
Other marketing (2)   5.442       6.514       (1.072)      (16.45)
Total marketing       108.603     115.409     (6.806)      (5.90)
Supplies sold:
Crop protectants      6.486       7.315       (0.829)      (11.33)
Feed                  9.093       9.932       (0.839)      (8.44)
Fertilizer            10.425      12.326      (1.901)      (15.42)
Petroleum             17.031      21.390      (4.359)      (20.38)
Seed                  3.423       3.188       0.235        7.38
Other supplies        5.132       4.873       0.259        5.31

Total supplies        51.589      59.023      (7.434)      (12.59)
Services and other    5.440       5.458       (0.018)      (0.33)
income (3)
Total net business    165.632     179.890     (14.258)     (7.93)
volume

(1) Net of inter-cooperative business.

(2) Other marketing includes cottonseed, other marketings, and local
foods (farmer markets, CSAs, food hubs).

(3) Includes service receipts, patronage refunds received and
non-operating income.

Table 3

Number of ag co-ops by structure and overall type, 2016 and 2015

Structure (1):                   2016    2015    Difference   Change

Centralized                      1,830   1,914   (84)         (4.39)
Federated                        29      32      (3)          (9.38)
Mixed                            94      101     171          (6.93)
  Total number of cooperatives   1,953   2,047   (94)         (4.59)
Overall type (2):
Marketing                        762     777     (15)         (1.93)
Mixed marketing                  278     302     1241         (7.95)
Total marketing                  1,040   1,079   (39)         (3.61)
Supply                           595     632     (37)         (5.85)
Mixed supply                     232    242      110)         (4.13)
  Total supply                   827     874     (47)         (5.38)
Service                          86      94      18)          (8.51)
  Total number of cooperatives   1,953   2,047   (94)         (4.59)

Structure (1)

Centralized: local and regional co-ops with only producer members.

Federated: co-ops with just other cooperatives as members.

Mixed: both producers and other cooperatives as members.

Overall type (2)

Marketing cooperatives: 75 percent or more of sales and service
revenue is marketing commodities.

Mixed marketing: 25-49% of sales are from supplies; rest are from
marketing ag products.

Supply: 100% of sales are farm supplies.

Mixed supply, 25-49% of sales are from marketing products; rest are
supplies.

Figure 1--Total gross business volume, 2007-2016

2007   148.1
2008   194.2
2009   170.3
2010   171.8
2011   217
2017   257.8
2011   246.1
2014   246.7
2015   212.1
2016   191.1

Note: Table made from line graph.

Figure 3-Net sales of select commodities, ag co-ops, 2007-2016

               2007   2008   2009   2010   2011

Dairy          35.3   39.1   27.6   31.1   40.7
Grains         28.5   46.6   43.8   40.5   55.3
Fruit & Veg.   4.3    5.4    5.5    5.5    5.6
Livestock      3.2    3.2    3.0    3.6    4.2
Sugar          4.0    4.1    3.8    4.1    4.8

               2012   2013   2014   2015   2016

Dairy          39.7   40.2   49.6   38.3   38.6
Grains         63.7   66.3   57.9   48.3   44.3
Fruit & Veg.   5.8    5.9    5.8    5.9    5.9
Livestock      4.0    3.3    4.9    4.8    3.8
Sugar          6.0    6.0    5.2    4.7    4.5

Figure 5--Marketing co-op types, 2016

Other            80
Sugar            26
Fish             34
Wool             37
Livestock        92
Dairy           109
Cotton & Gins   110
Fruit & Veg.    118
Grain           434

Note: Table made from pie chart.
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Author:Wadsworth, James; Coleman, Charita; Rivera, Judith
Publication:Rural Cooperatives
Date:Nov 1, 2017
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