Insurance Changes Increase Risk Corwin Tufte, president, Ag States Group, points out changes are occurring in the insurance indus -try, affecting how insurance helps manage risk for cooperatives. Rates and premiums are beginning to increase due to pressure on insurance company capacity, an increase in weather-related losses and rapidly increasing workers compensation and liability claims costs. adding that plunging commodity prices at year-end left many cooperatives with large positions in higher-priced energy and agronomy products. Strategic Enterprise Management • Manage from the position that it’s not business as usual • Scrutinize your business partners • Ensure your business’s financial health is in order • Take a total-cost-of-risk approach across enterprises Exploding Loan Volumes Brian Legried, president, Cofina Financial, re -ports his company experienced 80 percent growth in loan volume in 2008. Credit availability remains good in agriculture because the industry has a relatively straightforward business model, he says, but cost of capital has gone up. “We’ve had challenges, but I’m confident we’ll pull out of it. We’ve got a good story to tell.” Consulting to Win Lynden Johnson, vice president, CHS Business Solutions Consulting, reports the cooperatives partnered with his team of business consultants are reporting largely positive financial conditions. “And when the local cooperative wins, the regional cooperative wins.” The group’s compilation of 2007 cooperative financial results yielded a new system record of 3 percent average total savings as a percentage of sales. The average return on local equity of 15 percent was also a record high. Johnson pointed out 54 percent of the reporting cooperatives gen -erate 94 percent of the profit. One cooperative reached a new peak of $598 million in sales in 2007. Helped by spiking com -modity prices, another member cooperative reached $1 billion in sales in 2008, while eight cooperatives topped $500 million in sales. “The decisions are still the same, but the impli -cations are much greater,” Johnson points out, Commodity Prices Take a Ride Scott Cordes, president, Country Hedging, reflected on the extreme volatility in commodity markets, including the steep climb in the price of a barrel of crude oil to $147, followed by the plunge to $48 and lower. “That has caused a lot of anxiety throughout the cooperative system.” In addition to the need for managing higher commodity market volatility, Cordes says other concerns include greater needs for working capi -tal, higher margin requirements, reducing the size of positions held on inventory, and dealing with changes in customer buying and selling habits. Another major change with impact on coopera -tives and their customers was the rapid change -over to electronic futures trading, he added. •• SEE MORE •• Visit www.chsinc.com/c for a video recap of the risk management mini-session. Grain Customer Margin Requirements Applying historical margins to current open positions for four current customers. Margin Required (Dollars) Historical Interest Rates 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2006 2007 Year 2008 U.S. Prime Rate Jan 07 Mar May 07 07 Jul 07 30-Day LIBOR Average Sep 07 Nov 07 Jan 08 Mar May 08 08 Jul 08 Sep 08 Nov 08 Your CHS Connection 7