Farmer-Owned CHS Inc.'s 1Q Profit Soars On Oil Refinery Strength

CHS Inc. (CHSCP) reported its first-quarter earnings more than doubled as margins in its petroleum refinery business soared.

CHS, the largest farmer-owned cooperative in the U.S., owns refineries in Montana and Kansas in addition to its network of grain storage and processing facilities. It reported revenue in its refined fuels business jumped 50% versus a year earlier, due to higher volumes and an 82-cent-per-gallon increase in its average selling price.

Earnings in its agribusiness segment, which includes grains trading, fell 22%, and the cooperative said in a filing that earnings should be down for the entire year due to large global crops that have reduced its export opportunities out of the U.S.

For the quarter ended Nov. 30 the cooperative, based near St. Paul, Minn., reported earnings of $416.2 million, up from 201.7 million the prior year.

The cooperative's energy segment, which also includes propane, saw profits soar to $397.3 million from $57.2 million the prior year. CHS processes 55,000 barrels of crude oil a day at its Montana refinery and 85,000 at its Kansas facility, of which it owns a 75% stake.

CHS' energy performance more than offset declines in its agricultural services segment, in which earnings slipped to $121.4 million from $154.7 million the prior year.

Grain companies have struggled recently due to weak soybean processing margins and market volatility. On Tuesday, Cargill Inc. reported quarterly earnings fell 88%, due in part to troubles navigating wild price swings caused by Europe's developing economic crisis.

Privately-held Cargill and Archer Daniels Midland Co. (ADM), another large grain merchandiser, are both cutting jobs in response to the pressures.

CHS said in a news release its agribusiness segment is "soundly profitable," but that large crops in the Black Sea, South America and Australia will limit its exports and reduce earnings during the fiscal year, which ends Aug. 31. The cooperative also said smaller U.S. crops last fall could hurt volumes.

Earnings in the cooperative's fertilizer wholesale and retail distribution business climbed as margins improved, CHS said.

The cooperative has been aggressively trying to expand its footprint, both in the U.S. and abroad. In the first quarter it purchased Solbar, an Israeli soy protein company, for $133 million, and also bought an Iowa soybean processing plant for $32 million.

CHS is also in the midst of expanding a grain export terminal in Washington state, which it said would cost an estimated $160 million by the time it is completed in 2013.

-By Ian Berry, Dow Jones Newswires; 312-750-4072; ian.berry@dowjones.com

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