10-K: CHS Inc. 2025 Annual Report: Net Income Halves Amid Market Headwinds

CHS Inc. reported a significant decline in fiscal 2025 net income to $597.9 million from $1.1 billion in the prior year, driven by softening commodity margins and planned refinery maintenance.

Summary

• Total revenues for fiscal 2025 were $35.5 billion, a decrease from $39.3 billion in fiscal 2024.
• Net income attributable to CHS Inc. decreased to $597.9 million in fiscal 2025, down from $1.1 billion in fiscal 2024.
• The Energy segment's Income Before Income Taxes (IBIT) declined significantly to a loss of $(7.0) million in fiscal 2025, compared to a profit of $429.1 million in fiscal 2024, primarily due to decreased Western Canadian Select (WCS) crude oil discounts, unfavorable crack spreads, and planned major maintenance at the McPherson refinery.
• The Ag segment's IBIT decreased by 28.3% to $245.7 million, mainly attributed to softening grain and oilseed product margins, lower oilseed crush margins, declining commodity prices, and global market conditions.
• Equity income from investments increased by 18.7% to $569.7 million, largely due to a gain on the sale of a business recognized by Ventura Foods, an equity investment.
• Interest expense increased by 40.4% to $146.1 million in fiscal 2025, driven by a higher short-term notes payable balance and increased weighted-average interest rates.
• Working capital decreased by $504.1 million to $2.8 billion as of August 31, 2025, primarily due to a lower cash balance.
• The Occupational Safety and Health Administration (OSHA) incident rate improved to 2.7 incidents per 100 full-time workers in fiscal 2025, an 8% reduction from the three-year average of 2.9.
• Charitable donations through the foundation, corporate giving, and employee volunteer time-off program totaled approximately $8.7 million in fiscal 2025.

Sentiment

Score: 3

Explanation: The company experienced a significant decline in net income and segment profitability, particularly in its Energy and Ag segments, driven by unfavorable market conditions and planned operational disruptions. The future outlook remains uncertain with expectations of continued reduced margins. While some areas like equity income and safety improved, the overall financial performance and forward-looking statements indicate a challenging period.

Positives

• Equity income from investments increased significantly by 18.7% to $569.7 million, primarily due to a gain on the sale of a business by Ventura Foods.
• The Nitrogen Production segment's IBIT increased slightly due to favorable market conditions associated with urea.
• The Ag segment experienced increased volumes in wholesale and retail agronomy products due to more favorable weather conditions and strategic initiatives, and higher grain and oilseed demand due to lower prices.
• The OSHA incident rate improved by 8% to 2.7 incidents per 100 full-time workers in fiscal 2025, indicating enhanced safety performance.
• The company received a $90 million favorable impact in Q4 fiscal 2025 due to the granting of small refinery exemptions for its Laurel, Montana, refinery for compliance years 2019 through 2024.
• The enactment of H.R.1 One Big Beautiful Bill, making the Qualified Business Income Deduction permanent, may provide significant future income tax benefits.

Negatives

• Net income attributable to CHS Inc. decreased significantly by 45.8% from $1.1 billion in fiscal 2024 to $597.9 million in fiscal 2025.
• The Energy segment's IBIT declined significantly from a profit of $429.1 million in fiscal 2024 to a loss of $(7.0) million in fiscal 2025.
• The Ag segment's IBIT decreased by 28.3% ($97.0 million) compared to the prior year, driven by softening margins and declining commodity prices.
• Total revenues decreased by $3.8 billion (9.7%) from $39.3 billion in fiscal 2024 to $35.5 billion in fiscal 2025.
• Interest expense increased by 40.4% to $146.1 million due to higher short-term notes payable and weighted-average interest rates.
• Working capital decreased by $504.1 million to $2.8 billion as of August 31, 2025.
• Higher costs for Renewable Identification Numbers (RINs), exclusive of the small refinery exemption benefit, contributed to a $45.7 million decrease in Energy segment IBIT.
• Other income decreased primarily due to lower interest income resulting from a smaller cash balance.

Risks

• Revenues, results of operations, and cash flows are materially and adversely affected by changes in market prices for commodities such as crude oil, natural gas, ethanol, fertilizer, grain, oilseed, flour, and crude and refined vegetable oils.
• The company is exposed to political, economic, legal, and other risks of doing business globally, including terrorism, war, civil unrest, changes in social, economic, or political conditions, labor and environmental regulations, expropriation of assets, currency exchange fluctuations, price and export controls, taxes, and logistics challenges.
• Ongoing wars and global conflicts (e.g., Ukraine, Middle East, Red Sea) create significant uncertainty and instability in global commodities markets, leading to inflationary pressures, impacts on fertilizer purchases, and increased cybersecurity risks.
• Demand for products is highly dependent on global and regional factors outside the company's control, including demographics, macroeconomic conditions, farm income levels (influenced by commodity prices, crop yields, input costs, government policies, and weather), and fluctuations in freight and logistics costs.
• Inflation may result in increased costs for labor, freight, natural gas, and materials, and higher interest rates, which could have a material adverse effect on results of operations.
• Operating in highly competitive business markets may restrict the company's ability to increase prices and maintain margins.
• Risk of nonperformance and nonpayment by counterparties (customers, suppliers, financial institutions) due to financial distress, operational failures, labor issues, or cybersecurity events.
• Actual or perceived quality, safety, or health risks associated with products (e.g., genetically modified crops, sustainability concerns) could lead to significant liability, product recalls, and damage to business and reputation.
• Operations are subject to business interruptions from unanticipated events such as explosions, fires, natural disasters, cyberattacks, industrial accidents, transportation delays, equipment failures, and labor disputes.
• Epidemics, pandemics, outbreaks of disease, and other adverse public health developments could adversely affect business, financial condition, and results of operations.
• Workforce factors, including challenges in hiring, developing, and retaining employees, increased turnover rates, and higher labor costs, could negatively impact business.
• Technological improvements and sustainability initiatives could decrease demand for agronomy and energy products (e.g., fuel-efficient equipment, alternative energy sources, genetically engineered seeds).
• Advancements in Artificial Intelligence (AI) bring risks such as system failures, data breaches, inadvertent disclosure of sensitive information, and biased decisions.
• Reliance on information technology systems, including the ongoing multiyear implementation of an enterprise-wide resource planning (ERP) system, exposes the company to operational disruptions, security breaches, and compliance costs.
• Increasing scrutiny and changing expectations from stakeholders regarding Environmental, Social, and Governance (ESG) practices may expose the company to new risks, including regulatory fines, reputational damage, and increased costs.
• Failures or delays in achieving strategies or expectations related to climate change and other environmental matters could adversely affect business, operations, and reputation, and increase litigation risk.
• Acquisitions, strategic alliances, joint ventures, mergers, and divestitures involve risks such as integration challenges, financing difficulties, and less control over business decisions in joint ventures.
• Government policies, mandates, regulations, trade agreements, and tariffs (e.g., EU deforestation-free regulation, U.S.-China trade policies) could adversely affect operations and profitability.
• Changes in federal income tax laws or the company's tax status, or changes to tax rules in jurisdictions of operation, could increase tax liability and significantly reduce net income.
• The company incurs significant costs in complying with applicable laws and regulations (environmental, energy, derivatives, anti-corruption, anti-bribery, anti-kickback, trade laws), and failure to comply could lead to unanticipated expenditures and liabilities.
• Environmental liabilities and litigation, including public and private lawsuits related to agricultural chemicals and climate change, could have a material adverse effect.
• Financial results are susceptible to seasonality, with revenues and IBIT generally trending lower during the second and fourth fiscal quarters.
• If any long-lived assets become impaired, the company could be required to record a significant impairment charge, negatively impacting results of operations.
• The business is capital-intensive and relies on cash generated from operations and external financing; access to capital could be affected by financial institutions' policies concerning energy-related businesses.
• The cooperative structure limits the company's ability to access equity capital, as it cannot sell common stock and has limitations on preferred stock dividends.

Future Outlook

The company anticipates that global supply and demand factors impacting energy and agricultural commodities will be unfavorable in fiscal 2026. It expects continued uncertainty and instability in global energy and agricultural commodity markets, as well as global financial markets, driven by factors such as ongoing conflicts, shifts in global trade flows, potential changes in U.S. trade policy, increased tariffs, a changing interest rate environment, and persistent pricing pressures on labor, freight, and materials. The trend of reduced margins for energy and agricultural commodities is expected to persist in fiscal 2026.

Management Comments

• Our Ag segment performed well, although down from strong results in the prior year. This was mainly due to softening grain and oilseed product margins, lower oilseed crush margins, declining commodity prices and global market conditions.
• Despite strong volumes, our Energy segment results declined significantly from the prior year. This was driven by decreased Western Canadian Select crude oil discounts, unfavorable crack spreads and expected lower sales of produced, higher-margin refined products as a result of our planned major maintenance at our McPherson, Kansas refinery in the third quarter of fiscal year 2025.
• Equity method investments continued to provide solid contributions to CHS income, including strong results from our investments in CF Nitrogen and Ventura Foods.
• We anticipate various macroeconomic factors will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as global financial markets, which could have a significant impact on each of our segments during fiscal 2026.
• We currently expect the trend of reduced margins for energy and agricultural commodities to persist in fiscal 2026.
• We will continue to execute our enterprise priorities for fiscal 2026, including maximizing our platforms through our integrated supply chains and capitalizing on domestic and global opportunities, as we navigate less favorable market conditions for energy and agricultural commodities.

Industry Context

The company operates in highly cyclical petroleum and agricultural industries, where demand and profitability are significantly influenced by global economic conditions, weather patterns, government policies, and commodity price volatility. It faces intense competition in petroleum refining and wholesale fuels from large integrated companies, smaller domestic refiners, and foreign importers. In the Ag segment, competition comes from other large distributors, regional/local players, cooperatives, retailers, and direct sales from input manufacturers. The industry is also navigating increasing scrutiny on ESG practices and evolving regulations, such as the EU deforestation-free regulation and the Renewable Fuel Standard.

Comparison to Industry Standards

• The OSHA incident rate of 2.7 incidents per 100 full-time workers in fiscal 2025 represents an 8% reduction from the company's three-year average of 2.9, indicating an improvement in safety performance relative to its own recent history.
• The company is identified as the nation's largest cooperative energy company and the largest cooperative marketer of grain and oilseed based on revenues and sales, respectively.
• Ardent Mills, a joint venture in which the company holds a 12% interest, is noted as the largest flour miller in the United States.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved as a defendant in various lawsuits, claims, and disputes that are in the normal course of business.
• Management currently believes that any resulting liabilities from these matters, individually or in the aggregate, will not have a material effect on the consolidated financial position, results of operations, or cash flows during any fiscal year.

Related Party Transactions

• Sales to related parties (primarily equity investees like CF Nitrogen, Ventura Foods, Ardent Mills, TEMCO, LLC, and Producer Ag) totaled $2.37 billion in fiscal 2025, compared to $2.40 billion in fiscal 2024.
• Purchases from related parties totaled $1.83 billion in fiscal 2025, compared to $1.59 billion in fiscal 2024.
• Receivables due from related parties were $225.4 million as of August 31, 2025, compared to $334.8 million in 2024.
• Payables due to related parties were $130.4 million as of August 31, 2025, compared to $113.1 million in 2024.
• Several directors and their family entities had crop input loans with CHS Capital, with interest rates ranging from 0.0% to 10.7% per annum and maturities in early 2026. The largest aggregate principal outstanding for these loans during fiscal 2025 included $7.68 million for Kehl Farms, LLC (Russell Kehl), $805,009 for Jones Farm Partnership (Tracy Jones), and $366,284 for Kevin Throener.
• CHS Hedging, a wholly-owned subsidiary, acts as a clearing broker for directors and their affiliates, handling such trades on substantially the same terms and conditions as other similarly situated individuals.

Stakeholder Impact

• Shareholders (Preferred): Expected to receive approximately $168.7 million in dividends in fiscal 2026. Changes in director compensation aim to align with their interests.
• Member-Owners (Farmers, Ranchers, Cooperatives): Will receive patronage refunds ($30.0 million cash, $199.1 million equity for fiscal 2025 performance) and equity redemptions ($90.0 million in fiscal 2026), directly impacting their returns from the cooperative.
• Employees: Benefit from compensation and benefits programs designed to attract and retain talent, including variable pay, profit sharing, and retirement plans. Improved OSHA incident rates indicate a safer work environment.
• Customers: The company's integrated agricultural cooperative model provides essential inputs and markets outputs, with strategic initiatives focused on enhancing value and meeting evolving needs.
• Suppliers: Engages in fixed-price purchase contracts and advance payments, but faces risks of nonperformance by counterparties.
• Creditors: The company maintains compliance with all debt covenants, indicating financial stability for its lenders.
• Communities: Benefits from approximately $8.7 million in charitable donations and employee volunteer programs.

Next Steps

• Continue implementing agile, efficient, and sustainable technology platforms.
• Build robust and efficient supply chains.
• Hire, develop, and retain high-performing, diverse, and passionate teams.
• Achieve operational excellence and continuous improvement.
• Maintain a strong balance sheet.
• Maximize platforms through integrated supply chains and capitalize on domestic and global opportunities in fiscal 2026.
• The Board of Directors will continue to periodically evaluate the level of equity redemption activity throughout fiscal 2026.
• The annual meeting of members is scheduled for December 5, 2025, where the newly formed Nominating Committee will nominate director candidates.
• The company announced a mutual agreement with MKC on October 10, 2025, to start the process of ending their joint venture in Producer Ag.
• Expected total capital expenditures for fiscal 2026 are approximately $575.1 million.
• Expected total major maintenance for fiscal 2026 is approximately $53.3 million.
• Expected preferred stock dividends of approximately $168.7 million will be paid during fiscal 2026.
• Approximately $30.0 million of fiscal 2025 patronage-sourced earnings are authorized to be paid in cash to member-owners during fiscal 2026, along with $55.0 million in qualified equity distributions and $144.1 million in nonqualified equity distributions.
• Approximately $90.0 million of equity redemptions are authorized to be distributed in fiscal 2026.

Key Dates

Recommendation

The company experienced a significant decline in net income and segment profitability in fiscal 2025, driven by challenging global market conditions and planned operational maintenance. While equity income provided a positive offset and safety metrics improved, the outlook for fiscal 2026 anticipates continued unfavorable market dynamics and reduced margins. The cooperative structure limits traditional equity upside, and the current environment suggests a period of consolidation and strategic navigation rather than strong growth. A 'hold' recommendation is appropriate as the company works through these headwinds, leveraging its integrated supply chains and strategic initiatives, but faces considerable market uncertainty.

Keywords

Agricultural cooperative, Energy, Grain, Oilseed, Agronomy, Refined fuels, Crop nutrients, Commodity prices, SEC filing, 10-K, Financial performance, Corporate governance, Risk management, Sustainability, Cybersecurity, Capital expenditures, Preferred stock, Patronage refunds, Joint ventures