July 7, 2016 - 12:00 PM EDT
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CHS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are a diversified company, which provides grain, foods and energy resources
to businesses and consumers on a global basis. As a cooperative, we are owned by
farmers, ranchers and their member cooperatives across the United States. We
also have preferred stockholders that own shares of our 8% Cumulative Redeemable
Preferred Stock ("8% Preferred Stock"), our Class B Cumulative Redeemable
Preferred Stock, Series 1 ("Class B Series 1 Preferred Stock"), our Class B
Reset Rate Cumulative Redeemable Preferred Stock, Series 2 ("Class B Series 2
Preferred Stock"), our Class B Reset Rate Cumulative Redeemable Preferred Stock,
Series 3 ("Class B Series 3 Preferred Stock") and our Class B Cumulative
Redeemable Preferred Stock, Series 4 ("Class B Series 4 Preferred Stock"), which
are listed on the NASDAQ Stock Market LLC ("NASDAQ") under the symbols CHSCP,
CHSCO, CHSCN, CHSCM and CHSCL, respectively.

We provide a full range of production agricultural inputs such as refined fuels,
propane, farm supplies, animal nutrition and agronomy products, as well as
services, which include hedging, financing and insurance. We own and operate
petroleum refineries and pipelines, and market and distribute refined fuels and
other energy products under the Cenex® brand through a network of member
cooperatives and independents as well as distribute unbranded refined fuels. We
purchase grains and oilseeds directly and indirectly from agricultural producers
primarily in the midwestern and western United States. These grains and oilseeds
are either sold to domestic and international customers or further processed by
us into a variety of grain-based food products or renewable fuels.

The following discussion makes reference to our Energy, Ag and Nitrogen
Production reportable segments, as well as our Corporate and Other category. See
Note 9, Segment Reporting, to our unaudited consolidated financial statements
included in this Quarterly Report on Form 10-Q for more information regarding
our reportable segments.

Many of our business activities are highly seasonal and operating results vary
throughout the year. With the exception of our last two fiscal years, our income
has generally been lowest during the second fiscal quarter and highest during
the third fiscal quarter. For example, in our Ag segment, our crop nutrients and
country operations businesses generally experience higher volumes and income
during the spring planting season and in the fall, which corresponds to harvest.
Our grain marketing operations are also subject to fluctuations in volume and
earnings based on producer harvests, world grain prices and demand. Our Energy
segment generally experiences higher volumes and profitability in certain
operating areas, such as refined products, in the summer and early fall when
gasoline and diesel fuel usage is highest and is subject to global supply and
demand forces. Other energy products, such as propane, may experience higher
volumes and profitability during the winter heating and crop drying seasons.

Our revenues, assets and cash flows can be significantly affected by global
market prices for commodities such as petroleum products, natural gas, ethanol,
grains, oilseeds, crop nutrients and flour. Changes in market prices for
commodities that we purchase without a corresponding change in the selling
prices of those products can affect revenues and operating earnings. Commodity
prices are affected by a wide range of factors beyond our control, including the
weather, crop damage due to disease or insects, drought, the availability and
adequacy of supply, government regulations and policies, world events, and
general political and economic conditions.

Our business is cyclical and in recent years the Ag and Energy economies have
been near the peak of the cycle. The Ag and Energy industries have fallen off of
their peaks and entered into a down cycle characterized by reduced commodity
prices and lower margins globally. This down cycle also impacts the nitrogen
fertilizer industry and as a result, we expect to be similarly impacted in our
Nitrogen Production business. We are unable to predict how long this down cycle
will last or how severe it may be. During this period, we, along with our
competitors and customers, expect our revenues, margins and cash flows to be
under pressure as energy and commodity prices remain low and potentially further
decline. As we operate in this ongoing down cycle, we are taking prudent actions
regarding costs and investments, while continuing to position ourselves to take
advantage of opportunities as they arise. These prudent actions include
anticipating holding overhead costs flat and reducing capital investments for
the remainder of fiscal 2016, through fiscal 2017 into fiscal 2018, as well as
focusing on the return we earn on our investments in assets.



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Results of Operations

Comparison of the three months ended May 31, 2016, and May 31, 2015


General. We recorded income before income taxes of $194.5 million during the
three months ended May 31, 2016, compared to $170.5 million during the three
months ended May 31, 2015, an increase of $24.0 million (14%). Operating results
reflected increased pretax earnings in our Energy and Corporate and Other as
well as earnings from our new Nitrogen Production segment. These earnings were
partially offset by the impacts of a down cycle in the Ag economy, which led to
decreased pretax earnings in our Ag segment of $37.5 million.

Our Energy segment generated income before income taxes of $109.4 million for
the three months ended May 31, 2016, compared to $83.3 million for the three
months ended May 31, 2015, representing an increase of $26.1 million (31%). The
majority of our increased earnings for the three months ended May 31, 2016, was
driven by our refined fuels business due primarily to an $80.2 million non-cash
benefit associated with the recovery of lower of cost or market charges that
were taken earlier in fiscal 2016 when energy markets were lower. This was
partially offset by lower refining margins. Like all downstream refinery owners,
we are impacted by fluctuations in energy commodity prices by the requirement to
reduce our inventory values to the lower of cost or market ("LCM") and should
energy commodity prices decline again, we may be subject to non-cash LCM
adjustments which could be significant. To the extent that market prices
increase, we may be able to recover prior LCM adjustments, which is what
occurred in the third quarter of fiscal 2016. Our lubricants and propane
businesses experienced earning declines while our transportation business
earnings increased over the same period versus prior year. We are subject to the
Renewable Fuels Standard ("RFS") which requires refiners to blend renewable
fuels (e.g. ethanol, biodiesel) into their finished transportation fuels or
purchase renewable energy credits, identified as RINs, in lieu of blending. The
Environmental Protection Agency ("EPA") generally establishes new annual
renewable fuels percentage standards ("mandate") for each compliance year in the
preceding year. We generate RINs under the RFS in our renewable fuels operations
and through our blending activities at our terminals, however we cannot generate
enough RINs to meet the needs of our refining capacity and therefore RINs must
be purchased on the open market. The price of RINs can be extremely volatile. On
November 30, 2015, the EPA released the final mandate for years 2014, 2015 and
2016 resulting in an increase to the price of RINs. This increase did not have a
material impact on our financial results.

Our Ag segment generated income before income taxes of $24.2 million for the
three months ended May 31, 2016, compared to income before income taxes of $61.7
million in the three months ended May 31, 2015, a decrease in earnings of $37.5
million (61%). Our processing and food ingredients businesses experienced
decreased earnings of $48.1 million for the three months ended May 31, 2016,
compared to the same period of the previous year, primarily related to a bad
debt charge associated with a specific customer and, to a lesser extent, lower
margins in our soybean crushing business. Our country operations earnings
decreased $7.1 million (13%) during the three months ended May 31, 2016,
compared to the same three-month period of the previous year, due primarily to
decreased agronomy and grain margins. Earnings from our renewable fuels
marketing and production operations decreased $1.2 million (41%) for the three
months ended May 31, 2016, compared with the three months ended May 31, 2015,
due primarily to lower market prices on ethanol sales. These lower earnings were
partially offset by our wholesale crop nutrients business which increased $10.6
million (50%) for the three months ended May 31, 2016, compared with the three
months ended May 31, 2015, primarily due to higher volumes. Our grain marketing
earnings increased by $10.0 million (45%) during the three months ended May 31,
2016, compared with the three months ended May 31, 2015, primarily due to lower
expense.

Our Nitrogen Production segment generated income before income taxes of $25.0
million during the three months ended May 31, 2016. There are no comparable
results in the prior year as this segment is comprised of our equity method
investment in CF Nitrogen, which was consummated on February 1, 2016. See Note
4, Investments, to our unaudited consolidated financial statements included in
the Quarterly Report on Form 10-Q for more information on this investment.

Corporate and Other generated income before income taxes of $35.9 million during
the three months ended May 31, 2016, compared to $25.5 million during the three
months ended May 31, 2015, an increase in earnings of $10.4 million (41%). This
increase was driven by increased revenues of $7.4 million related to increased
hedging and financing activity and decreased compensation costs of $9.9 million.
These increases were partially offset by increased interest expense of $4.8
million and decreased equity earnings of $2.5 million.

Net Income/Loss attributable to CHS Inc. Consolidated net income attributable to
CHS Inc. for the three months ended May 31, 2016, was $190.3 million compared to
$178.1 million for the three months ended May 31, 2015, which represents a $12.2
million (7%) increase.


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Revenues. Consolidated revenues were $7.8 billion for the three months ended May 31, 2016, compared to $8.7 billion for the three months ended May 31, 2015, representing a $944.3 million (11%) decrease.


Our Energy segment revenues, after elimination of intersegment revenues, of $1.2
billion decreased by $391.6 million (24%) during the three months ended May 31,
2016, compared to the three months ended May 31, 2015. During the three months
ended May 31, 2016, and 2015, our Energy segment recorded revenues from sales to
our Ag segment of $76.1 million and $94.1 million, respectively, which are
eliminated as part of the consolidation process. Refined fuels revenues
decreased $362.4 million (25%), of which $357.6 million was related to lower
prices and $4.8 million was related to lower volumes when compared to the same
period of the previous year. The sales price of refined fuels decreased $0.49
(24%) per gallon and volumes decreased approximately 1%. Propane revenues
decreased $40.0 million (30%), which included $45.0 million related to lower net
average selling prices, partially offset by a $5.0 million (4%) increase in
volumes when compared to the same period in fiscal 2015. The average selling
price of propane decreased $0.28 (32%) per gallon when compared to the same
period of the prior year.


Our Ag segment revenues, after elimination of intersegment revenues, of $6.5 billion decreased $561.4 million (8%) during the three months ended May 31, 2016, compared to the three months ended May 31, 2015.


Grain revenues in our Ag segment were $3.7 billion and $4.1 billion for the
three months ended May 31, 2016, and 2015, respectively. The decrease in grain
revenues was primarily the result of lower average sales prices of $922.5
million, which was partially offset by higher net volumes of $451.6 million
(11%) during the three months ended May 31, 2016, compared to the same period of
the prior year. The average sales price of all grain and oilseed commodities
sold reflected a decrease of 20% per bushel when compared to the three months
ended May 31, 2015. Corn and soybean volumes increased by approximately 22%
compared to the three months ended May 31, 2015.

Our processing and food ingredients revenues in our Ag segment of $377.3 million
increased $12.1 million (3%) during the three months ended May 31, 2016,
compared to the three months ended May 31, 2015. For the three months ended May
31, 2016, the net increase in revenues is comprised of a $375.9 million increase
in volumes, partially offset by a decrease in the average selling price of our
oilseed products of $363.8 million compared to the three months ended May 31,
2015. The increase in volumes sold is mostly due to the acquisition of a plant
in the fourth quarter of fiscal 2015.

Wholesale crop nutrient revenues in our Ag segment totaled $770.0 million which
decreased $109.0 million (12%) during the three months ended May 31, 2016,
compared to the three months ended May 31, 2015. The wholesale crop nutrient
revenues decrease consisted of $194.9 million associated with lower prices,
partially offset by an increase of $85.9 million of higher volumes during the
three months ended May 31, 2016, compared to the same period of the previous
year. The average sales price of all fertilizers sold decreased $75.28 (20%) per
ton compared to the same period of the previous year. Our wholesale crop
nutrient volumes increased 10% during the three months ended May 31, 2016,
compared with the three months ended May 31, 2015.

Our renewable fuels revenue from our marketing and production operations
decreased by $13.0 million (3%) during the three months ended May 31, 2016, when
compared with the same period from the previous year. Our lower renewable fuels
revenues were driven by a decrease of $41.7 million due to lower average selling
prices, which was partially offset by $28.7 million of higher sales volumes
during the three months ended May 31, 2016. The lower prices of our renewable
fuels were driven by lower prices of traditional fuels, which was partially
offset by increased sales volumes.

Our Ag segment other product revenues, primarily feed and farm supplies, of $1.2
billion decreased by $85.6 million (6%) during the three months ended May 31,
2016, compared to the three months ended May 31, 2015, primarily the result of a
decrease in our country operations energy product sales and feed sales.

Total revenues also include other revenues generated primarily within our Ag
segment and Corporate and Other. Our Ag segment's country operations elevators
and agri-service centers derive other revenues from activities related to
production agriculture, which include grain storage, grain cleaning, fertilizer
spreading, crop protection spraying and other services of this nature, and our
grain marketing operations receive other revenues at our export terminals from
activities related to loading vessels. Corporate and Other derives revenues
primarily from our financing, hedging and insurance operations.

Cost of Goods Sold. Consolidated cost of goods sold was $7.5 billion for the
three months ended May 31, 2016, compared to $8.4 billion for the three months
ended May 31, 2015, representing a $950.0 million (11%) decrease.

Our Energy segment cost of goods sold, after elimination of intersegment costs,
of $1.1 billion decreased by $429.9 million (28%) during the three months ended
May 31, 2016, compared to the three months ended May 31, 2015. For the three

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months ended May 31, 2016, refined fuels costs decreased $362.0 million (27%),
which was driven by a combination of a $357.6 million decrease in the average
cost of $0.49 (27%) per gallon and a $4.4 million (1%) decrease in volumes when
compared to the three months ended May 31, 2015. Cost of goods sold for propane
decreased $38.9 million (30%), which reflects an average cost decrease of $0.27
(33%) per gallon, partially offset by a 4% increase in volumes, when compared to
the three months ended May 31, 2015.

Our Ag segment cost of goods sold, after elimination of intersegment costs, of
$6.4 billion decreased $517.9 million (8%) during the three months ended May 31,
2016, compared to the three months ended May 31, 2015. Grain cost of goods sold
in our Ag segment totaled $3.6 billion and $4.1 billion during the three months
ended May 31, 2016, and 2015, respectively. The cost of grains and oilseed
procured through our Ag segment decreased $501.8 million (12%) compared to the
three months ended May 31, 2015. This is primarily the result of a 20% decrease
in the average cost per bushel, which was partially offset by an increase in the
bushels sold of 11%, as compared to the same period of the previous year.

Our processing and food ingredients cost of goods sold in our Ag segment of
$383.9 million increased $32.3 million (9%) during the three months ended May
31, 2016, compared to the three months ended May 31, 2015. The net increase is
comprised of an increase in volumes of $361.9 million, partially offset by a
$329.6 million decrease associated with a lower average cost compared to the
three months ended May 31, 2015. Typically, changes in costs are primarily due
to changes in the cost of soybeans purchased. The increase was also due to a
charge associated with reducing certain assets to realizable value of $11.4
million. The increase in volumes sold is partially due to the acquisition of a
canola processing plant in the fourth quarter of fiscal 2015.

Wholesale crop nutrients cost of goods sold in our Ag segment totaled $735.2
million and decreased $114.2 million (13%) during the three months ended May 31,
2016, compared to the three months ended May 31, 2015. The net decrease is
comprised of a decrease in the average cost of fertilizer of $76.16 (21%) per
ton, partially offset by a net 10% increase in the tons sold, when compared to
the same period of the previous year.

Renewable fuels cost of goods sold from our marketing and production operations
decreased $6.4 million (2%) during the three months ended May 31, 2016, due to a
decrease in the average cost per gallon of $0.14 (8%) partially offset by an
increase in volumes sold of 7%, when compared with the same period of the
previous year.

Our Ag segment other product cost of goods sold, primarily feed and farm
supplies, decreased $169.3 million (13%) during the three months ended May 31,
2016, compared to the three months ended May 31, 2015, primarily the result of a
decrease in energy products and feed products.

Our Nitrogen Production segment cost of goods sold included $2.7 million of
income during the three months ended May 31, 2016, with no comparable costs in
the prior year. The cost of goods sold resulted from gains from hedges on
natural gas contracts associated with our investment in CF Nitrogen which was
consummated on February 1, 2016. See Note 4, Investments, to our unaudited
consolidated financial statements included in this Quarterly Report on Form 10-Q
for more information on this investment.

Marketing, General and Administrative. Marketing, general and administrative
expenses of $169.5 million for the three months ended May 31, 2016, increased by
$4.1 million (2%) compared to the three months ended May 31, 2015. This change
was primarily due to a net increase in accounts receivable specific reserves of
$22.0 million partially offset by lower compensation expenses of $15.8 million
which included reducing incentive accruals to reflect estimated company
performance against targets for the full year.


Gain on Investments. Gain on investments for the three months ended May 31, 2016, was $0.7 million compared to no amount for the three months ended May 31, 2015.


Interest, net. Net interest of $26.7 million for the three months ended May 31,
2016, increased $15.9 million compared to the three months ended May 31, 2015.
The majority of the increase was primarily due to higher interest expense of
$18.4 million associated with increased debt balances, as well as lower
capitalized interest of $10.6 million associated with our ongoing capital
projects. These items were partially offset by additional interest income of
$8.2 million and a decrease of $4.9 million in patronage earned by the
noncontrolling interests of NCRA, which is recorded as interest expense as a
result of our previous agreement to purchase the remaining NCRA noncontrolling
interest, which purchase was completed at the beginning of fiscal 2016.

Equity Income from Investments. Equity income from investments of $72.5 million
for the three months ended May 31, 2016, increased $37.7 million compared to the
three months ended May 31, 2015. The increase was primarily related to

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equity earnings recognized from the equity method investment in CF Nitrogen
which was consummated on February 1, 2016. See Note 4, Investments, to our
unaudited consolidated financial statements included in this Quarterly Report on
Form 10-Q for more information. We record equity income or loss primarily from
the 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.

Income Taxes. We recorded an income tax expense of $4.8 million for the three
months ended May 31, 2016, compared with a benefit of $7.3 million for the three
months ended May 31, 2015, resulting in effective tax rates of 2.5% and (4.3%),
respectively. The federal and state statutory rate applied to nonpatronage
business activity was 38.3% and 38.1% for the three months ended May 31, 2016,
and 2015, respectively. The income taxes and effective tax rate vary each year
based upon profitability and nonpatronage business activity during each of the
comparable years.


Comparison of the nine months ended May 31, 2016 and May 31, 2015


General. We recorded income before income taxes of $407.9 million during the
nine months ended May 31, 2016, compared to $696.6 million during the nine
months ended May 31, 2015, a decrease of $288.7 million (41%). Operating results
reflected decreased pretax earnings in our Energy segment and in our Ag segment,
partially offset by increased pretax earnings in Corporate and Other and our new
Nitrogen Production segment which reflects the results of our strategic
investment in CF Nitrogen.

Our Energy segment generated income before income taxes of $239.2 million for
the nine months ended May 31, 2016, compared to $374.6 million for the nine
months ended May 31, 2015, representing a decrease of $135.4 million (36%),
primarily due to significantly reduced refining margins in fiscal 2016. Our
lubricants and transportation businesses also experienced declines while our
propane business earnings increased over the same period versus prior year. We
are subject to the RFS which requires refiners to blend renewable fuels (e.g.,
ethanol, biodiesel) into their finished transportation fuels or purchase
renewable energy credits, identified as RINs, in lieu of blending. The EPA
generally establishes new annual renewable fuels percentage standards for each
compliance year in the preceding year. We generate RINs under the RFS in our
renewable fuels operations and through our blending activities at our terminals,
however 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
extremely volatile. On November 30, 2015, the EPA released the final mandate for
years 2014, 2015, and 2016 resulting in an increase to the price of RINs. This
price increase did not have a material impact on our financial results during
fiscal 2016 or 2015 as it related to our purchases of RINs.

Our Ag segment generated income before income taxes of $62.4 million for the
nine months ended May 31, 2016, compared to $262.0 million in the nine months
ended May 31, 2015, a decrease in earnings of $199.6 million (76%). Our country
operations earnings decreased $61.1 million (38%) primarily due to lower grain
margins during the nine months ended May 31, 2016, compared to the same period
in fiscal 2015. Our processing and food ingredients businesses experienced a
decrease in earnings of $56.8 million (299%) for the nine months ended May 31,
2016, compared to the same period of the previous year, primarily due to a
charge associated with the disposal of assets as well as a charge associated
with a specific customer receivable. Our grain marketing earnings decreased
$38.7 million (142%) during the nine months ended May 31, 2016, compared with
the same period in the prior year, primarily as a result of lower margins.
Earnings from our wholesale crop nutrients business decreased $33.2 million
(86%) for the nine months ended May 31, 2016, compared with the same period in
fiscal 2015, primarily due to decreased margins. Earnings from our renewable
fuels marketing and production operations decreased $5.2 million (43%) for the
nine months ended May 31, 2016, compared with the nine months ended May 31,
2015, primarily due to lower market prices for ethanol. The lower margins
referenced above are the result of the down cycle in the Ag economy previously
discussed which has resulted in reduced commodity prices and lower margins
across the globe.

Nitrogen Production generated income before income taxes of $26.3 million during
the nine months ended May 31, 2016, for which there is no comparable income in
the prior year as the income is due to our equity method investment in CF
Nitrogen which was consummated on February 1, 2016. See Note 4, Investments, to
our unaudited consolidated financial statements included in this Quarterly
Report on Form 10-Q for more information on this investment.

Corporate and Other generated income before income taxes of $80.0 million for
the nine months ended May 31, 2016, compared to $60.0 million during the same
period of the previous year, an increase in earnings of $20.0 million (34%).
This increase was driven by increased revenues of $14.6 million related to
increased hedging and capital volumes and decreased compensation costs of $18.5
million. These increases were partially offset by increased interest expense of
$11.5 million and decreased equity earnings of $2.6 million.


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Net Income attributable to CHS Inc. Consolidated net income attributable to CHS
Inc. for the nine months ended May 31, 2016, was $425.8 million compared to
$649.6 million for the nine months ended May 31, 2015, which represents a $223.8
million (34%) decrease. This significant decrease in profitability is the result
of a down cycle in the Ag and Energy economies which has resulted in reduced
commodity prices and lower margins globally.


Revenues. Consolidated revenues were $22.2 billion for the nine months ended May 31, 2016, compared to $26.6 billion for the nine months ended May 31, 2015, which represents a $4.4 billion (16%) decrease.


Our Energy segment revenues of $3.9 billion, after elimination of intersegment
revenues, decreased by $2.4 billion (38%) during the nine months ended May 31,
2016, compared to the nine months ended May 31, 2015. During the nine months
ended May 31, 2016, and 2015, our Energy segment recorded revenues from sales to
our Ag segment of $250.4 million and $374.6 million, respectively. Refined fuels
revenues decreased $2.1 billion (39%) during the nine months ended May 31, 2016,
of which approximately $1.7 billion related to a decrease in the net average
selling price and $362.1 million related to a decrease in sales volumes,
compared to the same period in the previous year. The sales price of refined
fuels products decreased $0.78 (34%) per gallon, and sales volumes decreased by
7%, when compared to the same nine-month period of the previous year. Propane
revenues decreased $449.9 million (52%), of which $299.8 million was related to
a decrease in the net average selling price and $150.1 million was attributable
to a decrease in volumes. Propane sales volume decreased 17%, and the average
selling price of propane decreased $0.43 (42%) per gallon in comparison to the
same period of the previous year.


Our Ag segment revenues of $18.2 billion, after elimination of intersegment revenues, decreased $2.0 billion (10%) during the nine months ended May 31, 2016, compared to the nine months ended May 31, 2015.


Grain revenues in our Ag segment totaled $11.9 billion and $13.2 billion during
the nine months ended May 31, 2016, and 2015, respectively. Of the grain
revenues decrease of $1.3 billion (10%), approximately $2.8 billion is due to
decreased average grain selling prices, partially offset by a $1.5 billion net
increase in volume (11%) during the nine months ended May 31, 2016, compared to
the same period in the prior year. The average sales price of all grain and
oilseed commodities sold reflected a decrease of 19% per bushel over the same
nine-month period in the previous year.

Our processing and food ingredients revenues in our Ag segment totaled $1.2
billion a decrease of $4.0 million (less than 1%) during the nine months ended
May 31, 2016, compared to the nine months ended May 31, 2015. The net decrease
in revenues is comprised of $485.0 million from a lower average selling price of
our oilseed products, partially offset by an increase of $481.0 million in
volumes compared to the nine months ended May 31, 2015. Typically, changes in
average selling prices of oilseed products are primarily driven by the average
market price of soybeans. The increase in volumes sold is mostly due to the
acquisition of a plant in the fourth quarter of fiscal 2015.

Wholesale crop nutrient revenues in our Ag segment totaled $1.6 billion, which
decreased $283.9 million (15%), during the nine months ended May 31, 2016,
compared to the nine months ended May 31, 2015. Of the decrease noted, $288.6
million was related to lower average fertilizer selling prices, partially offset
by $4.7 million related to higher volumes during the nine months ended May 31,
2016, compared to the same period in the prior year. The average sales price of
all fertilizers sold reflected a decrease of $55.43 (15%) per ton compared with
the same period of the previous year. Our wholesale crop nutrient volumes
increased less than 1% during the nine months ended May 31, 2016, compared with
the same period in the previous year, which reflects a more challenging Ag
economy where producers are being more judicious in their expenditures
associated with crop nutrients.

Our renewable fuels revenue from our marketing and production operations
decreased $192.0 million (15%) during the nine months ended May 31, 2016, when
compared with the same period from the previous year. A decrease of $221.1
million was driven by lower average selling prices, partially offset by an
increase of $29.1 million due to higher sales volumes. The lower average sales
price of our ethanol was impacted by the decline in the price of traditional
fuels.

Our Ag segment other product revenues, primarily feed and farm supplies, of $2.1
billion decreased by $237.4 million during the nine months ended May 31, 2016,
compared to the nine months ended May 31, 2015. The decrease was primarily the
result of decreased country operations retail sales of feed and the decreased
sales price of energy related products.

Total revenues include other revenues generated primarily within our Ag segment
and Corporate and Other. Our Ag segment's country operations elevators and
agri-service centers derive other revenues from activities related to production
agriculture, which include grain storage, grain cleaning, fertilizer spreading,
crop protection spraying and other services of this nature, and our grain
marketing operations receive other revenues at our export terminals from
activities related to loading vessels. Corporate and Other derives revenues
primarily from our financing, hedging and insurance operations.


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Cost of Goods Sold. Consolidated cost of goods sold was $21.4 billion for the
nine months ended May 31, 2016, compared to $25.5 billion for the nine months
ended May 31, 2015, which represents a $4.1 billion (16%) decrease.

Our Energy segment cost of goods sold, after elimination of intersegment costs,
of $3.6 billion decreased by $2.4 billion (40%) during the nine months ended May
31, 2016, compared to the same period of the prior year. The decrease in cost of
goods sold is primarily due to a decrease in the cost of goods purchased for
refined fuels and propane. Refined fuels cost of goods sold decreased $1.7
billion (36%), which reflects a $0.64 (32%) per gallon decrease in the average
cost of refined fuels when compared to the same period of the previous year. The
cost of goods sold related to propane decreased $472.4 million (55%), primarily
from an average cost decrease of $0.47 (46%) per gallon and a 17% decrease in
volumes due to warmer temperatures in fiscal 2016 compared to fiscal 2015.

Our Ag segment cost of goods sold, after elimination of intersegment costs, of
$17.8 billion, decreased $1.8 billion (9%) during the nine months ended May 31,
2016, compared to the same period of the prior year. Grain cost of goods sold in
our Ag segment totaled $11.7 billion and $12.9 billion during the nine months
ended May 31, 2016, and 2015, respectively. The cost of grains and oilseed
procured through our Ag segment decreased $1.2 billion (9%) compared to the nine
months ended May 31, 2015. This is the result of a decrease in the average cost
per bushel of 19%, which was partially offset by 11% higher volumes, for the
nine months ended May 31, 2016, when compared to the same period in the prior
year.

Our processing and food ingredients cost of goods sold in our Ag segment of $1.2
billion increased $21.8 million (2%) during the nine months ended May 31, 2016,
compared to the nine months ended May 31, 2015. The net increase is comprised of
$459.7 million in higher volumes, partially offset by $437.9 million from a
lower average cost of oilseeds purchased for further processing, compared to the
nine months ended May 31, 2015. Changes in cost are typically driven by the
market price of soybeans purchased. The increase in volumes sold is mostly due
to the acquisition of a plant in the fourth quarter of fiscal 2015.

Wholesale crop nutrients cost of goods sold in our Ag segment totaled $1.6
billion and decreased $241.6 million (13%) during the nine months ended May 31,
2016, compared to the same period of the prior year. The decrease is the result
of a 13% lower average cost per ton, partially offset by an increase in volumes
of less than 1%, when compared to the same nine-month period in the prior year.

Renewable fuels cost of goods sold associated with our marketing and production
operations decreased $194.3 million (15%) during the nine months ended May 31,
2016, primarily from a decrease in the average cost per gallon of $0.31 (17%),
partially offset by a 2% increase in volumes, when compared with the same period
of the previous year.

Our Ag segment other product cost of goods sold, primarily feed and farm
supplies, decreased $241.4 million (12%) during the nine months ended May 31,
2016, compared to the nine months ended May 31, 2015, primarily the result of
decreased country operations retail sales of feed and the increased purchase
price of energy related products.

Our Nitrogen Production segment cost of goods sold was $3.0 million during the
nine months ended May 31, 2016, with no comparable costs in the prior year. The
cost of goods sold resulted from hedges on natural gas contracts associated with
our new investment in CF Nitrogen which was consummated on February 1, 2016. See
Note 4, Investments, to our unaudited consolidated financial statements included
in this Quarterly Report on Form 10-Q for more information on this investment.

Marketing, General and Administrative. Marketing, general and administrative
expenses of $502.3 million for the nine months ended May 31, 2016, increased by
$4.2 million (1%) compared to the nine months ended May 31, 2015. This increase
was primarily due to a net increase in the accounts receivable specific reserves
of $17.2 million, partially offset by lower compensation expenses of $10.2
million which included reducing incentive accruals to reflect estimated company
performance against targets for the full year.

Gain on Investments. Gain on investments for the nine months ended May 31, 2016,
was $9.4 million, an increase of $4.3 million (86%) compared to the nine months
ended May 31, 2015. The increase was related to gains on bond transactions
specific to our international operations.

Interest, net. Net interest of $49.4 million for the nine months ended May 31,
2016, increased $5.9 million compared to the same period of the previous year.
The increase is the net impact of lower capitalized interest of $14.4 million
and higher interest expense of $30.1 million associated with increased debt
balances in the current year. These items were partially offset by higher
interest income of $14.8 million in the current year and patronage in the prior
year associated with the noncontrolling interest of NCRA of $23.8 million which
didn't occur in the current year.


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Equity Income from Investments. Equity income from investments of $131.8 million
for the nine months ended May 31, 2016, increased $48.3 million (58%) compared
to the nine months ended May 31, 2015. The increase was primarily related to
equity earnings recognized from our equity method investment in CF Nitrogen. See
Note 4, Investments, to our unaudited consolidated financial statements included
in this Quarterly Report on Form 10-Q for more information on this investment.
We record equity income or loss from the 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.

Income Taxes. We recorded an income tax benefit of $17.8 million for the nine
months ended May 31, 2016, compared to an income tax expense of $47.6 million
for the nine months ended May 31, 2015, resulting in effective tax rates of
(4.4%) and 6.8%, respectively. The tax benefit for the nine months ended May 31,
2016, is primarily due to a settlement with the Internal Revenue Service on a
certain tax item during the year. The federal and state statutory rate applied
to nonpatronage business activity was 38.3% and 38.1% for the nine-month periods
ended May 31, 2016, and 2015, respectively. The income taxes and effective tax
rate vary each year based upon profitability and nonpatronage business activity
during each of the comparable years.



Liquidity and Capital Resources


In assessing our financial condition, we consider factors such as working
capital and internal benchmarking related to our applicable financial covenants.
We fund our operations through a combination of cash flows from operations and
revolving credit facilities. We fund our capital expenditures and growth
primarily through long-term debt financing and issuance of preferred stock.

On May 31, 2016, we had working capital, defined as current assets less current
liabilities, of $825.5 million and a current ratio, defined as current assets
divided by current liabilities, of 1.1 compared to working capital of $2.8
billion and a current ratio of 1.5 on August 31, 2015. The decrease in working
capital was driven primarily by reduced cash levels and by increased short-term
borrowings used to finance working capital that had previously been supported on
an interim basis by preferred stock proceeds. The cash and extracted preferred
stock proceeds were used to fund part of the $2.8 billion investment in CF
Nitrogen that was consummated on February 1, 2016. On May 31, 2015, we had
working capital of $3.3 billion and a current ratio of 1.6 compared to working
capital of $3.2 billion and a current ratio of 1.5 on August 31, 2014.

As of May 31, 2016, we had cash and cash equivalents of $346.4 million, total
equities of $7.9 billion, long-term debt of $2.6 billion and notes payable of
$3.3 billion. Our capital allocation priorities include maintaining our assets,
paying our dividends, returning cash to our member-owners in the form of
patronage refunds, paying down funded debt, taking advantage of strategic
opportunities and investing to benefit our owners. Our primary sources of cash
for the nine months ended May 31, 2016 were net cash flows from operations and
proceeds from lines of credit and long-term borrowings. The primary uses of cash
during that period were payments on indebtedness, our investment in CF Nitrogen,
capital expenditures, the distribution of patronage refunds and preferred stock
dividends. We believe that cash generated by operating activities, along with
available borrowing capacity under our revolving credit facilities, will be
sufficient to support our operations for the next 12 months.

For fiscal 2016, we expect total capital expenditures to be approximately $836.5
million. Included in that amount is approximately $384.9 million for the
acquisition of property, plant and equipment and major repairs at our Laurel,
Montana and McPherson, Kansas refineries. That amount includes the remaining
expenditures for our multi-year, $583.6 million project to replace a coker at
our McPherson refinery. We incurred $167.4 million of costs related to the coker
project in fiscal 2015 and $44.3 million during the first three quarters of
fiscal 2016 and placed the coker into service in February 2016. We also began a
$368.5 million expansion at the McPherson refinery during the year ended August
31, 2013, which is anticipated to be completed in early fiscal 2017. We incurred
$159.2 million of costs related to the expansion during the year ended August
31, 2015, and $36.7 million during the first three quarters of fiscal 2016.

On February 1, 2016, we invested $2.8 billion in CF Nitrogen, commencing our
strategic venture with CF Industries Holdings, Inc. The investment consists of
an 11.4% membership interest (based on product tons) in CF Nitrogen; and an
associated 80-year supply agreement that entitles us to purchase up to 1.1
million tons of granular urea and 580,000 tons of urea ammonium nitrate annually
from CF Nitrogen for ratable delivery. The investment was financed through the
issuance of long-term debt in combination with borrowings under existing credit
facilities and available cash.

As discussed previously, our business is cyclical and the Ag and Energy
industries have fallen off their peaks and entered into a down cycle. We are
unable to predict how long this down cycle will last or how severe it may be.
During this

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period, we are focusing on optimizing working capital, freeing cash to reduce
our funded debt and plan to reduce our capital investments for the remainder of
fiscal 2016, through fiscal 2017 and into 2018.

As of August 31, 2015, we had a five-year, unsecured revolving credit facility
with a syndication of domestic and international banks and a committed amount of
$2.5 billion that would have expired in June 2018, which had no amounts
outstanding. In September 2015, this facility was amended and restated. As a
result, this facility now has a committed amount of $3.0 billion and expires in
September 2020. As of May 31, 2016 we had $950.0 million outstanding under this
facility. The financial covenants for the revolving facility require us to
maintain a minimum consolidated net worth, adjusted as defined in the credit
agreement relating to this facility, of $3.5 billion and a consolidated funded
debt to consolidated cash flow ratio of no greater than 3.50 to 1.00. The term
consolidated cash flow is principally our earnings before interest, taxes,
depreciation and amortization ("EBITDA") with adjustments as defined in the
credit agreement relating to this facility. A third financial ratio does not
allow our adjusted consolidated funded debt to consolidated net worth to exceed
0.80 to 1.00 at the end of each fiscal quarter. As of May 31, 2016, we were in
compliance with all of these covenants.

In December 2015, we entered into three bilateral, uncommitted revolving credit
facilities with an aggregate capacity of $1.3 billion. Amounts borrowed under
these short-term lines are used primarily to fund our working capital and bear
interest at base rates (or LIBOR rates) plus applicable margins ranging from
0.25% to 1.00%. As of May 31, 2016, outstanding borrowings under the facilities
were $858.5 million.

In addition, our wholly owned subsidiary, CHS Capital, LLC ("CHS Capital"),
makes seasonal and term loans to member cooperatives, businesses and individual
producers of agricultural products included in our cash flows from investing
activities, and has its own financing explained in further detail below under
"Cash Flows from Financing Activities."

Cash Flows from Operations

Cash flows provided by operations are generally affected by commodity prices and
the seasonality of our businesses. These commodity prices are influenced by a
wide range of factors beyond our control, including weather, crop conditions,
drought, the availability and the adequacy of supply and transportation,
government regulations and policies, world events, and general political and
economic conditions. These factors may affect net operating assets and
liabilities and liquidity.

Cash flows provided by operating activities were $262.4 million for the nine
months ended May 31, 2016, compared to cash flows used in operating activities
of $26.5 million for the nine months ended May 31, 2015. The difference in cash
flows when comparing the two periods is primarily driven by significantly
decreased cash outflows associated with changes in net operating assets and
liabilities in fiscal 2016 when compared to the same period in fiscal 2015,
partially offset by a decrease in net income in fiscal 2016 compared to fiscal
2015.

Our operating activities generated net cash of $262.4 million during the nine
months ended May 31, 2016. The cash provided by operating activities resulted
from net income of $425.7 million and net non-cash expenses and distributions
from equity investments of $246.9 million, partially offset by a decrease in
cash flows due to changes in net operating assets and liabilities of $410.2
million. The primary components of net non-cash expenses and cash distributions
from equity investments included depreciation and amortization, including
amortization of major repair costs, of $380.0 million, partially offset by net
equity investment activity of $56.4 million and gains on our crack spread
contingent consideration liability of $51.3 million. The decrease in cash flows
from changes in net operating assets and liabilities was caused primarily by an
increase in grain and oilseed inventory and supplier advances, partially offset
by a decrease in receivables. Grain and oilseed inventory increases were driven
by increases in volumes on hand (7% increase primarily due to decreased demand
for grain exports) combined with increasing commodity prices. On May 31, 2016,
the per-bushel market prices of wheat, soybeans and corn had increased by $0.24
(5%), $1.81 (20%), and $0.13 (3%), respectively, when compared to spot prices on
August 31, 2015. Comparing the same periods, fertilizer commodity prices
affecting our wholesale crop nutrients and country operations retail businesses
experienced decreases ranging from 9% to 36%, depending on the product.
Additionally, crude oil market prices decreased by $0.10 (0.2%) per barrel from
August 31, 2015, to May 31, 2016.

Our operating activities used net cash of $26.5 million during the nine months
ended May 31, 2015. The cash used in operating activities resulted from a
decrease in cash flows due to changes in net operating assets and liabilities of
$953.9 million, partially offset by net income of $649.1 million and net
non-cash expenses and cash distributions from equity investments of $278.3
million. The primary components of net non-cash expenses and cash distributions
from equity investments included depreciation and amortization, including
amortization of major repair costs, of $286.1 million and deferred taxes of
$29.8 million, partially offset by net equity investment activity of $21.1
million. The decrease in cash flows from changes in net operating assets and
liabilities was caused primarily by decreases in accounts payable and accrued
expenses and increases in grain and oilseed inventory (34% increase related to
an above average fall harvest) and supplier

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advance payments from August 31, 2014, to May 31, 2015. Increases in inventory
quantities were partially offset by decreases in certain commodity prices on
May 31, 2015, compared to August 31, 2014. On May 31, 2015, the per bushel
market prices of wheat, soybeans and corn decreased by $0.84 (14%), $1.55 (14%),
and $0.08 (2%), respectively, when compared to spot prices on August 31, 2014.
Comparing the same periods, fertilizer commodity prices affecting our wholesale
crop nutrients and country operations retail businesses generally decreased or
increased slightly depending upon the product, with the exception of urea, which
had a more significant price decrease of approximately 22%. Additionally, crude
oil market prices decreased by $36 (37%) per barrel from August 31, 2014 to
May 31, 2015.

Operating cash needs have historically been the lowest during our fourth fiscal quarter when, by this time, we have sold a large portion of our seasonal agronomy-related inventories in our Ag segment operations and continue to collect cash from the related receivables. We cannot ensure this historical trend will continue. We believe that we have adequate capacity through our current cash balances and committed credit facilities to meet any likely increase in net operating assets and liabilities.

Cash Flows from Investing Activities

For the nine months ended May 31, 2016, and 2015, the net cash used in our investing activities totaled $3.6 billion and $1.3 billion, respectively.

We acquired property, plant and equipment totaling $557.7 million and $858.5 million during the nine months ended May 31, 2016, and 2015, respectively.

For the nine months ended May 31, 2016, and 2015, turnaround expenditures were
$19.3 million and $130.3 million, respectively. Refineries have planned major
maintenance to overhaul, repair, inspect and replace process materials and
equipment which typically occur for a five-to-six week period every
two-to-four years.

Cash paid to acquire businesses, net of cash acquired, totaled $10.1 million and
$8.9 million for the nine months ended May 31, 2016, and 2015, respectively.
These acquisitions were in our Ag segment.

Investments in joint ventures and other entities during the nine months ended
May 31, 2016, and 2015, totaled $2.8 billion and $57.6 million, respectively.
The primary driver of the increase in fiscal 2016 compared to 2015 is our $2.8
billion investment in CF Nitrogen that was consummated on February 1, 2016. See
Note 4, Investments, to our unaudited consolidated financial statements included
in this Quarterly Report on Form 10-Q for more information regarding the CF
Nitrogen investment.

Changes in notes receivable during the nine months ended May 31, 2016, and 2015
resulted in net decreases in cash flows of $239.9 million and $116.6 million,
respectively. The primary cause of the change in cash flows during both periods
relates to changes in CHS Capital notes receivable.

Cash Flows from Financing Activities

For the nine months ended May 31, 2016, and 2015, our financing activities
provided net cash of $2.7 billion and $316.1 million, respectively. The primary
driver of the increase in fiscal 2016 compared to 2015 is increased borrowings
used to finance our $2.8 billion investment in CF Nitrogen on February 1, 2016.

Working Capital Financing:

We finance our working capital needs through lines of credit with domestic and
international banks. On May 31, 2016, and August 31, 2015, we had total
short-term indebtedness outstanding on the various facilities described below
and other miscellaneous short-term notes payable of $2.7 billion and $813.7
million, respectively.

On May 31, 2016, we had a five-year, unsecured revolving credit facility,
expiring in September 2020, with a committed amount of $3.0 billion, of which
$950.0 million was outstanding. In December 2015, we entered into three
bilateral, uncommitted revolving credit facilities with an aggregate capacity of
$1.3 billion. Amounts borrowed under these short-term lines are used primarily
to fund our working capital and bear interest at base rates (or LIBOR rates)
plus applicable margins ranging from 0.25% to 1.00%. As of May 31, 2016,
outstanding borrowings under these facilities were $858.5 million.

In addition to our primary revolving credit facilities, we have a three-year $250.0 million committed revolving pre-export credit facility for CHS Agronegocio Industria e Comercio Ltda ("CHS Agronegocio"), a wholly owned subsidiary, to

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provide financing for its working capital needs arising from its purchases and
sales of grains, fertilizers and other agricultural products which expires in
October 2016. The outstanding balance on this facility was $180.0 million as of
May 31, 2016.

In April 2016, CHS Agronegocio entered into a new three-year, $325.0 million
committed revolving pre-export credit facility as a successor to the
aforementioned $250.0 million credit facility. This facility will be used to
provide financing for its working capital needs arising from its purchases and
sales of grains, fertilizers and other agricultural products and expires in
April 2019. In conjunction with entering into this facility, CHS Agronegocio
agreed not to request additional advances under the $250.0 million facility. The
amount available at closing under the new facility was $325.0 million and as of
May 31, 2016, the outstanding balance was $130.0 million.

As of May 31, 2016, CHS Agronegocio also had uncommitted lines of credit with
$190.4 million outstanding. In addition, our other international subsidiaries
had uncommitted lines of credit with a total of $365.6 million outstanding at
May 31, 2016, of which $123.7 million was collateralized.

We have two uncommitted commercial paper programs with an aggregate capacity of
$125.0 million, with two banks participating in our revolving credit facilities.
Terms of our revolving credit facilities do not allow them to be used to pay
principal under a commercial paper facility. On May 31, 2016, and August 31,
2015, we had no commercial paper outstanding.

CHS Capital Financing:

Cofina Funding, LLC ("Cofina Funding"), a wholly owned subsidiary of CHS
Capital, had commitments totaling $350.0 million as of May 31, 2016, under note
purchase agreements with various purchasers, through the issuance of short-term
notes payable. CHS Capital sells eligible commercial loans receivable it has
originated to Cofina Funding, which are then pledged as collateral under the
note purchase agreements. The notes payable issued by Cofina Funding bear
interest at variable rates based on commercial paper with a weighted average
rate of 1.36% as of May 31, 2016. Borrowings by Cofina Funding utilizing the
issuance of commercial paper under the note purchase agreements totaled $203.0
million as of May 31, 2016.

   CHS Capital has available credit under master participation agreements with
numerous counterparties. Borrowings under these agreements are accounted for as
secured borrowings and bear interest at variable rates ranging from 1.88% to
2.44% as of May 31, 2016. As of May 31, 2016, the total funding commitment under
these agreements was $136.0 million, of which $48.8 million was borrowed.

CHS Capital sells loan commitments it has originated to ProPartners Financial
("ProPartners") on a recourse basis. The total capacity for commitments under
the ProPartners program is $265.0 million. The total outstanding commitments
under the program totaled $265.0 million as of May 31, 2016, of which $265.0
million was borrowed with an interest rate of 1.65%.

CHS Capital borrows funds under short-term notes issued as part of a surplus
funds program. Borrowings under this program are unsecured and bear interest at
variable rates ranging from 0.10% to 0.90% as of May 31, 2016, and are due upon
demand. Borrowings under these notes totaled $128.4 million as of May 31, 2016.

Long-term Debt Financing:

We maintain long-term debt agreements with various insurance companies and banks
to finance certain of our long-term capital needs, primarily those related to
the acquisition or development of property, plant and equipment.

On May 31, 2016, we had total long-term debt outstanding of $2.6 billion, of
which $1.8 billion was private placement debt, $660.4 million was bank
financing, $111.7 million was capital lease obligations and $79.6 million was
other notes and contracts payable. On August 31, 2015, we had total long-term
debt outstanding of $1.4 billion. Our long-term debt is unsecured except for
other notes and contracts in the amount of $0.3 million; however, restrictive
covenants under various agreements have requirements for maintenance of minimum
consolidated net worth and other financial ratios. We were in compliance with
all of these debt covenants and restrictions as of May 31, 2016.


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In September 2015, we entered into a ten-year term loan with a syndication of
lenders. The agreement provides for committed term loans in an amount up to
$600.0 million, which may be drawn down from time to time, but in no event on
more than 10 occasions, from September 4, 2015 until September 4, 2016. Amounts
drawn under this agreement that are subsequently repaid or prepaid may not be
reborrowed. Principal on the term loans is payable in full on September 4, 2025.
Borrowings under the agreement bear interest at a base rate (or a LIBOR rate)
plus an applicable margin, or at a fixed rate of interest determined and quoted
by the administrative agent under the agreement in its sole and absolute
discretion from time to time. The applicable margin is based on our leverage
ratio and ranges between 1.50% and 2.00% for LIBOR loans and between 0.50% and
1.00% for base rate loans. As of May 31, 2016, $600.0 million was outstanding
under this agreement.

In June 2016, we amended the ten-year term loan so that $300.0 million of the
$600.0 million loan balance possesses a revolving feature, whereby we can pay
down and re-advance an amount up to the referenced $300.0 million. The revolving
feature matures on September 1, 2017, and the total funded loan balance on that
day reverts to a non-revolving term loan. No other material changes were made to
the original terms and conditions of the ten-year term loan.

In January 2016, we consummated a private placement of long-term notes in the
aggregate principal amount of $680.0 million with certain accredited investors,
which long-term notes are layered into six series. The first series of $152.0
million has an interest rate of 4.39% and is due in January 2023. The second
series of $150.0 million has an interest rate of 4.58% and is due in January
2025. The third series of $58.0 million has an interest rate of 4.69% and is due
in January 2027. The fourth series of $95.0 million has an interest rate of
4.74% and is due in January 2028. The fifth series of $100.0 million has an
interest rate of 4.89% and is due in January 2031. The sixth series of $125.0
million has an interest rate of 5.40% and is due in January 2036.

During the nine months ended May 31, 2016, and 2015, we repaid long-term debt of $220.1 million and $155.3 million, respectively.

Other Financing:

During the nine months ended May 31, 2016, and May 31, 2015, pursuant to our
agreement to acquire the remaining noncontrolling interests in CHS McPherson
Refinery, Inc. (formerly National Cooperative Refinery Association), we made
payments of $153.0 million and $66.0 million, respectively, increasing our
ownership to 100.0% in fiscal 2016.

Changes in checks and drafts outstanding resulted in an increase in cash flows
of $1.7 million and a decrease in cash flows of $59.0 million during the nine
months ended May 31, 2016, and 2015, respectively.

In accordance with our bylaws and by action of the Board of Directors, annual
net earnings from patronage sources are distributed to consenting patrons
following the close of each fiscal year. Patronage refunds are calculated based
on amounts using financial statement earnings. The cash portion of the patronage
distribution is determined annually by the Board of Directors, with the balance
issued in the form of qualified and/or non-qualified capital equity
certificates. Consenting patrons have agreed to take both the cash and qualified
capital equity certificate portion allocated to them from our previous fiscal
year's income into their taxable income; and as a result, we are allowed a
deduction from our taxable income for both the cash distribution and the
allocated qualified capital equity certificates, as long as the cash
distribution is at least 20% of the total qualified patronage distribution.
Patronage earnings from the year ended August 31, 2015 were distributed during
the nine months ended May 31, 2016. The cash portion of this distribution,
deemed by the Board of Directors to be 40%, was $253.2 million. During the nine
months ended May 31, 2015, we distributed cash patronage of $277.0 million.

Redemptions of capital equity certificates approved by the Board of Directors
are divided into two pools, one for non-individuals (primarily member
cooperatives) who may participate in an annual retirement program for qualified
equities held by them and another for individuals who are eligible for equity
redemptions at age 70 or upon death. Beginning with fiscal 2016 patronage (for
which distributions will be made in fiscal 2017), individuals will also be able
to participate in an annual retirement program similar to the one that was
previously only available to non-individual members. In accordance with
authorization from the Board of Directors, we expect total redemptions related
to the year ended August 31, 2015, that will be redeemed in fiscal 2016, to be
approximately $107.3 million, of which $17.1 million was redeemed in cash during
the nine months ended May 31, 2016, compared to $114.0 million redeemed in cash
during the nine months ended May 31, 2015.

On March 31, 2016, we issued an additional 2,693,195 shares of Class B Series 1
Preferred Stock to redeem approximately $76.8 million of qualified equity
certificates to eligible owners. Each share of Class B Series 1 Preferred Stock
was issued in redemption of $28.50 of qualified equity certificates.


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The following is a summary of our outstanding preferred stock as of May 31, 2016, all of which are listed on the Global Select Market of NASDAQ:

                                                                                                      Dividend    Redeemable
                                                       Shares                            Dividend      payment    beginning
                    NASDAQ symbol   Issuance date    outstanding    Redemption value   rate (a) (b)   frequency      (c)
                                                                       (Dollars in
                                                                        millions)
8% Cumulative
Redeemable              CHSCP                 (d)    12,272,003     $        306.8       8.000 %      Quarterly    7/18/2023
Class B
Cumulative
Redeemable Series
1                       CHSCO                 (e)    20,764,558     $        519.1       7.875 %      Quarterly    9/26/2023
Class B Reset
Rate Cumulative
Redeemable Series
2                       CHSCN           3/11/2014    16,800,000     $        420.0       7.100 %      Quarterly    3/31/2024
Class B Reset
Rate Cumulative
Redeemable Series
3                       CHSCM           9/15/2014    19,700,000     $        492.5       6.750 %      Quarterly    9/30/2024
Class B
Cumulative
Redeemable Series
4                       CHSCL           1/21/2015    20,700,000     $        517.5       7.500 %      Quarterly    1/21/2025



(a)    The Class B Series 2 Preferred Stock accumulates dividends at a rate of
       7.10% per year until March 31, 2024, and then at a rate equal to the

three-month LIBOR plus 4.298%, not to exceed 8.00% per annum, subsequent

       to March 31, 2024.


(b)    The Class B Series 3 Preferred Stock accumulates dividends at a rate of
       6.75% per year until September 30, 2024, and then at a rate equal to the

three-month LIBOR plus 4.155%, not to exceed 8.00% per annum, subsequent

       to September 30, 2024.


(c)    Preferred stock is redeemable for cash at our option, in whole or in part,
       at a per share price equal to the per share liquidation preference of
       $25.00 per share, plus all dividends accumulated and unpaid on that share
       to and including the date of redemption, beginning on the dates set forth
       in this column.


(d)  The 8% Preferred Stock was issued at various times from 2003-2010.


(e)    11,319,175 shares of Class B Series 1 Preferred Stock were issued on
       September 26, 2013; 6,752,188 shares were issued on August 25, 2014; and
       an additional 2,693,195 shares were issued on March 31, 2016.


Dividends paid on our preferred stock during the nine months ended May 31, 2016, and 2015 were $121.5 million and $93.2 million, respectively.

Off Balance Sheet Financing Arrangements

Operating Leases

Our minimum future lease payments required under noncancelable operating leases
presented in 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, 2015, have not materially changed during the nine months ended
May 31, 2016.

Guarantees

We are a guarantor for lines of credit and performance obligations of related
companies. As of May 31, 2016, our bank covenants allowed maximum guarantees of
$1.0 billion, of which $114.4 million were outstanding. We have collateral for a
portion of these contingent obligations. We have not recorded a liability
related to the contingent obligations as we do not expect to pay out any cash
related to them, and the fair values are considered immaterial. The underlying
loans to the counterparties for which we provide guarantees were current as of
May 31, 2016.

Debt

We have no material off balance sheet debt.

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Contractual Obligations

Our contractual obligations presented in 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, 2015, have not materially changed during the nine
months ended May 31, 2016.


Critical Accounting Policies

Our critical accounting policies presented in 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, 2015, have not materially changed
during the nine months ended May 31, 2016.


Effect of Inflation and Foreign Currency Transactions

We believe that inflation and foreign currency fluctuations have not had a material effect on our operations since we conduct an insignificant portion of our business in foreign currencies.

Recent Accounting Pronouncements

See Note 1, Organization, Basis of Presentation and Significant Accounting Policies, to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of the recent accounting pronouncements that are applicable to us.

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Source: Equities.com News (July 7, 2016 - 12:00 PM EDT)

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