Success, Rebound, or Resignation. The Divergent Financial Dynamics of Ag Co-ops

Since 2000, Ag Co-ops have accompanied the growth of the agricultural sector[1]. With a business volume of $118.900 billion in 2000 and $203.047 billion in 2019, they expanded their activity by 2.68% per year on average, i.e. 0.57% when adjusted for inflation[2]. This is slightly lower than the 0.64% growth of output produced by farmers over the same period. In the same time, the concentration of the sector kept going: there were 3,338 co-ops in 2000 and only 1,779 in 2019, i.e. a decrease of 3.15% per year. The membership of ag co-ops decreased by 2.45% while the total number of farmers decreased by 0.37%[3]. As a whole, ag co-ops are losing ground in agriculture but remain prevalent: the total membership in ag co-ops is 1.89 million in 2017[4] while the total number of farmers is 2.04 million. 

The dynamics of co-op demographics are different from one industry to another though. In the grain and oilseeds industry, cooperative memberships decreased by 2.37% annually (0.29%[5] less than the 2.66% decrease of farmers). As such, the proportion of cooperative members among grain farmers had increased between 2002 and 2017. By contrast, membership in dairy co-ops decreased by 3.67%, which is 2.17%[6] more than the 1.50% decrease of the number of farmers in the same period. In the livestock industry, the proportion of co-op members dropped. Indeed, membership in co-ops decreased by 3.77%, which is 3.23%[7] more than the 0.54% decrease of the number of farmers. 

To understand the current dynamics, we may focus on more recent financial trends. In terms of business volume, grain and oilseeds co-ops experienced an 8% growth per year between 2015 and 2020, mostly gained in 2018. Dairy co-ops saw their business volume increase steadily since 2015 by 4% per year. By contrast, the business volume of livestock co-ops decreased by 6% per year over the same period.

While livestock co-ops have divested (-2% in fixed assets since 2015), dairy and grain and oilseeds co-ops have invested to grow. Since 2015, grains and oilseeds co-ops added 14% in fixed assets, and dairy co-ops added 10%. Interestingly, their investments outpaced their growth in business volume, showing that investment efforts not only follow the need to deal with higher volume but anticipate further growth (see figure 1).

Figure 1. Fixed Assets

Next, it’s important to determine how growth is financed, first by focusing on the level of long-term debt over equity (figure 2). The dairy co-ops increased significantly the level of long-term debt compared to equity, with a ratio rising from 0.80 to 1, between 2014 and 2020. Grain and oilseeds co-ops keep their ratio of long-term debt at a very steady and low level, with a ratio of long-term debt over equity around 0.3. The livestock co-ops have increased their level of long-term debt, albeit absent of growth. 

Figure 3. Long term debt over retained earnings

While grain and oilseeds co-ops are able to finance their growth without altering their financial ratios, the dairy co-ops rely on a higher level of debt compared to equity. This higher commitment of banks in the financing of investments had been accompanied by an effort of co-op members to increase retained earnings instead of allocated equity: The increase of retained earnings has more than outpaced the level of debt; figure 3 shows that the ratio of long-term debt of retained earnings dropped from 3.87 to 3.10 since 2014. The dynamic is different for livestock co-ops, where the ratio of long-term debt over retained earnings is increasing since 2017 albeit absent of growth. It may be interpreted as a transfer of funds from banks to co-op members, a support which may be not sustainable over the long run.

Figure 3. Long term debt over retained earnings

Overall, these numbers illustrate the success of co-ops in the grain and oilseed industry. They are able to grow without altering their leverage ratios nor their margins, i.e. without adding financial risks. From this, we can conjecture that the co-op membership share will maintain or grow in the mid run in the grain and oilseeds industry. 

Dairy co-ops seem to have experienced a rebound. Indeed, their very dominant position among farmers may have flinched, but the financial performances of the most recent years and the efforts of members to finance the growth of their co-ops may put an end to a relative loss of ground. 

The diagnostic is less positive for livestock co-ops. While they have the possibility to create value by exploiting low but steady gross margins, their divestiture and decreasing retained earnings may reflect a lack of commitment (which may also result from financial difficulties) of members to their co-ops, a sort of resignation. This decline is tempered by the support of banks, but it cannot last forever. 

[1] Data on co-ops demographics and finance are from the agricultural cooperative statistics (USDA)

[2] 2.10% over the 2000-2019 period (

[3] Data on farm demographics and sales from the 2017 USDA census.,_Chapter_1_US/usv1.pdf

[4] Note that farmers can be member of several cooperatives, first-tier cooperatives are considered as members of second-tier cooperatives and some members may be not included in the count of farmers in the USDA census report. As such, we can compare evolution but the data does not allow us to estimate proportion.

[5] Ibid. Based on these data, co-op members represent more between one third and one half of the grain industry.

[6] Ibid. Based on these data, co-op members represent about three quarters of the dairy industry.

[7] Ibid. Based on these data, co-op members represent less than 5% of the livestock industry.

Cadot, Julien. “Success, Rebound, or Resignation. The Divergent Financial Dynamics of Ag Co-ops“. Southern Ag Today 2(28.5). July 8, 2022. Permalink