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Equity management

Equity management priorities

Each year, the CHS Board of Directors makes decisions on the amount of cash patronage and equity redeemed and distributed to owners. Those decisions are based on three key criteria:

Ensuring decisions are in the best interest of CHS and its owners

Maintaining a strong balance sheet, including the capital reserve

Strengthening our ability to pursue long-term growth

CHS has returned $3.2 billion to owners over the past 10 years


Through consultation with tax, legal and capital structure experts, the CHS Board identified three significant challenges with the CHS equity management program:

1. CHS has been issuing equity faster than it can redeem equity.

With no change, allocated equity volume would continue to increase and could add years to redeem

Allocated equity is growing faster than it can be redeemed

Regardless of earnings, equity issued has exceeded equity redeemed

Equity issued consistently exceeds equity redeemed

2. The CHS Board has had too few tools available to make effective annual equity decisions; more flexibility is needed.

3. Preferred stock dividend treatment has resulted in issuance of increased equity.

In the last 15 years, the volume of allocated equity has tripled – and it’s more than five times the equity held in 1999. Allocated equity has grown every year, even during times when CHS had strong earnings and returned a significant amount of cash to CHS owners.

Continuing to manage equity this way would likely mean the CHS equity program has less value to owners over time, since it would likely take decades longer to redeem equity.

Solution approved by CHS members at the 2023 CHS Annual Meeting

Amend CHS Bylaws to allow equity holdback from 0% to 35%

  • Give CHS Board flexibility to make equity decisions based on market conditions
  • This will not change the amount of cash generated by CHS

Amend CHS Bylaws to allow reduction of earnings by preferred stock dividends when calculating patronage

  • Treat preferred stock dividends similar to interest
  • This will not change the amount of cash generated by CHS


No, a change to the allowable holdback percentage will not impact the amount of cash available. Each year, CHS has three important areas to use its cash: 1) Repairs and maintenance, since we must keep our assets in good condition, 2) reinvesting in the business for future generations, and 3) determining how much cash to return to the country through cash patronage and equity redemptions, with the intention of returning as much as possible.

Changing the holdback percentage will not affect the amount of money the CHS Board decides to return to owners, since that amount is based on the cash available, which would not change.

Higher earnings lead to more equity being issued, which compounds the current situation. For example, fiscal years 2022 and 2023 had record earnings and we announced record returns to owners of $1 billion and $730 million in cash, respectively, and yet net allocated owner equity still grew both years.

CHS cannot earn its way out of this problem. We have a capital-intensive business, with ongoing significant maintenance capital expenditures needed to maintain our assets and infrastructure, plus necessary growth investments to ensure we stay competitive and relevant for our members. Therefore, higher earnings do not always translate into more cash available.

A change only in how preferred stock dividends are treated would not make a significant impact on addressing the challenge that CHS is issuing allocated equity faster than it can redeem that equity. Without also increasing the maximum allowable holdback, the timeline for redeeming CHS equity in the future will likely become substantially longer, making the equity program less valuable to owners over time.

CHS consulted with tax, financial and capital structure experts to evaluate the program. Tax and accounting experts advised us to limit the maximum holdback percentage to below 50%. We considered many scenarios, including a range of holdback percentages, and looked at the effect on allocated equity volumes, using CHS earnings history since fiscal year 1999 as examples of the range in performance possible in our market-driven business.

We also conducted benchmarking research to understand how other cooperatives handle allocated equity and other aspects of their equity programs. From this research, it became clear that the limited flexibility in the current CHS equity program is outdated and highly unusual.

The Board initially proposed a holdback of zero to 45%, but believes a holdback of zero to 35% helps address the challenge while balancing the range of input received from CHS owners. Based on owner feedback, the Board believes this level of flexibility will be supported.

If no action had been taken by CHS members, the timeline for redeeming CHS equity in the future would likely become substantially longer than the current 15 years and could eventually grow to many decades. In addition, while the amount of equity would stay the same, inflation could erode its value over longer redemption periods. CHS might also be less attractive to capital and liquidity providers over time, limiting the company’s ability to grow and serve owners.

CHS wants to maintain a valuable and sustainable equity management program to ensure the value of current and future equity. We are working to balance current and future needs of owners and to keep the cooperative strong for future generations.

Helpful definitions

  • Allocated equity – equity that has been issued and assigned to a specific owner through patronage.
  • Equity redemption – redeeming previously issued allocated equity, usually with cash (also called retirement in the CHS Bylaws)
  • Unallocated equity – owner equity that has not been issued to a specific owner. Unallocated equity, reported on the CHS balance sheet as the capital reserve, may include:
    • Annual net income attributable to nonpatronage business
    • An annual amount not to exceed 10% of the annual distributable net income from patronage business per current CHS Bylaws
    • Annual net income from patrons that does not meet a minimum amount of business

Forward-looking statements: This document and other CHS Inc. publicly available documents contain, and CHS officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on CHS current beliefs, expectations and assumptions regarding the future of its businesses, financial condition and results of operations, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of CHS control. CHS actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. Important factors that could cause CHS actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed or identified in CHS filings made with the U.S. Securities and Exchange Commission, including in the "Risk Factors" discussion in Item 1A of CHS Annual Report on Form 10-K for the fiscal year ended August 31, 2022, as supplemented by the "Risk Factors" discussion in our Quarterly Report on Form 10-Q for the quarter ended February 28, 2023. These factors may include: changes in commodity prices; the impact of government policies, mandates, regulations and trade agreements; global and regional political, economic, legal and other risks of doing business globally; the ongoing war between Russia and Ukraine; the impact of inflation; the impact of epidemics, pandemics, outbreaks of disease and other adverse public health developments, including COVID-19; the impact of market acceptance of alternatives to refined petroleum products; consolidation among our suppliers and customers; nonperformance by contractual counterparties; changes in federal income tax laws or our tax status; the impact of compliance or noncompliance with applicable laws and regulations; the impact of any governmental investigations; the impact of environmental liabilities and litigation; actual or perceived quality, safety or health risks associated with our products; the impact of seasonality; the effectiveness of our risk management strategies; business interruptions, casualty losses and supply chain issues; the impact of workforce factors; our funding needs and financing sources; financial institutions’ and other capital sources’ policies concerning energy-related businesses; uncertainty regarding the transition away from LIBOR and the replacement of LIBOR with an alternative reference rate; technological improvements that decrease the demand for our agronomy and energy products; our ability to complete, integrate and benefit from acquisitions, strategic alliances, joint ventures, divestitures and other nonordinary course-of-business events; security breaches or other disruptions to our information technology systems or assets; the impact of our environmental, social and governance practices, including failures or delays in achieving our strategies or expectations related to climate change or other environmental matters; the impairment of long-lived assets; the impact of bank failures; and other factors affecting our businesses generally. Any forward-looking statements made by CHS in this document are based only on information currently available to CHS and speak only as of the date on which the statement is made. CHS undertakes no obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise except as required by applicable law.