What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-02 compared with 2021-11-04 · 128 added, 143 removed, 297 unchanged (48% of the section changed)

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As a cooperative, we are owned by farmers, ranchers and member cooperatives across the United States.

We also have preferred shareholders that own our five series of preferred stock, all of which are listed and traded on the Global Select Market of The Nasdaq Stock Market LLC.

We operate in the following four reportable segments:

We also have preferred shareholders who own our five series of preferred stock, all of which are listed and traded on the Global Select Market of The Nasdaq Stock Market LLC.

We operate in the following three reportable segments:

Produces and provides primarily for the wholesale distribution and transportation of petroleum products.

Purchases and further processes or resells grains and oilseeds originated by our country operations business, by our member cooperatives and by third parties;

also serves as a wholesaler and retailer of agronomy products.

Purchases and further processes or resells grain and oilseed originated by our country operations and global grain businesses, by our member cooperatives and by third parties.

It also includes our renewable fuels business and serves as a wholesaler and retailer of agronomy products.

• Nitrogen Production.

Produces and distributes nitrogen fertilizer.

Consists of our equity method investment in CF Industries Nitrogen, LLC ("CF Nitrogen"), and allocated expenses.

Produces edible oils used in food preparation and packaged food products.

Consists of our equity method investment in Ventura Foods, LLC ("Ventura Foods"), and allocated expenses.

In addition, our financing and hedging businesses, along with our nonconsolidated wheat milling joint venture, have been aggregated within Corporate and Other.

It consists of our equity method investment in CF Nitrogen and allocated expenses.

In addition, our financing and hedging businesses, along with our nonconsolidated food production and distribution and wheat milling joint ventures, have been aggregated within our Corporate and Other category.

The consolidated financial statements include the accounts of CHS and all subsidiaries and limited liability companies in which we have a controlling interest.

The effects of all significant intercompany transactions have been eliminated.

Corporate administrative expenses and interest are allocated to each reportable segment, and Corporate and Other, based on direct use of services, such as information technology and legal, and other factors or considerations relevant to the costs incurred.

Corporate administrative expenses and interest are allocated to each reporting segment, and Corporate and Other, based on direct use of services, such as information technology and legal, and other factors or considerations relevant to the costs incurred.

Management's Focus .

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Consequently, we focus on managing the margin we can earn and the resulting IBIT.

Management also focuses on ensuring balance sheet strength through appropriate management of financial liquidity, leverage, capital allocation and cash flow optimization.

We also focus on ensuring balance sheet strength through appropriate management of financial liquidity, leverage, capital allocation and cash flow optimization.

Seasonality .

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For example, in our Ag segment, our country operations business generally experiences higher volumes and revenues during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters, respectively.

Additionally, our agronomy business generally experiences higher volumes and revenues during the spring

planting season.

Our global grain and processing operations are subject to fluctuations in volume and revenues based on producer harvests, world grain prices, demand and international trade relationships.

Additionally, our agronomy business generally experiences higher volumes and revenues during the spring planting season.

Our global grain and processing operations are subject to fluctuations in volumes and revenues based on

producer harvests, world grain prices, demand and international trade relationships.

Our Energy segment generally experiences higher volumes and revenues in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces.

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Pricing and Volumes .

Our revenues, assets and cash flows can be significantly affected by global market prices and sales volumes of commodities such as petroleum products, natural gas, grains, oilseed products and agronomy products.

Our revenues, assets and cash flows can be significantly affected by global market prices and sales volumes of commodities such as petroleum products, natural gas, grain, oilseed products and agronomy products.

Changes in market prices for commodities we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings.

Similarly, increased or decreased sales volumes without a corresponding change in the purchase and selling prices of those products can affect revenues and operating earnings.

Commodity prices and sales volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability/adequacy of supply of a commodity, availability of reliable rail and river transportation networks, outbreaks of disease, government regulations and policies, global trade disputes and general political and/or economic conditions.

Commodity prices and sales volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability/adequacy of supply of a commodity, availability of reliable rail and river transportation networks, disease outbreaks, government regulations and policies, global trade disputes, wars and civil unrest, and general political and/or economic conditions.

Business Strategy

Our business strategies focus on an enterprisewide effort to create an experience that empowers customers to make CHS their first choice, expand market access to add value for our owners, and transform and evolve our core businesses by capitalizing on changing market dynamics.

To execute on these strategies, we are focused on implementing agile, efficient and sustainable new technology platforms;

To execute these strategies, we are focused on implementing agile, efficient and sustainable new technology platforms;

building robust and efficient supply chains;

hiring, developing and retaining high-

performing, diverse and passionate teams;

hiring, developing and retaining high-performing, diverse and passionate teams;

achieving operational excellence and continuous improvement;

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Fiscal 2022 Highlights

• Strong global demand drove commodity prices higher, and a full year of improved trade relations between the United States and foreign trade partners led to continued higher volumes for grain and oilseed, which significantly improved earnings in our Ag segment compared to the prior year.

• Unfavorable market conditions in our refined fuels business, driven primarily by exceptionally high costs for renewable energy credits and less favorable pricing on heavy Canadian crude oil processed by our refineries, resulted in lower earnings in our Energy segment.

• Lower earnings in our Energy segment were partially offset by improved crack spreads that drove increased margins in our refined fuels business as demand shocks associated with the COVID-19 pandemic began to subside.

• Equity earnings from investments, particularly from CF Nitrogen and Ventura Foods, were a significant source of earnings during fiscal 2021.

• Although a significant portion of our global employees continued with remote working arrangements throughout fiscal 2021, we began planning for our employees to return to our offices in either full or hybrid capacities when it is appropriate taking into account COVID-19 restrictions and precautions.

The costs of these activities were not material during fiscal 2021.

• Robust global demand, coupled with increased market volatility, resulted in higher commodity prices and significantly improved earnings.

• Higher refining margins drove significantly improved earnings in our Energy segment that resulted from supply and demand factors, including trade flow disruptions caused by the Russian invasion of Ukraine and higher global demand for energy products as consumption outpaced supply.

• Equity method investments performed well, with our CF Nitrogen investment being the largest contributor due to improved earnings as a result of market conditions driven by strong global demand for urea and UAN and decreased global supply.

• Our global grain and processing and wholesale agronomy businesses in our Ag segment benefited from strong global demand and increased margins.

Fiscal 2023 Outlook

Our Energy and Ag segments operate in cyclical environments in which unforeseen market conditions can have significant positive or negative impacts.

For example, we expect there to be continued uncertainty during fiscal 2022 that could have significant positive or negative impacts on our results as we continue to navigate the lingering effects of the COVID-19 pandemic.

Most of our operations are considered to be essential;

however, periods of depressed demand and margins could result in decreased profitability and the need to assess for potential impairments.

Easing of measures taken to mitigate the spread of COVID-19, the rollout of vaccines and other efforts to respond to the pandemic in the United States and globally could also impact the profitability of our businesses.

Refer to Item 1A of this Annual Report on Form 10-K for additional considerations of risks the COVID-19 pandemic may continue to have on our business, liquidity, capital resources and financial results.

Although improving from the lows experienced during the prior fiscal year, the energy industry continues to experience volume and margin reductions compared to historical levels.

These reductions are primarily the result of the COVID-19 pandemic, which began in our second quarter of fiscal 2020 and significantly reduced our profitability.

In addition, the cost of renewable energy credits remains significantly higher than historical levels, which we expect will negatively impact our profitability during fiscal 2022.

We are unable to predict how long the current environment will last or the severity of the financial and operational impacts;

however, we expect continued uncertainty and volatility in the energy industry that could negatively impact our profitability during fiscal 2022.

agricultural industry experienced increased demand for grain and oilseed commodities during fiscal 2021 following the Phase One trade agreement with China, which resulted in increased volumes and improved commodity prices;

however, unforeseen global market conditions can positively or negatively impact agricultural commodity prices and volumes sold.

We are unable to predict these conditions or the severity of the impact such conditions could have on our pricing and volumes.

In addition to global supply and demand impacts, regional factors such as unpredictable weather conditions, including those due to climate change, could impact our operations.

For example, unfavorable weather events and conditions experienced in fiscal 2021, including the impacts of Hurricane Ida on our grain export terminal in Myrtle Grove, Louisiana, and drought conditions experienced in portions of our trade territory, are expected to negatively impact our revenues, margins and cash flows from core operations during fiscal 2022.

As with others in our industry, we are seeing significantly higher freight costs that are the result of logistical challenges in the shipping industry, and we expect these challenges to continue into fiscal 2022.

Additionally, unforeseen global market conditions with negative impacts remain a risk that could put pressure on asset valuations in our Ag segment.

In addition to market conditions that impact our businesses, we will continue to take actions to protect our financial health during fiscal 2022, while continuing to deliver on our enterprise resource planning system implementation and advance our operating model.

Our segments operate in cyclical environments in which market conditions can change rapidly with significant positive or negative impacts on our results.

We anticipate that various macroeconomic factors, including the ongoing war between Russia and Ukraine, rising interest rates, and inflationary pressures increasing costs of labor, freight and materials, 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 2023.

In addition to these broad macroeconomic factors, the cost of renewable energy credits remains higher than historical levels, which could continue to negatively impact our profitability, and regional factors, such as unpredictable weather conditions, including those due to climate change, could impact demand for agricultural inputs and outputs, as well as our ability to supply those inputs and outputs.

Although challenges remain, the imbalance between global supply and strong global demand for agricultural commodities is currently expected to result in continued market volatility and favorable pricing in fiscal 2023.

We are unable to predict how long the current environment will last or the severity of the financial and operational impacts in fiscal 2023.

Refer to Item 1A of this Annual Report on Form 10-K for additional consideration these risks may have on our business operations and financial performance.

In addition to navigating market conditions that impact our businesses, we will continue to take actions in an effort to execute on our enterprise priorities throughout fiscal 2023, including empowering and supporting our people, advancing our operating model by transforming how we work and adopting new technologies, and strategically investing in our infrastructure to meet the evolving needs of our owners and customers, enhance value for the cooperative system and propel sustainable growth.

Operating Metrics

Our Energy segment operations primarily include our Laurel, Montana, and McPherson, Kansas, refineries, which process crude oil to produce refined products, including gasoline, distillates and other products.

Our Energy segment operations primarily include our refineries in Laurel, Montana, and McPherson, Kansas, which process crude oil to produce refined products, including gasoline, distillates and other products.

The following table provides information about our consolidated refinery operations:

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Distillates 82,291 68,720

We are subject to the Renewable Fuels Standard, which requires refiners to blend renewable fuels (e.g., ethanol, biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as Renewable Identification Numbers ("RINs"), in lieu of blending.

Environmental Protection Agency ("EPA") generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year, although standards have not yet been established for calendar year 2021.

We are subject to the Renewable Fuel Standard that requires refiners to blend renewable fuels (e.g., ethanol and biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as renewable identification numbers ("RINs"), in lieu of blending.

The EPA generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year.

In June 2022, the EPA issued a final renewable volume obligation ("RVO") for calendar years 2020 through 2022.

The RVO for calendar year 2020 was lower than previously issued, and the RVO for calendar year 2021 was lower than anticipated as a result of lower demand for refined fuels that occurred during calendar year 2021 due to the COVID-19 pandemic.

We generate RINs through our blending activities, but we cannot generate enough RINs to meet the needs of our refining capacity and RINs must be purchased on the open market.

The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 ethanol RINs rising by 287% and 141%, respectively, during fiscal 2021 compared to the prior year, which negatively impacted our profitability during fiscal 2021.

Estimates of our RIN obligations and expenses are based on the number of RINs we expect will be required by the EPA and are calculated using an average RIN price each month.

Absent the annual renewable fuel percentage standard for calendar year 2021, we have assumed the annual renewable fuel percentage standard will be consistent with calendar year 2020.

In addition to our internal operational reliability, the profitability of our Energy segment is largely driven by crack spreads (i.e., the price differential between refined products and inputs such as crude oil) and Western Canadian Select ("WCS") crude oil differentials (i.e., the price differential between West Texas Intermediate ("WTI") crude oil and WCS crude oil), which are driven by the supply and demand of refined product markets.

Crack spreads increased during fiscal 2021, compared to the prior year, contributing to improved IBIT for the Energy segment.

However, WCS crude oil differentials decreased during fiscal 2021, which partially offset the positive impact of improved crack spreads.

The table below provides information about average market reference prices and differentials that impact our Energy segment:

The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 ethanol RINs rising by 15% and 21%, respectively, during fiscal 2022 compared to the prior year, which negatively impacted our earnings.

Estimates of our RIN expense are calculated using an average RIN price each month.

In addition to our internal operational reliability, the profitability of our Energy segment is largely driven by crack spreads (i.e., the price differential between refined products and inputs such as crude oil) and Western Canadian Select ("WCS") crude oil discounts (i.e., the price discount for WCS crude oil relative to West Texas Intermediate ("WTI") crude oil), which are driven by the supply and demand of refined products.

Crack spreads and WCS crude oil discounts both increased in fiscal 2022, compared to the prior year, contributing to improved IBIT for the Energy segment.

The table below provides information about average market reference prices and differentials that impacted our Energy segment:

Years Ended August 31,

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WTI crude oil (dollars per barrel) $ 91.84 $ 56.62

WTI - WCS crude oil differential (dollars per barrel) $ 11.52 $ 14.31

WTI - WCS crude oil discount (dollars per barrel) $ 14.93 $ 11.52

Group 3 2:1:1 crack spread (dollars per barrel)* $ 30.67 $ 14.95

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Urea (dollars per ton) Green Markets NOLA $ 644.93 $ 330.00

Urea Ammonium Nitrate ("UAN") (dollars per ton) Green Markets NOLA $216.00 $137.60

Urea ammonium nitrate (dollars per ton) Green Markets NOLA $ 521.28 $ 216.00

Ethanol (dollars per gallon) Chicago Platts $ 2.62 $ 1.86

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Income before income taxes 1,810,017 3.8 515,320 1.3

Income tax benefit (38,249) (0.1) (36,731) (0.1)

Income tax expense (benefit) 132,116 0.3 (38,249) (0.1)

Net income 1,677,901 3.5 553,569 1.4

Net (loss) income attributable to noncontrolling interests (383) — 1,170 —

Net loss attributable to noncontrolling interests (861) — (383) —

Net income attributable to CHS Inc.

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The charts below detail revenues, net of intersegment revenues, and IBIT by reportable segment for fiscal 2022.

Our Nitrogen Production and Foods reportable segments represent equity method investments that record earnings and allocated expenses, but not revenues.

Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.

Income (Loss) Before Income Taxes by Segment

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(Dollars in thousands)

(Loss) income before income taxes $ (10,596) $ 225,317 $ (235,913) (104.7) %

The following waterfall analysis and commentary presents changes in our Energy segment IBIT for the year ended August 31, 2021, compared to the prior year:

Income (loss) before income taxes $ 616,551 $ (10,596) $ 627,147 5,918.7 %

The following waterfall analysis and commentary presents the changes in our Energy segment IBIT for the year ended August 31, 2022, compared to the prior year:

*See commentary related to these changes in the marketing, general and administrative expenses, interest expense, other income and equity income from investments sections of this Results of Operations.

The change in Energy segment IBIT for fiscal 2022 reflects the following:

• Significantly higher RIN prices in our refined fuels business negatively impacted margins by approximately $236.0 million and decreased WCS crude oil differentials experienced on heavy Canadian crude oil processed by our refineries reduced margins by approximately $77.1 million.

• Reduced margins in our refined fuels business were partially offset by improved crack spreads and the liquidation of historical last-in, first-out ("LIFO") layers for certain refined fuels inventories that resulted in improved margins of approximately $153.7 million and $35.3 million, respectively.

• Lower propane margins primarily due to global market conditions and the reversal of hedging gains recognized during the prior year resulted in a margin decrease of approximately $56.1 million.

• Reduced propane volumes resulting from warmer and drier weather conditions during fiscal 2021 contributed to a $15.8 million decrease of IBIT, which was partially offset by increased refined fuels volumes as the demand shocks experienced during the COVID-19 pandemic continued to subside.

• Higher crack spreads and increased WCS crude oil discounts reflect improved market conditions in our refined fuels business and contributed to a $1.0 billion increase of IBIT.

• Increased refinery production volumes also contributed to increased IBIT of approximately $81.0 million as a result of the increased sales mix of higher-margin produced refined fuels, compared to the lower-margin purchased refined fuels.

• Increased margins due to higher crack spreads and WCS crude oil discounts were partially offset by hedging-related losses of $128.0 million and other increased costs for refined fuels, including higher RIN and natural gas prices due to market conditions that contributed to decreased earnings of $74.0 million and $26.0 million, respectively.

Additionally, the $35.3 million benefit associated with the liquidation of historical last-in, first out ("LIFO") layers for certain refined fuels inventories in the prior year did not reoccur in fiscal 2022.

• Lower propane margins resulting from hedging-related losses and reversals of prior unrealized gains of $55.4 million during fiscal 2022 also partially offset the improved earnings in our refined fuels business.

Years Ended August 31, Change

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Income before income taxes $ 657,586 $ 298,096 $ 359,490 120.6 %

The following waterfall analysis and commentary presents changes in our Ag segment IBIT for the year ended August 31, 2021, compared to the prior year:

The following waterfall analysis and commentary presents the changes in our Ag segment IBIT for the year ended August 31, 2022, compared to the prior year:

The change in Ag segment IBIT for fiscal 2022 reflects the following:

• Favorable weather conditions for the fall harvest and spring planting seasons, a full year of improved trade relations between the United States and foreign trade partners and favorable market conditions for our processing business during fiscal 2021 compared to the prior year contributed to increased volumes and margins across most of our Ag segment.

The improved margins were partially offset by lower grain and oilseed margins, including the impact of mark-to-market losses that are expected to reverse over time.

• We experienced increased equity income from our investment in TEMCO, LLC ("TEMCO"), and gains on the sale of businesses during fiscal 2021 that did not occur during fiscal 2020.

• Increased margins across all our Ag segment product categories, including:

◦ $145.1 million increase for grain and oilseed that resulted primarily from strong global demand and mark-to-market changes associated with our commodity derivatives, including unrealized gains;

◦ $119.6 million increase for wholesale agronomy products, which resulted from strong global market demand and global supply disruptions;

◦ $105.6 million increase for oilseed processing as a result of strong meal and oil demand;

◦ $103.9 million increase for feed and farm supplies due to strong demand and global supply disruptions.

• Decreased volumes due to supply chain constraints and less favorable weather conditions during the planting and application season during fiscal 2022 resulted in a $106.3 million decrease for feed and farm supplies, which was partially offset by the net impact of other volume changes in other Ag segment product categories.

All Other Segments

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Nitrogen Production IBIT* $ 477,985 $ 121,035 $ 356,950 294.9 %

Foods IBIT* $ 67,902 $ 24,179 $ 43,723 180.8 %

Corporate and Other IBIT $ 57,895 $ 106,785 $ (48,890) (45.8) %

*See Note 6, Investments, of the notes to the consolidated financial statements included in this Annual Report on Form 10-K for additional information.

Our Nitrogen Production segment experienced increased IBIT due to increased equity method income attributed to higher sale prices of urea and UAN, which were partially offset by increased natural gas costs.

Our Foods segment experienced increased IBIT as a result of favorable market conditions for edible oils and a recovery of sales volumes in fiscal 2021, compared with the early stages of the COVID-19 pandemic in fiscal 2020.

Corporate and Other IBIT increased primarily due to increased income from our equity method investment in Ardent Mills, LLC, as a result of strong sales volumes and improved commodity margins in fiscal 2021, compared with the early stages of the COVID-19 pandemic in fiscal 2020.

Our Nitrogen Production segment IBIT increased as a result of higher equity income attributed to increased sale prices of urea and UAN due to strong global demand and decreased global supply, which was partially offset by higher natural gas costs.

Corporate and Other IBIT decreased due to a combination of factors, including decreased equity method income from our investment in Ventura Foods, as a result of less favorable market conditions for edible oils and investment gains during the prior year that did not reoccur during the current year.

Revenues by Segment

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Revenues $ 10,294,774 $ 6,375,261 $ 3,919,513 61.5 %

The following waterfall analysis and commentary presents changes in our Energy segment revenues for the year ended August 31, 2021, compared to the prior year:

The following waterfall analysis and commentary presents the changes in our Energy segment revenues for the year ended August 31, 2022, compared to the prior year:

The change in Energy segment revenues for fiscal 2022 reflects the following:

• Increased selling prices for refined fuels and propane as a result of improved global market conditions, including improved demand following the initial demand shocks in fiscal 2020 associated with the COVID-19 pandemic resulted in increased revenues of $793.4 million and $183.6 million, respectively.

• Decreased volumes of propane resulting from lower demand due to warmer and drier weather conditions during fiscal 2021 contributed to decreased revenues of $90.1 million.

Decreased propane volumes were partially offset by increased volumes of refined fuels as the demand shocks experienced during the COVID-19 pandemic continued to subside.

• Increased selling prices for refined fuels due to global market conditions contributed to $3.5 billion greater revenues.

• Increased selling prices for propane as a result of global market conditions during fiscal 2022 also positively impacted revenues by $370.7 million.

• Lower volumes of propane resulted from lower demand driven by warmer weather conditions and less crop-drying activity, which contributed to decreased revenues of $27.3 million.

• Lower volumes of refined fuels resulted from lower demand due to high gasoline prices and contributed to decreased revenues of $19.6 million.

Years Ended August 31, Change

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Revenues $ 37,460,211 $ 32,035,342 $ 5,424,869 16.9 %

The following waterfall analysis and commentary presents changes in our Ag segment revenues for the year ended August 31, 2021, compared to the prior year:

The following waterfall analysis and commentary presents the changes in our Ag segment revenues for the year ended August 31, 2022, compared to the prior year:

The change in Ag segment revenues for fiscal 2022 reflects the following:

• A full year of improved trade relations between the United States and foreign trade partners and more favorable weather conditions compared to the prior year resulted in increased volumes.

Stronger grain and oilseed shipments contributed to a $1.9 billion increase in revenues with the remaining increase being composed primarily of improved sales volumes of feed and farm supplies and agronomy products.

• Due to a planned business model change at our TEMCO equity method investment to increase its operational efficiency, we experienced reduced revenues and COGS on certain transactions associated with TEMCO, which partially offset strong volume revenue growth in grain and oilseed during fiscal 2021.

• Higher pricing for grain and oilseed was driven by increased global demand, which contributed to a $5.3 billion increase in revenues.

The remaining increase was attributed to a combination of price increases and product mix across our other businesses, including agronomy and processing, as well as partially offsetting price decreases for feed and farm supplies.

• Higher pricing attributed to market-driven price increases across all of our Ag segment product categories, including:

◦ $6.4 billion increase in revenues for grain and oilseed driven by increased global demand;

◦ $1.5 billion increase for feed and farm supplies due to strong demand and constrained supply;

◦ $1.5 billion increase for wholesale agronomy products resulting from strong global market demand and global supply disruptions;

◦ $721.1 million increase for renewable fuels resulting from demand driven higher prices;

◦ $541.0 million increase for oilseed processing due to strong meal and oil demand.

• Lower volumes of grain and oilseed contributed to a $4.2 billion decrease in revenues.

Decreased volumes resulted from a combination of factors, including the prior year experiencing elevated volumes following the Phase One trade agreement with China, which have since plateaued;

a business model change at our TEMCO equity method investment during the second quarter of fiscal 2021 that resulted in reduced revenues and COGS during fiscal 2022 on certain transactions associated with TEMCO;

lower crop yields due to drought conditions experienced in portions of our North American trade territory;

and the impact of Hurricane Ida on our grain export terminal in Myrtle Grove, Louisiana, during the first quarter of fiscal 2022.

• The remaining volume decrease was experienced across most of our other Ag segment product categories, including an $843.1 million decrease for feed and farm supplies due to supply chain constraints and less favorable weather conditions during the spring planting and application season compared to the prior year.

All Other Segments*

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Corporate and Other revenues $ 36,681 37,430 $ (749) (2.0) %

*Our Nitrogen Production and Foods reportable segments represent equity method investments that record earnings and allocated expenses, but not revenues.

Corporate and Other revenues decreased during the year ended August 31, 2021, compared to the year ended August 31, 2020, mostly as a result of lower revenues in our financing business due to market-driven interest rate reductions.

*Our Nitrogen Production reportable segment represents an equity method investment that records earnings and allocated expenses, but not revenues.

There were no significant changes to revenues for Corporate and Other during fiscal 2022 compared to the prior year.

Cost of Goods Sold by Segment

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Cost of goods sold $ 9,358,627 $ 6,183,864 $ 3,174,763 51.3 %

The following waterfall analysis and commentary presents changes in our Energy segment COGS for the year ended August 31, 2021, compared to the prior year:

The following waterfall analysis and commentary presents the changes in our Energy segment COGS for the year ended August 31, 2022, compared to the prior year:

The change in Energy segment COGS for fiscal 2022 reflects the following:

• Increased refined fuel prices resulted from global market conditions and contributed to a $961.2 million increase of COGS, which includes the impact of significantly higher costs for RINs of approximately $236.0 million.

• Global market conditions and the reversal of hedging gains recognized during the prior year contributed to a $239.7 million increase of COGS for propane.

• Decreased volumes of propane resulting from lower demand due to warmer and drier weather conditions during fiscal 2021 contributed to lower COGS of $74.2 million.

Decreased propane volumes were partially offset by increased volumes of refined fuels as the demand shocks experienced during the COVID-19 pandemic continued to subside.

• Increased costs for refined fuels resulting from global market conditions contributed to a $2.7 billion increase in COGS.

• Higher costs for propane as a result of global market conditions, including the impact of hedging-related losses and reversals of prior unrealized gains, resulted in a $434.8 million increase in COGS.

• Lower volumes of propane resulted from lower demand driven by warmer weather conditions and less crop-drying activity, which contributed to decreased COGS of $26.2 million.

• Lower volumes of refined fuels resulted from lower demand due to high gasoline prices and contributed to decreased COGS of $19.3 million.

Years Ended August 31, Change

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Cost of goods sold $ 36,308,514 $ 31,322,491 $ 4,986,023 15.9 %

The following waterfall analysis and commentary presents changes in our Ag segment COGS for the year ended August 31, 2021, compared to the prior year:

The following waterfall analysis and commentary presents the changes in our Ag segment COGS for the year ended August 31, 2022, compared to the prior year:

The change in Ag segment COGS for fiscal 2022 reflects the following:

• A full year of improved trade relations between the United States and foreign trade partners and favorable weather conditions compared to the prior year drove volumes higher.

Stronger grain and oilseed shipments and mark-to-market losses that we expect to reverse over time contributed to a $1.9 billion increase of COGS with the remaining increase being composed primarily of improved volumes of feed and farm supplies and agronomy products.

• Higher prices for grain and oilseed resulted from increased global demand and contributed to a $5.3 billion increase of COGS.

The remaining price increase was driven by a combination of global market conditions and product mix, which increased costs for renewable fuels, agronomy products, and processing, and a partially offsetting price decrease for feed and farm supplies.

• Higher costs attributed to market-driven price increases across all our Ag segment product categories, including:

◦ $6.3 billion increase for grain and oilseed driven by increased global demand;

◦ $1.4 billion increase for feed and farm supplies due to strong demand and constrained supply;

◦ $1.3 billion increase for wholesale agronomy products resulting from strong global market demand and global supply disruptions;

◦ $666.0 million increase for renewable fuels resulting from high demand driving higher prices;

◦ $435.5 million increase for oilseed processing due to strong meal and oil demand.

• Lower volumes of grain and oilseed contributed to a $4.2 billion decrease in COGS.

The decreased volumes resulted from a combination of factors, including the prior year experiencing elevated volumes following the Phase One trade agreement with China, which has since plateaued;

lower crop yields due to drought conditions experienced in portions of our North American trade territory;

and the impact of Hurricane Ida on our grain export terminal in Myrtle Grove, Louisiana, during the first quarter of fiscal 2022.

• The remaining volume decrease was experienced across most of our other Ag segment product categories, including a $736.8 million decrease for feed and farm supplies due to supply chain constraints and less favorable weather conditions during the spring planting and application season compared to the prior year.

All Other Segments

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Corporate and Other COGS $ (4,065) $ (11,370) $ 7,305 64.2%

*Our Foods reportable segment represents an equity method investment that did not record any COGS during fiscal 2021 or fiscal 2020.

There were no significant changes to COGS for our Nitrogen Production segment or Corporate and Other during fiscal 2022 compared to the prior year.

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Marketing, general and administrative expenses $ 997,835 $ 745,602 $ 252,233 33.8 %

The increase in marketing, general and administrative expenses for fiscal 2021 compared to the prior year reflects higher performance-based incentive compensation expenses associated with improved annual results in comparison to the prior year, which was partially offset by lower expenses due to focused cost reduction initiatives realized during fiscal 2021.

Marketing, general and administrative expenses increased during fiscal 2022 primarily due to higher performance-based incentive compensation accruals driven by improved financial results in comparison to the prior year and, to a lesser extent, increased external consulting expenses for projects such as our enterprise resource planning system implementation and strategic adjustments to our operating model.

Interest Expense

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Interest expense $ 114,156 $ 104,565 $ 9,591 9.2 %

Interest expense decreased during fiscal 2021 as a result of lower interest rates compared to the prior year.

Interest expense increased during fiscal 2022 as a result of higher interest rates compared to the prior year, particularly during the second half of fiscal 2022 as the U.S.

Federal Reserve and other foreign equivalents raised interest rates.

The increase was partially offset by decreased average outstanding debt balances compared to the prior year.

Years Ended August 31, Change

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Other income $ 23,760 $ 59,559 $ (35,799) (60.1) %

Other income increased during fiscal 2021 primarily due to increased gains on the sale of businesses and investment gains compared to the prior year.

Other income decreased during fiscal 2022, primarily due to investment gains during the prior year that did not reoccur during fiscal 2022, impairment of certain held-for-sale assets and fewer gains on the sale of businesses during fiscal 2022.

Equity Income from Investments

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*See Note 6, Investments, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for additional information.

We record equity income or loss for investments in which we have an ownership interest of 50% or less and have significant influence, but not control, for our proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in our Consolidated Statements of Operations.

Equity income from investments increased during fiscal 2021 compared to the prior year, primarily due to increased income associated with our equity method investments in CF Nitrogen, Ventura Foods and TEMCO.

CF Nitrogen experienced increased sale prices of urea and UAN;

Ventura Foods experienced favorable market conditions for edible oils and a recovery of sales volumes in fiscal 2021, compared with the early stages of the COVID-19 pandemic in fiscal 2020;

and TEMCO experienced a significant increase in volumes and profitability with increased trade flows to China.

Additionally, TEMCO changed its business model during fiscal 2021, which has improved its operating efficiency and contributed to increased profitability.

Income Tax Benefit

Equity income from investments increased during fiscal 2022 compared to the prior year, primarily due to increased income associated with our equity method investment in CF Nitrogen.

CF Nitrogen experienced increased sale prices of urea and UAN due to strong global demand and decreased global supply.

Income Tax Expense (Benefit)

Years Ended August 31, Change

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(Dollars in thousands)

Income tax benefit $ 38,249 $ 36,731 $ 1,518 4.1 %

Increased income tax benefit during fiscal 2021 primarily resulted from a benefit associated with tax planning for certain assets.

The increased income tax benefit was partially offset by a benefit earned during fiscal 2020 related to the settlement of a U.S.

federal audit resulting in additional tax credit carryovers that did not reoccur during fiscal 2021.

Federal and state statutory rates applied to nonpatronage business activity were 24.5% and 24.9% for the years ended August 31, 2021

and 2020, respectively.

Income taxes and effective tax rates vary each year based upon profitability and nonpatronage business activity, which resulted in negative effective tax rates of (7.4)% and (9.5)% for the years ended August 31, 2021 and 2020, respectively.

Income tax expense (benefit) $ 132,116 $ (38,249) $ 170,365 445.4 %

Increased income tax expense primarily resulted from increased nonpatronage earnings and other nondeductible items during fiscal 2022.

Federal and state statutory rates applied to nonpatronage business activity were 24.4% and 24.5% for the years ended August 31, 2022 and 2021, respectively.

Income taxes and effective tax rates vary each year based upon profitability and nonpatronage business activity, which resulted in effective tax rates of 7.3% and (7.4)% for the years ended August 31, 2022 and 2021, respectively.

Comparison of Results of Operations for the Years Ended August 31, 2021 and 2020

For a discussion of results of operations for fiscal 2021 compared to fiscal 2020, please refer to Part II, Item 7 , Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended August 31, 2021, filed with the SEC on November 4, 2021.

The addition of the Foods segment in fiscal 2021, which was previously included in our Corporate and Other category, did not have a material impact to our comparison of results of operations for the years ended August 31, 2020 and 2019, as the year-over-year changes for the Foods segment were previously discussed within the Corporate and Other category.

Combining the Foods segment in our Corporate and Other category during fiscal 2022 did not have a material impact on our comparison of results of operations for the years ended August 31, 2022 and 2021, as relevant year-over-year changes for the Foods segment were discussed within the Corporate and Other category.

Liquidity and Capital Resources

In assessing our financial condition, we consider factors such as working capital, internal benchmarking related to our applicable covenants and other financial information.

The following financial information is used when assessing our liquidity and capital resources to meet our capital allocation priorities, which include maintaining the safety and compliance of our operations, paying interest on debt and preferred stock dividends, returning cash to our member-owners in the form of cash patronage and equity redemptions and taking advantage of strategic opportunities that benefit our owners:

August 31, 2021 August 31, 2020

(Dollars in thousands)

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We will continue to consider opportunities to further diversify and enhance our sources and amounts of liquidity.

On February 19, 2021, we amended our 10-year term loan facility to convert the entire $366.0 million aggregate principle amount outstanding thereunder into a revolving loan, which can be paid down and readvanced in an amount up to the referenced $366.0 million until February 19, 2022.

On February 19, 2022, the total funded loan balance outstanding reverts to a nonrevolving term loan that is payable on September 4, 2025.

On August 14, 2020, we entered into a Note Purchase Agreement to borrow $375.0 million of debt in the form of notes.

The notes under this Note Purchase Agreement are structured in four series with maturities ranging from seven to 15 years and interest accruing at rates ranging from 3.24% to 3.73%, subject to certain adjustments depending on our ratio of consolidated funded debt to consolidated cash flow and whether the notes have an investment grade rating from a nationally recognized statistical rating organization.

The funding of these notes took place on November 2, 2020.

This funding was used to pay debt maturities and manage liquidity.

On September 24, 2020, the Securitization Facility and Repurchase Facility were amended, increasing the maximum availability under the Securitization Facility to $600.0 million from $500.0 million and extending termination dates to July 30, 2021, and September 24, 2021, respectively.

On July 30, 2021, the Securitization Facility was further amended to extend its

termination date to August 31, 2021.

Subsequently on August 31, 2021, the Securitization Facility and Repurchase Facility were again amended, increasing the maximum committed availability under the Securitization Facility to $700.0 million from $600.0 million, adding a $250.0 million uncommitted portion to the Securitization Facility and extending their respective maturity dates to August 30, 2022.

On August 30, 2022, the Securitization Facility and Repurchase Facility were amended to extend their respective maturity dates to August 29, 2023, and increase the maximum committed availability under the Securitization Facility to $ 850.0 million from $ 700.0 million.

On February 19, 2021, we amended our 10-year term loan facility to convert the entire $366.0 million aggregate principle amount outstanding thereunder into a revolving loan, which could be paid down and readvanced in an amount up to the referenced $366.0 million until February 19, 2022.

On February 19, 2022, the total advanced loan balance of $366.0 million reverted to a non-revolving term loan that is payable on September 4, 2025.

Summary of Our Major Uses of Cash and Cash Equivalents

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Our fiscal 2023 capital expenditure priorities include maintaining our assets through maintenance;

compliance with environmental, health and safety requirements;

information technology;

productivity;

Our refining business requires continued investment in our refining process to maintain its operational reliability, profitability and safety.

complying with environmental, health and safety requirements;

enhancing information technology capabilities;

improving productivity;

Our refining business requires continued investment in our refining process to maintain its safety, operational reliability and profitability.

In addition, our Board of Directors annually approves our cash patronage and equity redemptions to be paid in fiscal 2023, based on fiscal 2022 financial performance.

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We expect total capital expenditures for fiscal 2023 to be approximately $887.2 million, compared to capital expenditures of $354.4 million in fiscal 2022.

Excluded from the capital expenditures for fiscal 2022 is approximately $53.7 million for major maintenance at our Laurel refinery.

Increased capital expenditures for fiscal 2023 are for investments in our infrastructure to meet the evolving needs of our owners and customers, enhance value for the cooperative system and propel sustainable growth.

Excluded from the capital expenditures for fiscal 2023 is approximately $236.0 million for major maintenance at our Laurel and McPherson refineries.

• Preferred stock dividends.

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• Equity redemptions .

Our Board of Directors has authorized equity redemptions of $ 100.0 million to be distributed in fiscal 2022 in the form of redemptions of qualified and nonqualified equity owned by individual producer members and association members.

Our Board of Directors has authorized equity redemptions of up to $500.0 million to be distributed in fiscal 2023 in the form of redemptions of qualified and nonqualified equity owned by individual producer-members and association members.

The Board of Directors will continue to periodically evaluate the level of equity redemption activity throughout fiscal 2023 with respect to the amounts it has authorized for redemption during the fiscal year.

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Working capital is not defined under U.S.

generally accepted accounting principles ("U.S.

GAAP and may not be computed the same as similarly titled measures used by other companies.

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As of August 31, 2022, working capital increased by $752.9 million compared with August 31, 2021.

Current asset balance changes increased working capital by $1.7 billion, primarily driven by increases in receivables and inventories.

Current liabilities balance changes decreased working capital by $1.4 billion, primarily due to increases in accounts payable and notes payable.

Current asset balance changes increased working capital by $1.4 billion, primarily due to increases in receivables, which were driven by higher commodity prices.

Current liabilities balance changes decreased working capital by $626.0 million, primarily due to an increase in our dividends and equities payable for our cash patronage and equity redemptions to be paid to owners in fiscal 2023.

We finance our working capital needs through committed and uncommitted lines of credit with domestic and international banks.

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We enter into purchase obligations that are legally binding and into enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities to be purchased and fixed or estimated prices to be paid at the time of settlement.

Our current and long-term obligation for such arrangements is $8.6 billion and $946.9 million, respectively.

Our current and long-term obligation for such arrangements is $9.1 billion and $1.1 billion, respectively.

Years Ended August 31,

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Effect of exchange rate changes on cash and cash equivalents ( 14,756 ) ( 4,063 ) (10,693)

Net increase (decrease) in cash and cash equivalents and restricted cash $ 325,491 $ (82,682) $ 408,173

Net increase in cash and cash equivalents and restricted cash $ 360,990 $ 325,491 $ 35,499

Cash flows from operating activities can fluctuate significantly from period to period as a result of various factors, including seasonality and timing differences associated with purchases, sales, taxes and other business decisions.

The $329.4 million decrease in cash provided by operating activities in fiscal 2021 is primarily the result of a higher proportion of income generated by equity method investments, which do not result in an increase in cash until dividends are distributed to us.

The decrease is also driven by working capital increases, primarily associated with increased receivables and inventories.

The $142.0 million decrease in cash used in investing activities in fiscal 2021 primarily reflects decreased expenditures for property, plant and equipment net of the proceeds from the sales of certain locations in our Ag segment.

The $604.6 million decrease in cash used in financing activities in fiscal 2021 primarily reflects increased net cash inflows associated with our notes payable and long-term debt facilities, including the $375.0 million Note Purchase Agreement funding during the first quarter of fiscal 2021.

The decrease is also partially due to lower amounts paid for cash patronage and equity redemptions in fiscal 2021 compared to the prior fiscal year.

The $1.2 billion increase in cash provided by operating activities in fiscal 2022 is primarily the result of higher net income during fiscal 2022 compared to fiscal 2021, including a $424.8 million increase in cash distributions from our equity investment in CF Nitrogen during 2022 compared to the prior year.

The $355.4 million increase in cash used in investing activities in fiscal 2022 reflects increases in our CHS Capital notes receivables primarily due to increases in funding for producer borrowers from increased marketing of programs and higher commodity prices.

The $787.1 million increase in cash used in financing activities in fiscal 2022 primarily reflects decreased net cash inflows associated with our notes payable during fiscal 2022.

The increase is also partially due to higher amounts paid for cash patronage and equity redemptions in fiscal 2022 compared to the prior fiscal year.

Critical Accounting Policies

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Recent Accounting Pronouncements

See Note 1, Organization, Basis of Presentation and Significant Accounting Policies, of the notes to the consolidated financial statements that are included in this Annual Report on Form 10-K for information concerning new accounting standards and the impact of implementation of those standards on our financial statements.

No recent accounting pronouncements are expected to have a material impact on our consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis