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CHS Ag segment helps offset depressed energy demand in Q3

TAGS: Business
CHS Inc. CHS Inc. logo
Favorable spring planting conditions and trade relations help Ag segment results.

CHS Inc., the nation's leading agribusiness cooperative, reported net income of $97.6 million for its fiscal 2020 third quarter ending May 31, 2020, representing a 78.8% increase compared to net income of $54.6 million in the third quarter of fiscal 2019. Revenues for the 2020 third quarter were $7.2 billion, compared to $8.5 billion for the 2019 third quarter.

According to CHS, results reflect improved margins and volumes across much of the Ag segment as a result of more favorable weather conditions for spring planting compared to the year-ago period, as well as improved U.S. trade relations.

The cooperative experienced decreased selling prices and volumes for refined fuels driven partly by the impact of COVID-19, which has depressed demand for energy products.

"We continue to adapt how we do business to ensure the safety of our employees and our customers. A successfully managed supply chain helped our owners get the products and services they and their customers need to grow their crops. That focus also helped us deliver value to our customers around the world," CHS president and chief executive officer Jay Debertin said. "Improved trade relations benefited us and, in turn, our owners, and we are eager for that to continue. We are not immune to the market pressures caused by COVID-19, and we will continue to adjust to best serve our owners and customers."

CHS Inc.CHS earnings for 2020 third quarter

Business segment results

CHS reported the following segment results for the third quarter:

The Energy segment recorded a pretax loss of $54.8 million in the 2020 third quarter, compared to $1.3 million in pretax earnings for the 2019 third quarter, which reflects lower margins due to less advantageous market conditions compared to a year ago. Those lower margins were the result of decreased refining margins, which were partially offset by improved crude oil differentials for heavy Canadian crude oil processed by CHS refineries and by improved propane margins.

Decreased selling prices and volumes for refined fuels were driven by global market conditions, including the impact of COVID-19 and product mix, which has depressed demand for energy products. CHS recorded a $42.0 million non-cash charge to reduce the refined fuel inventory to its market value.

The Ag segment recorded pretax earnings of $95.4 million in the 2020 third quarter, compared to $21.1 million in the 2019 third quarter, reflecting improved trade between the U.S. and foreign trading partners.

Margins improved across much of the Ag segment as a result of more favorable spring planting weather versus last year. CHS noted that this was partially offset by decreased margins and volumes in its renewable fuels and processing and food ingredients businesses, which were attributable to COVID-19-related demand shocks in the foodservice and transportation sectors.

Results reflect the impact of additional loan loss reserves established in the 2019 third quarter that did not reoccur in the 2020 third quarter.

Nitrogen Production saw pretax earnings of $23.5 million, up from $20.2 million in the 2019 third quarter, due to decreased interest expense associated with the cooperative's investment in CF Nitrogen.

For Corporate & Other, pretax earnings were $6.3 million, down from $19.0 million in the third quarter of 2019. CHS said this reflects lower earnings from its investment in Ventura Foods that resulted from decreased demand due to COVID-19-related demand shocks in the foodservice sector.

CHS is a leading global agribusiness owned by farmers, ranchers and cooperatives across the U.S. and is diversified in energy, agronomy, grains and foods. CHS is committed to creating connections to help its farmer-owners, customers and other stakeholders grow their businesses through its domestic and global operations.

CHS supplies energy, crop nutrients, seed, crop protection products, grain marketing services, production and agricultural services, animal nutrition products, foods and food ingredients and risk management services. It also operates petroleum refineries and pipelines and manufactures, markets and distributes the Cenex brand refined fuels, lubricants, propane and renewable energy products.

Source: CHS Inc.
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