Region 1

September/October 2015
CHS INSIGHTS
News and Views from CHS Directors
McPherson refinery embraced as CHS
It’s official. After the initial announcement in
December 2011, CHS completed its purchase of
the refinery in McPherson, Kan., on Sept. 1. The
refinery name has now changed from National
Cooperative Refinery Association to the
CHS Refinery at McPherson, Kan.
“This is a strong strategic move for CHS,” says
Board Chairman David Bielenberg. “We value the
relationship that we had with the other owners,
but we knew we needed to increase our refined
fuels supply in the future. And with our history,
we knew we were getting a state-of-the-art
facility and a top-notch employee team.”
Director C.J. Blew. “By purchasing these additional
shares and making our recent investments to
increase capacity, we have essentially added a
third refinery to our network. Those extra gallons
of diesel will be much appreciated by our owners.”
From a combined crude oil capacity of 25,000
barrels a day in 1943, the refineries now have
a combined capacity to produce 142,000 barrels
a day. Expansion projects will take them to the
157,000 mark in 2016, and proposed plans will
bring them to 166,000 in 2019.
Learn more about CHS refining at
chsinc.com/refining.
Today CHS sells more than 3 billion gallons of
gasoline and diesel fuel products annually and
markets the products under the Cenex® brand at
more than 1,500 Cenex-branded retail locations.
Combined, the CHS refineries at McPherson, Kan.,
and Laurel, Mont., help meet their customers’
growing needs for both diesel fuel and gasoline.
“We are continually in the market for diesel fuel to
meet the demand from our member-owners,” says
“In keeping with our commitment to help
our owners grow by investing in the future of
CHS, returning appropriate amounts of cash
and maintaining a strong balance sheet, the
CHS Board regularly reviews the company’s
equity management program,” says Board
Chairman David Bielenberg. “We do this with
both current and future needs in mind.”
In analyzing the company’s financial outlook,
the CHS Board determined non-qualified
CHS and CF Industries Holdings, Inc.
announce that they have agreed to enter
into a strategic venture through an equity
investment agreement and a fertilizer supply
agreement through CF Nitrogen, LLC.
A record $2.8 billion investment in nitrogen
fertilizer manufacturing through CF
Industries Nitrogen, LLC, is a historic step
that links CHS Inc. member cooperative- and
farmer-owners to long-term assured product
supply, efficiency and economics.
Carl Casale, CHS president and CEO, also
announces that the company has made a
separate decision against moving forward
with construction of a proposed fertilizer
plant at Spiritwood, ND.
For more details, see “CHS Invests for
Assured Fertilizer Supply” on page 33.
CHS Refinery at McPherson, Kan.
CHS will not issue non-qualified equity for fiscal 2015
The CHS Board of Directors has announced
that the company will not issue non-qualified
equity to eligible member-owners as part of its
patronage distribution for fiscal 2015.
CHS invests in CF Nitrogen
equity will not be needed as a balance sheet
management tool this year, says Bielenberg.
“Looking ahead, the CHS Board will continue
to evaluate our equity management program
regularly and make any future adjustments we
believe are necessary to fulfill our commitment
to our owners.”
In addition, since CHS will not issue
non-qualified equity for fiscal 2015, it
will pass through to eligible owners the
unused portion of the company’s IRS Section
199 production deduction (DPAD). In two
recent years, a portion of this deduction
was used to offset the tax incurred on
non-qualified equity.
Plan for tomorrow’s
leaders at 2016
Your CHS Experience
Join CHS for sun-soaked days filled with
idea-driven leadership development,
powerful speakers and exclusive networking
at 2016 Your CHS Experience, Feb. 21-23, at
The Phoenician in Scottsdale, Ariz.
Sign up today at your-chs-experience.com.
Your CHS Connection
25
Future ag leaders
gain federal policy
experience
Participants in the CHS New Leaders
program recently returned from
Washington, D.C., with a better
understanding of federal agriculture policy.
“The trip was an educational experience,”
says Travis Gutz, program participant.
“I plan to take what I learned
in Washington and put it
to work where we live.”
– Travis Gutz, program participant
Gutz and his wife Linda joined Aaron
Erickson, Glenwood, Minn., and other
young producers at the National
Council of Farmer Cooperatives (NCFC)
Washington conference.
“It’s hard to believe things move that
rapidly,” says Erickson. “It takes a lot to
stay ahead of the game.”
CHS works with its co-ops nationwide
to cultivate influential agriculture
professionals. Members of the CHS New
Leaders program were nominated by
co-op managers for their leadership and
potential in the agriculture industry within
their respective co-ops.
The conference participants spent time
with CHS directors, members of Congress
and White House staff, and learned about
legislative issues facing the nation’s
farmers. CHS Government Affairs staff
explained the legislative policy process
and highlighted the most effective
methods to make farmers’ voices heard on
critical issues. The leaders also participated
in NCFC’s Political Advocacy & Leadership
program for young producers.
“It’s important to get involved and stay
engaged in the public process if we want
to have any influence on the policies and
regulations that will dictate how we farm
in the future,” says Gutz.
Funding for the CHS New Leaders program
comes from CHS Stewardship, which
supports a variety of opportunities to
develop future leaders in agriculture.
Learn more at chsinc.com/stewardship.
26
SEPTEMBER/OCTOBER 2015
CHS reports third-quarter earnings of $649.6 million
CHS posted net income of $649.6 million for the
first three quarters of its 2015 fiscal year.
Earnings for Sept. 1, 2014, through May 31, 2015,
represented a decrease of 26 percent from the
$881.7 million reported for the first three quarters
of fiscal 2014. Revenues for the first nine months
of fiscal 2015 were $26.6 billion, down 19 percent
from $32.7 billion for the same period a year ago,
primarily due to lower average prices for refined
energy products, grains and fertilizer that make
up a significant portion of CHS business.
Earnings for the third quarter of fiscal 2015 (March
1 to May 31, 2015) were $178.1 million, down 53
percent from $379.5 million for the same period of
fiscal 2014. The third quarter of fiscal 2014 included
a one-time gain of $108.8 million attributed to
the establishment of the Ardent Mills flour milling
joint venture in May 2014. Fiscal 2015 third quarter
revenues of $8.7 billion declined 28 percent from
the same three-month period a year ago.
For the first nine months of fiscal year 2015, Energy
segment earnings declined, primarily due to
significantly reduced refining margins and scheduled
maintenance at its McPherson, Kan., refinery, along
with, to a lesser extent, decreased propane earnings.
CHS Ag segment earnings through the third
quarter also declined. This decrease was attributed
to lower earnings from logistics within grain
marketing compared with the first three quarters
of fiscal 2014, as well as lower grain and wholesale
crop nutrients volumes. In addition, through the
third quarter of fiscal 2015, CHS retail facilities
experienced lower agronomy margins. Earnings
for CHS renewable fuels marketing and production
operations declined due to lower market prices,
which resulted in lower marketing commissions.
Those lower earnings were partially offset by the
2014 acquisition of a Rochelle, Ill., ethanol plant.
CHS reports results for its business services
operations and its two food processing-related
joint ventures under the Corporate and Other
category, which reported lower earnings through
the third quarter of fiscal 2015, primarily due to the
one-time gain in fiscal 2014 associated with the
formation of the Ardent Mills milling joint venture.
CHS Inc. Earnings by Segment
Energy
($ in millions)
For the Three Months Ended
May 31
2015
2014
$83.3
$197.7
For the Nine Months Ended
May 31
2015
2014
$374.6
$553.2
Ag
61.7
117.2
262.0
Corporate and other
25.5
124.7
60.0
172.1
170.5
439.6
696.6
999.6
Income before income taxes
Income taxes
(7.3)
Net income
177.8
Net income attributable to non-controlling interests
(0.3)
Net income attributable to CHS Inc.
$178.1
274.3
59.7
47.5
116.1
379.9
649.1
883.5
0.4
(0.5)
1.8
$379.5
$649.6
$881.7
Celebrating FFA at CHS Field
FFA members from across the Upper Midwest
shared a balmy night at the ball game as they
gathered to cheer on the St. Paul Saints at CHS
Field on July 25 for FFA Night, presented by CHS.
with your optimism and the leadership skills you
bring to your local schools and communities.”
Approximately 300 FFA members and
supporters from Iowa, Minnesota, North Dakota,
South Dakota and Wisconsin attended FFA Night.
Prior to the game, they gathered in the CHS
Field picnic area to share a meal. CHS Director
Curt Eischens of Minneota, Minn., welcomed
them and encouraged them to continue sharing
agriculture’s story with the world.
“Hearing your life stories and your future plans
is really heartening,” he said. “I’m so impressed
CHS Director Curt Eischens (right) welcomes FFA
members at CHS Field.
CHSINC.COM
Leveraging the cooperative business model in the Black Sea region
Doing business around the world has been
streamlined with telephone calls, emails and
video conferences. But the importance of a
personal meeting with customers and employees
won’t likely be replaced by modern technology
and shouldn’t be, according to the CHS Board of
Directors. The opportunity to meet face to face
brings value and establishes trusted partnerships.
“The opportunities that we are seeing in the
Black Sea region would not be possible without
strong one-on-one relationships, and those stem
from the connections our employees are making
on the ground and from conversations the Board
has during its visits,” says Director Perry Meyer.
“To make its international business
successful, CHS focuses on three
business imperatives: Work to
be relevant continually; develop
a sustainably profitable business
model; and build a diverse and
multidimensional platform that
allows us to be available when and
where there is customer need.”
– CHS International Business Operations
President Stefano Rettore
The Black Sea is located between southeastern
Europe and western Asia. It drains through the
Mediterranean into the Atlantic Ocean, via the
Bosphorus Strait. During a recent trip to the area,
the Board of Directors experienced the power of
the cooperative business model firsthand.
While CHS was formed more than 85 years ago
to help American farmers be more successful, the
company entered the Black Sea area five years ago
with investments in a port facility at Odessa, Ukraine,
and Constanta, Romania. During the Board’s visit to
this region, employees spoke of what it meant for
them to work for an organization like CHS.
“The people in this region appreciate that we’re
farmer-owned. It opens doors because they know
they can count on us to be honest and have the
highest integrity,” says Director Alan Holm.
As a Fortune 100 company with more than
11,000 employees worldwide, CHS will ensure
the decisions of where and how the company
will grow are methodical, complex and strategic.
One common question asked when making each
of these key decisions: Does this opportunity
help our cooperative- and farmer-owners grow?
“There’s a lot that goes into our decision to do
business internationally,” says Director Greg
Kruger. “If it’s important for us to do business
there, then it’s important for the board to travel
there to keep a pulse on current challenges and
the geopolitical climate, and to connect with our
employees and customers.”
There is a difference between CHS and the
competition in this region, says Director David
Kayser. “It’s a difference our employees feel and
our customers greatly appreciate.”
The CHS Board of Directors and leadership team build on
trusted partnerships during their visit to Turkey.
The port facility at Constanta, Romania.
CHS Directors
in Washington
Working with CHS Government Affairs, CHS
Directors Randy Knecht, David Kayser, David
Johnsrud, Perry Meyer and Greg Kruger
visited more than 20 offices on Capitol
Hill to urge support for Trade Promotion
Authority (TPA), legislation that would
establish a federal standard for labeling
non-GMO foods, and for a bill that would
reauthorize the Commodity Futures Trading
Commission and address new rules that could
drive up hedging costs.
TPA expedites the process by which
Congress considers trade agreements.
Congress passed TPA the same week
directors visited Washington, and President
Obama signed the bill into law.
The CHS Board of Directors tour the port at Constanta, Romania.
The directors also expressed CHS support
for the Safe and Accurate Food Labeling
Act of 2015, a bill that would establish
a voluntary, national non-GMO labeling
standard and ensure a reliable, consistent
way to deliver information to consumers
across the country. The House of
Representatives passed that bill in July.
Your CHS Connection
27
NEWS FROM REGION 1
Curt Eischens
Asst. Secretary-Treasurer
curt.eischens@chsinc.com
David Johnsrud
Director
david.johnsrud@chsinc.com
Alan Holm
Director
alan.holm@chsinc.com
Perry Meyer
Director
perry.meyer@chsinc.com
“Giving back to our communities and
education has always been a part of
CHS. The amount we’ve given has
grown as we’ve grown, allowing us to
do more than ever before.”
“I’m continually impressed by
our people, not just in the United
States, but across the world. Our
employees are motivated and
excited to work for CHS.”
“If you’re going to be a part of the
community, you need to return
something back to the community.
I’m proud to be a part of an
organization that understands that.”
“We need to continue to seek
ways to help our local cooperatives
and farmers remain viable and
growing. The future of our
cooperative system depends on it.”
Building a stronger cooperative for the future
Over your cooperative’s nearly 85-year history,
CHS directors have made hundreds of decisions on
behalf of owners. A few, like the August approval
of investing in nitrogen fertilizer manufacturing,
stand out as game changers on par with the
creation of CHS and buying two oil refineries.
While each of these important events has touched
a different part of our business, they have a
common goal: to build a stronger cooperative
for the next generation. It was this objective that
guided the CHS Board of Director’s recent decision
to invest $2.8 billion in CF Industries Nitrogen, LLC.
The agreement with CF Industries Nitrogen, LLC,
establishes a long-term position in nitrogen
fertilizer manufacturing, supply and distribution
for CHS cooperatives, farmer-owners and other
crop nutrients customers. The Board’s action
came after months of thoughtful consideration
and years of steadfast commitment to adding
value for CHS owners through ownership in
nitrogen fertilizer manufacturing.
“We continued to look at a variety of options
to achieve this goal, including the proposed
Spiritwood, N.D., plant project,” says Chairman
David Bielenberg. “Given the dynamic market for
nitrogen fertilizer manufacturing and distribution,
investing in CF Nitrogen, created access to
28-1
SEPTEMBER/OCTOBER 2015
immediate benefits versus having to wait four years
for construction to be completed on a new plant.”
Bielenberg noted that while the CHS Board
approaches every decision with knowledge
and commitment, the scope of this proposal
called for the greatest level of due diligence in
company history, including a number of special
Board information sessions and discussion. This
investment will enable CHS to serve its customers
through geographically diversified production and
multiple transportation modes – including truck, rail
and barge – leveraging the CHS distribution system
and the company’s risk management expertise.
Beyond this investment, the Board remains
committed to building a strong cooperative
system by supporting tomorrow’s leaders through
collegiate partnerships at more than 23 schools
across the United States and Canada.
Whether it’s by funding scholarships or supporting
initiatives such as the recent CHS Farm Family of
the Year Photo contest, CHS is working to create
broader awareness of the cooperative system and
the important role of agriculture, and to build lasting
connections with tomorrow’s agricultural leaders.
To learn more about CHS investments and
initiatives, please log onto chsinc.com.
GIVING IN
YOUR REGION
300,000
$
in scholarships
to students studying ag at
Minnesota colleges
Grants to purchase new
safety
equipment for more than
15 fire departments and
cooperatives across Minnesota
2.1
$
2.3
million and
million
pounds of food donated to hungry
families across the U.S. through
CHS Harvest for Hunger
*Chart includes just a few giving examples from recent years.
CHSINC.COM