Survey shows dairy co-ops in generally strong financial state

Rural Cooperatives, Nov-Dec, 2004 by Carolyn Liebrand

Editor's note: This article is based on USDA's annual survey of all U.S. cooperatives, which gathered 2002 financial and marketing data for dairy cooperatives. More detailed results are presented in Research Report 203, "Financial Profile of Dairy Cooperatives, 2002" available at: www.rurdev.usda.gov/rbs/pub/newpub.ht m. For a hard copy, call (202) 720-8381, or e-mail: dan.campbell@usda.gov.

In 2002, all types of U.S. dairy cooperatives were negatively impacted by lower milk and dairy product prices. Nevertheless, dairy cooperatives in general appeared to be in good shape financially, irrespective of operating type. Cooperatives successfully employed a variety of methods to market members' milk. While some used few assets and operated on narrow margins, others employed considerable capital and generated wider margins.

This report uses some basic financial yardsticks for measuring the fiscal status of co-ops, based on the type of operations.

More assets per cwt

Dairy co-ops used about $1 per hundredweight (cwt) more of assets in 2002 than they did five years before. Data analyzed by USDA Rural Development shows that dairy cooperatives employed $6.22 of assets per cwt to market their members' milk in 2002 (table 1).

The growth in assets stemmed from an increase in fixed assets (property, plant, equipment and other fixed assets). Much of this increase was supported by a rise in long-term liabilities per cwt of member milk relative to 1997--the last time a detailed look into dairy, cooperatives' financial performance was taken by USDA Rural Development.

Total liabilities came to $4.13 per cwt of member milk, which amounted to two-thirds of total assets. The $2.39 in current liabilities represented mostly pending payments to members and made up 58 percent of all liabilities.

On the other side of the ledger, dairy cooperatives had $2.81 per cwt in current assets and $2.90 per cwt of property, plant and equipment in 2002--each representing around 46 percent of total assets. With current assets exceeding current liabilities by 18 percent, the short-run solvency picture looked strong for dairy co-ops in 2002.

Member equity of $2.10 per cwt of milk represented one-third of total assets. Member investment in cooperatives per cwt was about the same as in 1997, but made up a slightly smaller share of total assets. Furthermore, the ratio of long-term liabilities to equity almost doubled from that in 1997 (.83 vs. .44).

Relatively low milk and dairy product prices in 2002 were reflected in the operating statement. Milk and dairy product sales were about $3 per cwt of milk handled below those reported in 1997 (table 2). Milk and dairy product sales of $15.73 per cwt, the largest single income item, represented 86.1 percent of total dairy cooperative income in 2002.

Supply and other sales was the next largest source of income, at $2.19 per cwt, accounting for a slightly larger share of total income than in 1997. Total income was $18.27 per cwt while net margins before tax came to 21 cents per cwt of milk handled. Return on sales was a modest 1.2 percent in 2002.

These figures come from a survey of U.S. dairy cooperatives conducted by the Rural Cooperative-Business Service of USDA Rural Development. Forty-one percent of the dairy cooperatives in the United States provided financial information in sufficient detail to be included in the financial profile of dairy cooperatives for 2002. However, these 80 cooperatives represented almost all (98 percent) of the combined total assets and most (97 percent) of the net milk volume handled by all U.S. dairy cooperatives.

Performance varies by type of operation

U.S. dairy cooperatives use a variety of means to market members' milk. The various types of operations require differing levels of capital and generate differing amounts of income and returns.

Cooperatives providing data for this study were grouped into four general operating methods: bargaining only; commodity manufacturing; niche marketing; and diversified and fluid processing. The diversified and fluid processing cooperatives handled about two-thirds of the net milk volume reported while bargaining-type co-ops handled 23 percent (fig 1). Commodity manufacturing cooperatives made up 9 percent of the net cooperative milk volume in 2002 while niche marketing cooperatives represented less than 1 percent.

[FIGURE 1 OMITTED]

Diversified and fluid processing cooperatives were also the dominant operating type in terms of assets, holding 91 percent of all assets of reporting dairy co-ops while bargaining only coops held just 4 percent. Similarly, diversified and fluid milk processing cooperatives had almost three-fourths of cooperative milk volume and dairy product sales. Bargaining-only co-ops had the next largest share, 18 percent. Niche-marketing cooperatives' shares of assets and dairy sales were less than 1 percent.

The assets supporting the various methods dairy cooperatives used to market their members' milk ranged from $1 to $10 per cwt, depending on the type of operations employed (table 3 and figure 2). Likewise, total income per cwt varied by almost $8 while net margins came to between 4 and 32 cents per curt of milk handled (table 4).