CHS Inc.'s Allocated Equity Obligation Doubles Between 2003 and 2009

CHS Inc.'s allocated equity obligation more than doubled, increasing by over $1.0 billion between the end of 2003 and the end of 2009.  At August 31, 2009, CHS Inc's allocated equity obligation was $2.3 billion. In 2009, CHS Inc.'s cash redemptions of allocated equity decreased to $49.2 million from over $80 million in 2008;  the 2009 expenditure is the lowest redemption expenditure by CHS Inc. since prior to 2006.  

The decrease in redemptions is not surprising because earnings decreased in 2009 as well.   CHS Inc.'s 2009 earnings were half of the earnings it generated in 2008, falling from $800.0 million in 2008 to little less than $400.0 million in 2009. 

The thing that CHS Inc. has going for it is that its members all exist perpetually; hence CHS and its members have forever to figure things out.  CHS and its members will enjoy all the good times and be disappointed in the bad times.  During good times, they will all enjoy a speed up in redemptions while they will suffer through slow downs of redemptions when bad times hit.  

What about the co-op whose members do not live forever, who live and die?  If the next five years are tough for the co-op, older members will start worrying about whether the co-op can redeem their equity on time.  If members have the good fortune to live during prosperous times, they will worry less about the co-op redeeming their allocated equity before they die.  

But whether a member lives during good times or bad times is a crap shoot.  Do we try to manage the allocated equity obligation to be fair to all members and the co-op?  This is the issue we'll continue to discuss in the next few blogs.