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CHS INC (CHSCP)
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CHS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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11/09/2017 | 11:20pm CET
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide a reader of our financial statements
with a narrative from the perspective of our management on our financial
condition and results of operations, liquidity and certain other factors that
may affect our future results. Our MD&A is presented in the following sections:

• Overview


• Business Strategy


• Fiscal 2017 Highlights


• Fiscal 2018 Priorities


• Fiscal 2018 Trends


• Results of Operations

• Liquidity and Capital Resources

• Off Balance Sheet Financing Arrangements

• Contractual Obligations

• Critical Accounting Estimates

• New Accounting Pronouncements




Our MD&A should be read in conjunction with the accompanying audited financial
statements and notes to those financial statements and the cautionary statement
regarding forward-looking statements found in Part I, Item 1A of this Annual
Report on Form 10-K.

Overview

CHS Inc. is a diversified company that provides grain, foods and energy
resources to businesses and consumers on a global scale. 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 NASDAQ Global Select Market. We
operate in the following four reportable segments:

• Energy Segment - produces and provides primarily for the wholesale

distribution of petroleum products and transportation of those products.

• Ag Segment - purchases and further processes or resells grains and

oilseeds originated by our country operations business, by our member

       cooperatives and by third parties and also serves as a wholesaler and
       retailer of crop inputs.


•      Nitrogen Production Segment - consists solely of our equity method
       investment in CF Nitrogen and produces and distributes nitrogen
       fertilizer, a commodity chemical.

• Foods Segment - consists solely of our equity method investment in Ventura

       Foods and is a processor and distributor of edible oils used in food
       preparation and a packager of food products.



In addition, other operating activities, primarily our non-consolidated wheat
milling joint venture, as well as our business solutions operations that consist
of commodities hedging, insurance and financial services related to crop
production, have been aggregated within Corporate and Other.

The consolidated financial statements include the accounts of CHS and all of our
wholly-owned and majority-owned subsidiaries and limited liability companies.
The effects of all significant intercompany transactions have been eliminated.

Corporate administrative expenses and interest are allocated to each reporting
segment, along with Corporate and Other, based on direct usage for services that
can be tracked, such as information technology and legal and other factors or
considerations relevant to the costs incurred.

Management's Focus. When evaluating our operating performance, management
focuses on gross profit and income before income taxes. As a company that
operates heavily in commodities, there is significant unpredictability and
volatility in pricing and costs. As such, we focus on managing the margin we can
receive and the resulting income before income taxes. Management also focuses on
ensuring the strength of the balance sheet through the appropriate management of
liquidity, working capital, capital deployment, capital resources and overall
leverage.

Seasonality. Many of our business activities are highly seasonal and our operating results vary throughout the year. Our revenues and income are generally lowest during the second and fourth fiscal quarters and highest during the first and third

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fiscal quarters. 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 by our agricultural producers 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. The graphs below depict the seasonality inherent in our
business. It should be noted the third quarter of fiscal 2017 was impacted by
significant charges that caused income (loss) before income taxes for that
period to deviate from historical trends. The nature of these charges is further
discussed in the "Reserve and Impairment Charges" area of the Results of
Operations section that follows.
                      [[Image Removed: revenuechart.jpg]]
                        [[Image Removed: ibitchart.jpg]]

Pricing. Our revenues, assets and cash flows can be significantly affected by
global market prices for commodities such as petroleum products, natural gas,
grains, oilseed products and crop nutrients. 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, availability/adequacy
of supply of the related commodity, government regulations/policies, world
events and general political/economic conditions.

Business Strategy

Our business strategy is to help our owners grow by maximizing the return on our assets and rationalizing our various operations to ensure that our core businesses are strategically positioned today and for future growth. Specifically, we are

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improving efficiency and, when necessary, disposing of assets that that are not
strategic and/or do not meet our internal measurement expectations. We also
continue to focus on maintaining a strong balance sheet and are prepared to
optimize our financial results throughout the agriculture and energy economic
cycles.

Fiscal 2017 Highlights

• Solid business fundamentals as we realized volume increases in both our Ag

       and Energy segments.


•      Margins continued to be challenged compared to historical results;
       however, we did see improvements in our Ag business.


•      Significant specific losses associated with a single producer loan loss
       and a key partner in Brazil both had a material impact to earnings.


•      Management completed a full asset portfolio review resulting in
       impairments and the movement of certain assets to held for sale
       classification.

• Began initiative to restore financial flexibility by actively managing

       expenses, reducing debt balances, and optimizing working capital and our
       asset portfolio.



Fiscal 2018 Priorities

• Strengthening our relationships with all key stakeholders including

owners, customers, suppliers and employees.

• Sharpening our operational excellence with a focus on our risk management

practices, safety, the implementation of an enterprise resource planning

system and leveraging the enterprise through centers of excellence.

• Continue initiative to restore financial flexibility as discussed above.




Fiscal 2018 Trends

Our business is cyclical and the Ag and Energy industries are currently in an
environment characterized by reduced commodity prices, lower margins, reduced
liquidity and increased leverage. We are unable to predict how long this current
environment will last or how severe it will ultimately be; however, at this
time, we do not foresee significant changes to this environment during fiscal
2018. During this period, we expect our revenues, margins and cash flows to
continue to be under pressure.


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Results of Operations

Consolidated Statements of Operations

                                                          For the Years Ended August 31
                                                      2017             2016             2015
                                                              (Dollars in thousands)
Revenues                                         $ 31,934,751     $ 30,347,203     $ 34,582,442
Cost of goods sold                                 30,985,510       29,387,910       33,091,676
Gross profit                                          949,241          959,293        1,490,766
Marketing, general and administrative                 604,359          601,261          642,309
Reserve and impairment charges                        456,679           47,836          133,045
Operating earnings (loss)                            (111,797 )        310,196          715,412
(Gain) loss on investments                              4,569           (9,252 )         (5,239 )
Interest expense                                      171,239          113,704           70,659
Other (income) loss                                   (95,415 )        (38,357 )        (10,326 )
Equity (income) loss from investments                (137,338 )       (175,777 )       (107,850 )
Income (loss) before income taxes                     (54,852 )        419,878          768,168
Income tax expense (benefit)                         (182,075 )         (4,091 )        (12,165 )
Net income (loss)                                     127,223          423,969          780,333
Net income (loss) attributable to noncontrolling
interests                                                (634 )           (223 )           (712 )

Net income (loss) attributable to CHS Inc. $ 127,857 $ 424,192 $ 781,045




The charts below detail fiscal 2017 revenues and income (loss) before income
taxes by reportable segment. Our Nitrogen Production and Foods reportable
segments represent equity methods investments, and as such record earnings and
allocated expenses but not revenue.
                   [[Image Removed: segmentrevenuechart.jpg]]
                       [[Image Removed: segmentibit.jpg]]
 * Includes $441.3 million of charges discussed in the "Reserve and Impairment
                  Charges" area of this Results of Operations.


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Income (Loss) Before Income Taxes by Segment

Energy

                                For the Years Ended August 31               2017 vs. 2016              2016 vs. 2015
                              2017            2016          2015         $ 

Change % Change $ Change % Change

                                                              (Dollars in 

thousands)

Income (loss) before
income taxes             $   76,872        $ 275,443     $ 538,131     $ 

(198,571 ) (72.1 )% $ (262,688 ) (48.8 )%




The following table and commentary present the primary reasons for the changes
in income (loss) before income taxes ("IBIT") for the Energy segment for each of
the years ended August 31, 2017, and 2016, compared to the prior year:
                                      2017 vs. 2016     2016 vs. 2015
                                           (Dollars in millions)
Volume                               $          16     $         (40 )
Price                                         (125 )            (241 )
Other*                                         (29 )              (3 )
Impairment charges+                            (33 )               -
Non-gross profit related activity+             (28 )              21

Total change in Energy IBIT $ (199 ) $ (263 )

* Other includes retail and non-commodity type activities. + See commentary related to these changes in the marketing, general and administrative expenses, reserve and impairment charges, (gain) loss on investments, interest expense, other income (loss) and equity (income) loss from investments sections of this Results of Operations.

Comparison of Energy segment IBIT for the years ended August 31, 2017, and 2016


The $198.6 million decrease in the Energy segment IBIT for fiscal 2017 reflects
the following:
•      Significantly reduced margins within refined fuels, caused by the
       continued down cycle in the energy industry, driving prices lower,
       partially offset by increases in propane margins driven by certain
       manufacturing changes.


•      These decreases were partially offset by higher demand for energy

products, which caused volumes to increase (most significantly in refined

       fuels).


•      A $32.7 million impairment charge associated with the cancellation of a
       capital project during fiscal 2017.

• 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, 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. 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
       volatile. On November 23, 2016, the EPA released the final mandate for
       year 2017, and as a result the market price for RINs increased in our
       first fiscal quarter. Subsequent changes in the price of RINs had no
       material impact on our financial results.


Comparison of Energy segment IBIT for the years ended August 31, 2016, and 2015


The $262.7 million decrease in the Energy segment IBIT for fiscal 2016 reflects
the following:
•      Significantly reduced margins within refined fuels, caused by the down
       cycle in the energy industry.


•      Reduced demand for energy products that caused volumes to decrease (most
       significantly in refined fuels).

• On November 30, 2015, the EPA released the final renewable fuel percentage

standards mandate for years 2016 and 2015 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.










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Ag
                               For the Years Ended August 31              2017 vs. 2016              2016 vs. 2015
                              2017           2016         2015         $ Change     % Change      $ Change     % Change
                                                             (Dollars in thousands)
Income (loss) before
income taxes             $   (230,853 )   $ 30,936     $ 149,648     $

(261,789 ) (846.2 )% $ (118,712 ) (79.3 )%

The following table and commentary present the primary reasons for the changes in IBIT for the Ag segment for each of the years ended August 31, 2017, and 2016, compared to the prior year:

                                      2017 vs. 2016     2016 vs. 2015
                                           (Dollars in millions)
Volume                               $          13     $         116
Price                                          447              (464 )
Other*                                        (359 )             110
Impairment charges+                           (441 )              90
Non-gross profit related activity+              78                29
Total change in Ag IBIT              $        (262 )   $        (119 )


* Other includes retail and non-commodity type activities. + See commentary related to these changes in the marketing, general and administrative expenses, reserve and impairment charges, (gain) loss on investments, interest expense, other income (loss) and equity (income) loss from investments sections of this Results of Operations.

Comparison of Ag segment IBIT for the years ended August 31, 2017, and 2016

The $261.8 million decrease in Ag segment IBIT for fiscal 2017 reflects the following: • Our grain marketing IBIT decreased primarily due to charges of $229.4

million associated with a trading partner in our Brazilian operations

entering bankruptcy-like proceedings under Brazilian law. Grain marketing

also experienced impairments within certain international investments of

       $20.2 million due to persistent underperformance, partially offset by
       higher grain volumes and associated margins.

• Country operations IBIT decreased primarily due to changes in reserves

related to a single producer borrower of $81.0 million along with $30.4

million of long-lived asset impairments, which were significantly offset

by higher grain margins and volumes.

• A decrease in processing and food ingredients IBIT primarily caused by

long-lived asset impairment charges of $80.1 million that exceeded the

prior year's non-recurring bad debt charge related to a specific customer.

Higher margins offset this decrease.

• Crop nutrients IBIT increased, driven by higher volumes and associated

margins.

• Increased IBIT in renewable fuels marketing and production operations

primarily resulting from higher margins.

Comparison of Ag segment IBIT for the years ended August 31, 2016, and 2015

The $118.7 million decrease in Ag segment IBIT for fiscal 2016 reflects the following: • Country operations IBIT decreased, driven primarily by significantly lower

grain margins, which were partially offset by increased grain volumes.

• Crop nutrients IBIT increased, driven primarily by a $116.5 million

impairment related to our decision to cease development of a nitrogen

fertilizer plant in Spiritwood, North Dakota, which took place in fiscal

2015 and did not reoccur in fiscal 2016, partially offset by decreased

margins in fiscal 2016.

• Our grain marketing IBIT decreased primarily as a result of lower margins,

partially offset by increased volumes.

• Our processing and food ingredients business experienced a decrease in

IBIT primarily due to charges associated with the disposal and impairment

of assets as well as a charge associated with a specific customer

receivable, and to a lesser extent, lower margins in our soybean crushing

business.

• Our renewable fuels marketing and production operations IBIT decreased

primarily due to lower market prices for ethanol and was partially offset

by increased volumes.

• The lower margins referenced above result from the previously discussed Ag

       economy down cycle, which reduced commodity prices and decreased margins
       across the globe.






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All Other Segments
                                For the Years Ended August 31                2017 vs. 2016            2016 vs. 2015
                                2017             2016         2015       $ Change     % Change     $ Change    % Change
                                                             (Dollars in thousands)

Nitrogen Production IBIT $ 29,741 $ 34,070 $ - $ (4,329 ) (12.7 )% $ 34,070 NM Foods IBIT

               $    25,967          $ 64,764     $ 62,647     $ 

(38,797 ) (59.9 )% $ 2,117 3.4 % Corporate and Other IBIT $ 43,421 $ 14,665 $ 17,742 $ 28,756 196.1 % $ (3,077 ) (17.3 )%



NM - Not meaningful

Comparison of All Other Segments IBIT for the years ended August 31, 2017, and 2016


Our Nitrogen Production segment IBIT decreased overall as a result of lower
equity method income caused by downward pressures on the pricing of urea and
UAN, which are produced and sold by CF Nitrogen. This was partially offset by a
gain of $30.5 million in fiscal 2017 associated with an embedded derivative
asset inherent in the agreement relating to our investment in CF Nitrogen for
which there was no comparable gain in the prior fiscal year. See Note 4,
Investments, of the notes to the consolidated financial statements that are
included in this Annual Report on Form 10-K for additional information. Our
Foods segment IBIT decreased in fiscal 2017 due to lower margins as customers
put pressure on pricing. Corporate and Other IBIT increased primarily due to
improved earnings from our wheat milling joint venture.

Comparison of All Other Segments IBIT for the years ended August 31, 2016, and 2015


Our Nitrogen Production segment was created as a result of our equity method
investment in CF Nitrogen, which was consummated February 1, 2016. See Note 4,
Investments, of the notes to the consolidated financial statements that are
included in this Annual Report on Form 10-K for additional information. As
fiscal 2016 represented our initial year of investment, there is no comparable
income in the prior year. Our Foods segment and Corporate and Other did not
experience a significant change in IBIT in fiscal 2016 when compared to fiscal
2015.

Revenues by Segment

Energy
              For the Years Ended August 31              2017 vs. 2016              2016 vs. 2015
            2017           2016           2015        $ Change    % Change       $ Change      % Change
                                             (Dollars in thousands)

Revenue $ 6,265,197 $ 5,447,542 $ 8,210,337 $ 817,655 15.0 %

$ (2,762,795 ) (33.7 )%




The following table and commentary present the primary reasons for the changes
in revenue for the Energy segment for each of the years ended August 31, 2017,
and 2016, compared to the prior year:
                                  2017 vs. 2016      2016 vs. 2015
                                       (Dollars in millions)
Volume                           $           237    $        (596 )
Price                                        568           (2,142 )
Other*                                        13              (25 )
Total change in Energy revenue   $           818    $      (2,763 )


* Other includes retail and non-commodity type activities.

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Comparison of Energy segment revenue for the years ended August 31, 2017, and 2016

The $817.7 million increase in Energy revenue for fiscal 2017 reflects the following: • Refined fuels revenues rose $678.3 million (15%), of which approximately

$456.0 million related to an increase in the net average selling price and

$222.3 million related to higher sales volumes, compared to the prior

year. The selling price of refined fuels products increased an average of

       $0.16 (10%) per gallon, and sales volumes increased 5%, compared to the
       previous year.

• Propane revenues increased $109.5 million (22%), of which $100.1 million

was attributable to a rise in the net average selling price and $9.4

million was attributable to higher volumes. Propane sales volume increased

       2% and the average selling price of propane increased $0.13 (20%) per
       gallon, when compared to the previous year.


Comparison of Energy segment revenue for the years ended August 31, 2016, and 2015

The $2.8 billion decrease in Energy revenue for fiscal 2016 reflects the following: • Refined fuels revenues decreased $2.5 billion (35%), of which

approximately $2.0 billion related to a decline in the net average selling

price and $480.1 million related to lower sales volumes, compared to the

prior year. The selling price of refined fuels products decreased an

average of $0.74 (30%) per gallon and sales volumes decreased 7%, compared

to the previous year.

• Propane revenues decreased $396.4 million (43%), of which $252.2 million

was attributable to a lower net average selling price and $144.2 million

was attributable to a decline in volumes. Propane sales volume decreased

16% due to warmer temperatures in fiscal 2016 compared to fiscal 2015 and

the average selling price of propane decreased $0.34 (32%) per gallon,

       when compared to the previous year.



Ag
                                For the Years Ended August 31                  2017 vs. 2016              2016 vs. 2015
                            2017             2016             2015         $ Change     % Change       $ Change      % Change
                                                               (Dollars in thousands)
Revenue                $ 25,578,393     $ 24,809,298     $ 26,299,947     $ 769,095        3.1 %    $ (1,490,649 )     (5.7 )%



The following table and commentary present the primary reasons for the changes
in revenue for the Ag segment for each of the years ended August 31, 2017, and
2016, compared to the prior year:
                              2017 vs. 2016      2016 vs. 2015
                                   (Dollars in millions)
Volume                       $        804       $       4,079
Price                                 (37 )            (5,541 )
Other*                                  2                 (29 )

Total change in Ag revenue $ 769 $ (1,491 )

* Other includes retail and non-commodity type activities.

Comparison of Ag segment revenue for the years ended August 31, 2017, and 2016


The $769.1 million increase in Ag segment revenue for fiscal 2017 reflects the
following:
•      Grain and oilseed revenues attributable to country operations and grain
       marketing totaled $18.0 billion and $16.8 billion during the years ended

August 31, 2017, and 2016, respectively. The grain and oilseed revenue

increase of $1.2 billion (7%) was attributable to $396.4 million in higher

average grain selling prices and a rise in volumes of $815.0 million. The

average sales price of all grain and oilseed commodities sold reflected an

increase of 2%. Wheat, corn and soybean volumes increased by approximately

4% compared to the prior year. The increase in volumes was due to the

large U.S. crop production, while the rise in pricing was primarily due to

higher spring wheat and soybean prices.

• Our processing and food ingredients revenue decreased $205.7 million,

primarily due to a $181.1 million decline resulting from the prior-year

       sale of an international location, along with a decline in volumes of
       $274.7 million (17%). An average sales price increase of $0.70 (5%)
       related to our oilseed commodities helped to partially offset the
       decreases by $250.1 million.



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• Wholesale crop nutrient revenues attributable to crop nutrients and grain

marketing decreased $54.3 million due to lower average fertilizer selling

prices of $330.7 million, partially offset by higher volumes of $276.4

million. Our wholesale crop nutrient volumes increased 14% and the average

       sales price of all fertilizers sold reflected a decrease of $44.11 (14%)
       per ton compared to the prior year. The increase in volumes was due to
       improved market conditions from the prior year as well as supply chain
       management improvements.

• Our renewable fuels revenue from our marketing and production operations

decreased $7.2 million primarily as the result of 4% lower volumes,

partially offset by a higher average sales price of $0.06 (4%) per gallon.

       Market supply and demand forces increased average sales prices. The
       decrease in volumes was due to lower exports.

• The remaining Ag segment product revenues related primarily to feed and

farm supplies decreased $176.9 million mainly due to reduced country

operations retail sales and a falloff in plant food and sunflower pricing.

       The decreases were partially offset by increases in diesel sold as a
       result of higher grain movement and a rise in propane sold for home
       heating.

• Total Ag revenues include "Other" revenues, which are generated from our

country operations elevators and agri-service centers that derive revenues

from activities related to production agriculture. These revenue

generating activities include grain storage, grain cleaning, fertilizer

       spreading, crop protection spraying and other associated services of this
       nature. In addition, our grain marketing operations receive "Other"
       revenues at our export terminals from activities related to loading
       vessels.


Comparison of Ag segment revenue for the years ended August 31, 2016, and 2015


The $1.5 billion decrease in Ag segment revenue for fiscal 2016 reflects the
following:
•      Grain and oilseed revenues attributable to country operations and grain
       marketing totaled $16.8 billion and $17.2 billion during the years ended

August 31, 2016, and 2015, respectively. The grain and oilseed revenue

decrease of $479.2 million (3%) was attributable to $3.4 billion in lower

average grain selling prices, partially offset by an increase in volumes

       of $3.0 billion. The average sales price of all grain and oilseed
       commodities sold reflected a decrease of 17%.


•      Our processing and food ingredients revenues were essentially flat with

higher volumes offsetting lower average selling prices on our oilseed

products. Typically, changes in average selling prices of oilseed products

       are primarily driven by the average market prices of soybeans. The
       increase in volumes sold is mostly due to the acquisition of a plant late
       in the fourth quarter of fiscal 2015.

• Wholesale crop nutrient revenues attributable to crop nutrients and grain

marketing decreased due to lower average fertilizer selling prices of

$480.2 million and $8.7 million related to lower volumes. Our wholesale

       crop nutrient volumes decreased less than 1% and the average sales price
       of all fertilizers sold reflected a decline of $72.86 (19%) per ton.

• Our renewable fuels revenue from our marketing and production operations

decreased primarily as the result of a lower average sales price of $0.21

(12%) per gallon. Market supply and demand forces, as well as the decline

in traditional fuel prices, drove prices lower year over year. The impact

of lower prices was partially offset by higher volumes.

• The remaining Ag segment product revenues related primarily to feed and

farm supplies decreased mainly due to reduced country operations retail

sales and the price of energy-related products.

• Total Ag revenues include "Other" revenues which are generated from our

country operations elevators and agri-service centers that derive revenues

from activities related to production agriculture. These revenue

generating activities include grain storage, grain cleaning, fertilizer

       spreading, crop protection spraying and other associated services of this
       nature. In addition, our grain marketing operations receive "Other"
       revenues at our export terminals from activities related to loading
       vessels.










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All Other Segments
                                   For the Years Ended August 31                 2017 vs. 2016              2016 vs. 2015
                                   2017             2016         2015        $ Change      % Change     $ Change     % Change
                                                                  (Dollars

in thousands) Corporate and Other revenue $ 91,161 $ 90,363 $ 72,158 $ 798

           0.9 %    $  18,205        25.2 %




Comparison of All Other Segments revenue for the years ended August 31, 2017, and 2016


There were no significant changes to revenue for all other segments for fiscal
2017. Our Nitrogen Production and Foods reportable segments represent equity
method investments, and as such record earnings and allocated expenses but not
revenue. Our Nitrogen Production segment did not exist prior to fiscal 2016.

Comparison of All Other Segments revenue for the years ended August 31, 2016, and 2015

Corporate and Other revenue for fiscal 2016 increased due to additional interest revenue within business solutions.

Cost of Goods Sold by Segment

Energy

                               For the Years Ended August 31                2017 vs. 2016              2016 vs. 2015
                           2017            2016            2015         $ 

Change % Change $ Change % Change

                                                              (Dollars in 

thousands)

Cost of goods sold $ 5,998,958 $ 5,043,676 $ 7,522,319 $ 955,282 18.9 % $ (2,478,643 ) (33.0 )%

The following table and commentary present the primary reasons for the changes in cost of goods sold ("COGS") for the Energy segment for each of the years ended August 31, 2017, and 2016, compared to the prior year:

                                             2017 vs. 2016      2016 vs. 2015
                                                  (Dollars in millions)
Volume                                      $           221    $        (556 )
Price                                                   692           (1,901 )
Other*                                                   42              (22 )
Total change in Energy cost of goods sold   $           955    $      

(2,479 )

* Other includes retail and non-commodity type activities.

Comparison of Energy segment COGS for the years ended August 31, 2017, and 2016


The $1.0 billion increase in Energy segment COGS for fiscal 2017 reflects the
following:
•      Refined fuels cost of goods sold increased $806.9 million (20%), which

reflects a $0.21 (14%) per gallon rise in the average cost of refined

       fuels and a 5% volume increase.


•      The increase in propane cost of goods sold of $95.9 million was
       attributable to a 2% rise in volumes and an increase in average cost of

$0.17 (28%) per gallon, these increases were partially offset by certain

manufacturing changes that reduced costs of goods sold by $46.0 million.

Comparison of Energy segment COGS for the years ended August 31, 2016, and 2015


The $2.5 billion decrease in Energy segment COGS for fiscal 2016 reflects the
following:
•      Refined fuels cost of goods sold decreased $1.8 billion (30%), which

reflects a $0.52 (24%) per gallon reduction in the average cost of refined

fuels and a 7% decrease in volumes.

• The propane cost of goods sold decreased $432.3 million (47%), primarily

from an average cost decline of $0.38 (37%) per gallon and a 16% decrease

       in volumes.




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Ag
                               For the Years Ended August 31                  2017 vs. 2016              2016 vs. 2015
                           2017             2016             2015         $ Change     % Change       $ Change      % Change
                                                              (Dollars in thousands)
Cost of goods sold    $ 24,982,729     $ 24,341,576     $ 25,567,530     $ 641,153        2.6 %    $ (1,225,954 )     (4.8 )%


The following table and commentary present the primary reasons for the changes in COGS for the Ag segment for each of the years ended August 31, 2017, and 2016, compared to the prior year:

                                         2017 vs. 2016      2016 vs. 2015
                                              (Dollars in millions)
Volume                                  $        791       $       3,963
Price                                           (484 )            (5,077 )
Other*                                           334                (112 )

Total change in Ag cost of goods sold $ 641 $ (1,226 )

* Other includes retail and non-commodity type activities.

Comparison of Ag segment COGS for the years ended August 31, 2017, and 2016

The $641.2 million increase in Ag segment COGS for fiscal 2017 reflects the following: • Grain and oilseed cost of goods sold attributable to country operations

and grain marketing totaled $17.7 billion and $16.6 billion during the

years ended August 31, 2017, and 2016, respectively. The costs of grains

and oilseed procured through our Ag segment increased $1.1 billion. The

majority of the addition was driven by a higher average cost per bushel of

$0.89 (2%), which accounted for $299.8 million of the increase and a 5%

elevation in volumes of $806.0 million. The average month-end market price

per bushel of soybeans and spring wheat increased, while corn decreased

       slightly compared to the prior year. The increase in volumes was due to a
       large U.S. crop production.

• Processing and food ingredients cost of goods sold decreased $205.9

million (13%) and is comprised of a $178.5 million decline due to the sale

of an international location in the prior year, plus $268.9 million in

lower volumes, partially offset by $268.8 million from a lower average

       cost of oilseeds purchased for further processing. Changes in cost are
       typically driven by the market price of soybeans purchased.

• Wholesale crop nutrients cost of goods sold attributable to crop nutrients

and grain marketing decreased by $93.1 million (5%), caused primarily by a

decline of 16%, or $366.0 million, in average cost per ton of product. The

       drop was partially offset by an increase of 14%, or $272.9 million, in
       tons sold. The increase in volumes and decrease in the prices paid for

goods were due to better market conditions compared to the prior year, as

well as beneficial changes in supply chain management.

• Renewable fuels cost of goods sold decreased $9.8 million (less than 1%)

       resulting from a volume decline of 4%, which was partially offset by an
       increase in the average cost per gallon of $0.06 (4%).

• The remaining Ag segment product cost of goods sold, primarily feed and

farm supplies, decreased $516.9 million due to a reduction in country

       operations retail sales and the purchase price of plant food and
       sunflower.

• Total Ag cost of goods sold include "Other" cost of goods sold, which are

generated from our country operations elevators and agri-service centers

       that incur costs from activities related to production agriculture. These
       cost of goods sold activities include grain storage, grain cleaning,
       fertilizer spreading, crop protection spraying and other associated
       services of this nature. In addition, our grain marketing operations incur

"Other" costs at our export terminals from activities related to loading

       vessels.



Comparison of Ag segment COGS for the years ended August 31, 2016, and 2015

The $1.2 billion decrease in Ag segment COGS for fiscal 2016 reflects the following: • Grain and oilseed cost of goods sold attributable to country operations

and grain marketing totaled $16.6 billion and $16.8 billion during the

years ended August 31, 2016 and 2015, respectively. The costs of grains

and oilseed procured decreased $269.5 million. The majority of the

decrease was driven by a lower average cost per bushel of $0.98 (16%),

       which accounted for $3.2 billion of the decrease, partially offset by a
       17% increase in volumes of $2.9 billion.

• Processing and food ingredients cost of goods sold increased $36.9 million

(2%) and is comprised of $879.2 million in higher volumes, partially

offset by $815.0 million from a lower average cost of oilseeds purchased

for further processing. Changes in cost are typically driven by the market

       price of soybeans purchased.



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• Wholesale crop nutrients cost of goods sold decreased $361.2 million

       (15%). This is attributable to crop nutrients and grain marketing
       decreases of 15% in average cost per ton and a decrease in the tons sold
       of less than 1%.

• Renewable fuels cost of goods sold decreased $172.5 million (11%) and is

comprised of a decline in the average cost per gallon of $0.21 (12%),

which was partially offset by an increase in volumes.

• The remaining Ag segment product cost of goods sold, primarily feed and

farm supplies, decreased $321.6 million due to a reduction in country

operations retail sales and the purchase price of energy related products.

• Total Ag cost of goods sold include "Other" cost of goods sold, which are

generated from our country operations elevators and agri-service centers

       that incur costs from activities related to production agriculture. These
       cost of goods sold activities include grain storage, grain cleaning,
       fertilizer spreading, crop protection spraying and other associated
       services of this nature. In addition, our grain marketing operations incur
       "Other" costs at our export terminals from activities related to loading
       vessels.



All Other Segments
                               For the Years Ended August 31              2017 vs. 2016            2016 vs. 2015
                             2017             2016          2015       $ Change    % Change     $ Change    % Change
                                                            (Dollars in thousands)

Nitrogen Production COGS $ (538 ) $ 2,222 $ - $ (2,760 ) (124.2 )% $ 2,222 NM Corporate and Other COGS $ 4,361 $ 431 $ 1,827 $ 3,930 911.8 % $ (1,396 ) (76.4 )%



NM - Not meaningful

Comparison of All Other Segments COGS for the years ended August 31, 2017, and 2016


There were no significant changes to COGS for our Nitrogen Production segment
for fiscal 2017. The increase in COGS for Corporate and Other for fiscal 2017
was due to increased commission expense as a result of higher volumes of
transactions in business solutions.

Comparison of All Other Segments COGS for the years ended August 31, 2016, and 2015


There were no significant changes to COGS for Corporate and Other for fiscal
2016. Our Nitrogen Production segment, which has COGS related to our commodity
hedges, was not created until February 2016, and therefore there are no COGS for
our Nitrogen Production segment during fiscal 2015.

Marketing, General and Administrative Expenses

                                For the Years Ended August 31               2017 vs. 2016             2016 vs. 2015
                              2017            2016          2015        $ Change     % Change     $ Change     % Change
                                                             (Dollars in thousands)

Marketing, general and administrative expenses $ 604,359 $ 601,261 $ 642,309 $ 3,098 0.5 % $ (41,048 ) (6.4 )%

Comparison of marketing, general and administrative expenses for the years ended August 31, 2017, and 2016


The $3.1 million increase in marketing, general and administrative expenses for
fiscal 2017 reflects the following:
•   Primarily higher compensation expense, including incentive compensation

accruals and separation expenses associated with the departure of our former

chief executive officer.

• The increase was partially offset by decreases in foreign currency exchange

expenses and management focus on cost containment.

Comparison of marketing, general and administrative expenses for the years ended August 31, 2016, and 2015

The $41.0 million decrease in marketing, general and administrative expenses for fiscal 2016 is primarily due to reduced compensation expense, including a significant reduction of incentive compensation accruals.

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Reserve and Impairment Charges

                                For the Years Ended August 31                2017 vs. 2016             2016 vs. 2015
                               2017             2016         2015        $ Change     % Change     $ Change     % Change
                                                              (Dollars in thousands)
Reserve and impairment
charges                  $    456,679        $ 47,836     $ 133,045     $ 408,843       854.7 %   $ (85,209 )    (64.0 )%


Comparison of reserve and impairment charges for the years ended August 31, 2017, and 2016


The $408.8 million increase in reserve and impairment charges for fiscal 2017
reflects the following:
•   A Brazil trading partner in our Ag segment entering into bankruptcy-like

proceedings under Brazilian law during fiscal 2017, which resulted in charges

of $229.4 million.

• The loan loss reserve expense in our Ag segment specific to a single producer

borrower increased $81.0 million when compared to the prior year.

• Charges of $110.6 million related to the impairment of long-lived assets and

goodwill in our Ag segment during fiscal 2017.

• An impairment charge in our Energy segment of $32.7 million associated with

the cancellation of a capital project during fiscal 2017.

• These increases were partially offset by decreases in bad debt expense

    related to other domestic and international areas of the business when
    compared to fiscal 2016.


Comparison of reserve and impairment charges for the years ended August 31, 2016, and 2015

Reserve and impairment charges for fiscal 2016 decreased $85.2 million as a result of: • In fiscal 2015 there was a $116.5 million charge related to our decision not

to proceed with the development of a nitrogen fertilizer plant in Spiritwood,

North Dakota, which did not reoccur in fiscal 2016.

• The remaining fiscal 2016 charges relate to a net increase in receivables

    specific reserves related to an international customer and a domestic
    customer, along with increased costs related to prior year acquisitions
    included for the full year in fiscal 2016.



Gain (Loss) on Investments
                                  For the Years Ended August 31               2017 vs. 2016             2016 vs. 2015
                                2017             2016          2015       $ Change     % Change     $ Change     % Change
                                                               (Dollars in thousands)

Gain (loss) on investments $ (4,569 ) $ 9,252 $ 5,239 $ (13,821 ) (149.4 )% $ 4,013 76.6 %

Comparison of gain (loss) on investments for the years ended August 31, 2017, and 2016


The decrease in gain (loss) on investments is mainly attributable to the sale of
an international investment during fiscal 2017 which resulted in a loss, along
with fiscal 2016 gains on bond transactions specific to our international
operations that did not reoccur during fiscal 2017.

Comparison of gain (loss) on investments for the years ended August 31, 2016, and 2015

The increase in gain (loss) on investments is mainly attributable to gains on bond transactions specific to our international operations.

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Interest Expense
                                For the Years Ended August 31                2017 vs. 2016             2016 vs. 2015
                               2017             2016          2015       $ Change     % Change     $ Change     % Change
                                                              (Dollars in thousands)
Interest expense         $    171,239        $ 113,704     $ 70,659     $  57,535        50.6 %   $  43,045        60.9 %


Comparison of interest expense for the years ended August 31, 2017, and 2016


The $57.5 million increase in interest expense for fiscal 2017 was due to higher
interest expense of $34.0 million associated with higher debt balances, as well
as lower capitalized interest of $23.5 million associated with our ongoing
capital projects.

Comparison of interest expense for the years ended August 31, 2016, and 2015

The $43.0 million increase in interest expense for fiscal 2016 reflects the following: • Approximately $50.9 million of the increase was related to interest

expense associated with increased debt balances in fiscal 2016 as well as

lower capitalized interest of $26.9 million associated with our ongoing

capital projects.

• The above increases were partially offset by $34.8 million associated with

a reduction in patronage earned by the noncontrolling interest of NCRA

(now known as CHS McPherson).



Other Income (Loss)
                                For the Years Ended August 31                2017 vs. 2016             2016 vs. 2015
                                2017             2016         2015       $ Change     % Change     $ Change     % Change
                                                              (Dollars in thousands)
Other income (loss)      $    95,415          $ 38,357     $ 10,326     $  57,058       148.8 %   $  28,031       271.5 %


Comparison of other income (loss) for the years ended August 31, 2017, and 2016


The $57.1 million increase in other income (loss) for fiscal 2017 reflects the
following:
•      Higher financing fees associated with various customer activities and
       receivables totaling $27.8 million.

• A gain recorded of $30.5 million associated with an embedded derivative

within the contract relating to our strategic investment in CF Nitrogen.

See Note 12, Derivative Financial Instruments and Hedging Activities, of

       the notes to the consolidated financial statements that are included in
       this Annual Report on Form 10-K for additional information.


Comparison of other income (loss) for the years ended August 31, 2016, and 2015

The $28.0 million increase in other income (loss) for fiscal 2016 is related to higher financing fees received from various customer activities and receivables.

Equity Income (Loss) from Investments

                                For the Years Ended August 31               2017 vs. 2016             2016 vs. 2015
                              2017            2016          2015        $ Change     % Change     $ Change     % Change
                                                             (Dollars in thousands)
Equity income (loss)
from investments         $   137,338       $ 175,777     $ 107,850     $ (38,439 )    (21.9 )%   $  67,927        63.0 %


Comparison of equity income (loss) from investments for the years ended August 31, 2017, and 2016


Equity income (loss) from investments for fiscal 2017 primarily decreased due to
lower equity income recognized from our equity method investments in Ventura
Foods and CF Nitrogen caused by lower margins, which was partially offset by
higher equity income recognized from our equity method investments in TEMCO and
Ardent Mills. See Note 4, Investments, of the notes to the consolidated
financial statements that are included in this Annual Report on Form 10-K for
additional information. We also recorded $20.2 million of impairments related to
international investments as a result of continued downward pressures in the
agricultural markets. We record equity income or loss from the investments in
which we have an

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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.

Comparison of equity income (loss) from investments for the years ended August 31, 2016, and 2015


Equity income (loss) from investments for fiscal 2016 primarily increased as a
result of equity earnings recognized from our new equity method investment in CF
Nitrogen. See Note 4, Investments, of the notes to the consolidated financial
statements that are included in this Annual Report on Form 10-K for additional
information.

Income Taxes
                                For the Years Ended August 31               2017 vs. 2016            2016 vs. 2015
                                2017             2016         2015       $ Change     % Change    $ Change    % Change
                                                             (Dollars in thousands)
Income taxes             $    182,075          $ 4,091     $ 12,165     $ 177,984     NM         $ (8,074 )    (66.4 )%


NM - Not meaningful

Comparison of income taxes for the years ended August 31, 2017, and 2016


During fiscal 2017, we had an increase in income tax benefit when compared to
fiscal 2016, which was primarily due to the recognition of deferred tax benefits
related to the issuance of non-qualified equity certificates in fiscal 2013 and
2014, a tax benefit in fiscal 2017 from retaining a significant portion of the
Domestic production activities deduction and the bad debt deduction in our U.S.
tax returns related to the performance of guarantees caused by an approximate
$229.4 million loss related to a Brazilian trading partner entering into
bankruptcy-like proceedings under Brazilian law. The fiscal 2016 income tax
benefit related to an appeals settlement with the Internal Revenue Service that
did not reoccur in fiscal 2017. The federal and state statutory rate applied to
nonpatronage business activity was 38.4% and 38.3% for the years ended
August 31, 2017, and 2016, respectively. The income taxes and effective tax rate
vary each year based upon profitability and nonpatronage business activity
during each of the comparable years with fiscal 2017's income tax benefit being
unusually large in comparison to income before taxes.

Comparison of income taxes for the years ended August 31, 2016, and 2015


During fiscal 2016, we had a decrease in income tax benefit when compared to
fiscal 2015, which was primarily driven by an appeals settlement with the
Internal Revenue Service for a fiscal 2007 and 2006 tax matter. The fiscal 2015
income tax benefit related to the issuance of non-qualified equity certificates
in fiscal 2013 and 2014 and from the recognition of Kansas tax credits generated
by CHS McPherson that did not reoccur in fiscal 2016. The federal and state
statutory rate applied to nonpatronage business activity was 38.3% and 38.1% for
the years ended August 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
Summary
In assessing our financial condition, we consider factors such as working
capital and internal benchmarking related to our applicable covenants and other
financial criteria. We fund our operations primarily through a combination of
cash flows from operations and revolving credit facilities. We fund our capital
expenditures and growth primarily through cash, operating cash flow and
long-term debt financing.
On August 31, 2017, and August 31, 2016, we had working capital, defined as
current assets less current liabilities, of $181.9 million and $414.4 million,
respectively. The decrease in working capital was driven primarily by the
decrease in our accounts receivable and cash balances. Our current ratio,
defined as current assets divided by current liabilities, was 1.0 and 1.1 as of
August 31, 2017, and August 31, 2016, respectively.
As of August 31, 2017, we had cash and cash equivalents of $181.4 million, total
equities of $7.9 billion, long-term debt of $2.2 billion and notes payable of
$2.0 billion. Our capital allocation priorities include maintaining the safety
and compliance of our operations, paying our dividends, reducing funded debt and
taking advantage of strategic opportunities that benefit our owners. We expect
the down cycle in the Ag industry to continue and while we maintain appropriate
levels of

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liquidity, we will continue to consider opportunities to further diversify and
enhance our sources and amounts of liquidity. These opportunities include
reducing operating expenses, deploying and/or financing working capital more
efficiently and identifying and disposing of nonstrategic or underperforming
assets. We believe that cash generated by operating activities, along with
available borrowing capacity under our credit facilities, will be sufficient to
support our operations for the foreseeable future and we expect to remain in
compliance with our loan covenants.
In connection with the losses caused by a trading partner of ours in Brazil
entering into bankruptcy-like proceedings under Brazilian law, we intend to fund
a total of approximately $170.0 million in loan guarantees to our Brazilian
operations in the first nine months of fiscal 2018. It is our intention to fund
these loan guarantees through a combination of sources including cash flow and
the liquidity enhancement actions noted above.
Fiscal 2017 and 2016 Activity
On July 18, 2017, we amended an existing receivables and loans securitization
facility ("Securitization Facility" or the "Facility") with certain unaffiliated
financial institutions (the "Purchasers"). Under the Securitization Facility,
CHS Capital and CHS both sell eligible trade account and notes receivable
("Receivables") they have originated to Cofina Funding, LLC ("Cofina Funding"),
a wholly-owned bankruptcy-remote indirect subsidiary of CHS. Cofina Funding in
turn sells the purchased Receivables in their entirety to the Purchasers. Prior
to amending the Securitization Facility in July 2017, the transfer of
Receivables was accounted for as a secured borrowing. Under the terms of the
amended Securitization Facility, CHS accounts for Receivables sold under the
facility as a sale of financial assets and derecognizes the sold Receivables
from its Consolidated Balance Sheets. The amount available under the Facility
fluctuates over time based on the total amount of eligible Receivables generated
during the normal course of business, with maximum availability of $700.0
million. As of August 31, 2017, the total availability under the Securitization
Facility was $618.0 million, all of which had been utilized. The Securitization
Facility had previously been amended in July 2016, which had increased total
availability under the Facility to $850.0 million. The amount of funding
outstanding against our securitized Receivables at August 31, 2016 was $550.0
million.
The Facility agreement contains certain customary representations and warranties
and affirmative covenants, including as to the eligibility of the Receivables
being sold, and contains customary program termination events and
non-reinvestment events. We were in compliance with all covenants associated
with our Securitization Facility as of August 31, 2017.

In February 2016, we invested $2.8 billion in CF Nitrogen, commencing our
strategic venture with CF Industries. 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 operating
cash flow, the issuance of long-term debt, preferred stock proceeds and
available cash.
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. See Note 7, Notes Payable and
Long-Term Debt, of the notes to consolidated financial statements that are
included in this Annual Report on Form 10-K for additional information.

In December 2015, we entered into three bilateral, uncommitted revolving credit
facilities with an aggregate capacity of $1.3 billion. As of August 31, 2017,
one bilateral agreement remained with capacity of $250 million. Amounts borrowed
under these short-term lines are used to fund our working capital.

In September 2015, we amended and restated our primary committed line of credit,
which is a $3.0 billion five-year, unsecured revolving credit facility with a
syndication of domestic and international banks that expires in September 2020.
The outstanding balance on this facility was $480.0 million and $700.0 million
as of August 31, 2017 and 2016, respectively. In addition, we entered into a
ten-year term loan with a syndication of banks for up to $600.0 million. The
full amount under the term loan was drawn down in January 2016. As of August 31,
2017, $300.0 million of principal under the term loan was outstanding. Principal
on the term loan is payable in full on September 4, 2025.


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Cash Flows

The following table presents summarized cash flow data for the years ended August 31, 2017, 2016, and 2015:

                                                                                    2017 vs. 2016                2016 vs. 2015
                                  2017           2016             2015          $ Change       % Change       $ Change      % Change
                                                                       (Dollars in thousands)
Net cash provided by (used in)
operating activities           $ 932,994     $ 1,263,498     $    570,010   

$ (330,504 ) (26 )% $ 693,488 122 % Net cash provided by (used in) investing activities

            (405,041 )    (3,746,971 )     (1,908,668 ) 

3,341,930 89 % (1,838,303 ) (96 )% Net cash provided by (used in) financing activities

            (621,193 )     1,814,196          153,828      (2,435,389 )     (134)%        1,660,368      1,079  %
Effect of exchange rate
changes on cash and cash
equivalents                       (4,694 )        (5,223 )          5,436   

529 10 % (10,659 ) (196 )% Net increase (decrease) in cash and cash equivalents $ (97,934 ) $ (674,500 ) $ (1,179,394 )

$ 576,566 85 % $ 504,894 43 %

Fiscal Year 2017 Compared to Fiscal Year 2016


Cash from operating activities for fiscal 2017 decreased $330.5 million,
primarily due to the following:
•      Increases in inventory resulting from increased commodity prices and
       volumes on hand. On August 31, 2017, the per bushel market prices of two
       of our primary grain commodities, spring wheat and corn, increased by
       $1.33 (27%) and $0.41 (14%), respectively, when compared to the spot
       prices on August 31, 2016. The per bushel market price of our third

primary commodity, soybeans, decreased by $0.24 (2%) when compared to the

spot price on August 31, 2016. In general, crude oil market prices

increased $2.53 (6%) per barrel on August 31, 2017, when compared to

August 31, 2016. Partially offsetting grain prices, fertilizer commodity

       prices affecting our wholesale crop nutrients and country operations
       retail businesses reflected decreases of up to 14%, depending on the
       specific products, compared to prices on August 31, 2016.

• Lower net income due to increased reserve and impairment charges within

our Ag and Energy segments.

The $3.3 billion increase in cash from investing activities for fiscal 2017 reflects the following: • Our $2.8 billion investment in CF Nitrogen completed in fiscal 2016 which

didn't reoccur in fiscal 2017.

• Reduced acquisitions of property, plant and equipment and other business

acquisitions. The significant decrease in acquisitions of property, plant

and equipment was primarily related to our plan to reduce our capital

investments to allow us to actively reduce our funded debt obligations.

• Net cash proceeds of $7.9 million related to the sale of Receivables

associated with the Securitization Facility.




Cash from financing activities for fiscal 2017 decreased $2.4 billion, primarily
due to the following:
•      Proceeds from issuances of debt instruments related primarily to the
       financing of the CF Nitrogen investment in fiscal 2016 which didn't
       reoccur in fiscal 2017.


•      The decrease above was partially offset by reduced payments of cash
       patronage in fiscal 2017 and the final contingent payment of the
       noncontrolling interest in CHS McPherson made in fiscal 2016.


Fiscal Year 2016 Compared to Fiscal Year 2015


Cash from operating activities for fiscal 2016 increased $693.5 million,
primarily due to declines in inventory and other current assets resulting from
decreased commodity prices. On August 31, 2016, the per bushel market prices of
two of our primary grain commodities, corn and spring wheat, decreased by $0.90
(23%) and $0.11 (2%), respectively, when compared to the spot prices on
August 31, 2015. The per bushel market price of our third primary commodity,
soybeans, increased by $0.63 (7%) when compared to the spot price on August 31,
2015. In general, crude oil market prices decreased $4.50 (9%) per barrel on
August 31, 2016, when compared to August 31, 2015. Comparing the same periods,
fertilizer commodity prices affecting our wholesale crop nutrients and country
operations retail businesses reflected decreases of up to 34%, depending on the
specific products, compared to prices on August 31, 2015.

The $1.8 billion decrease in cash from investing activities for fiscal 2016,
reflects the following:
• Our $2.8 billion investment in CF Nitrogen.


• The decrease above was partially offset by reduced acquisitions of

property, plant and equipment and other business acquisitions. The

significant decrease in acquisitions of property, plant and equipment was

       primarily related to our plan to reduce our capital investments to allow
       us to actively reduce our funded debt obligations.




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Cash from financing activities for fiscal 2016 increased $1.7 billion, primarily due to proceeds from issuances of debt instruments related primarily to the financing of the CF Nitrogen investment.

Future Uses of Cash


We expect to utilize cash and cash equivalents, along with cash generated by
operating activities to fund capital expenditures and payments for debt,
interest, dividends and guarantees. The following is a summary of our primary
cash requirements for fiscal 2018:

• Capital expenditures. We expect total capital expenditures for fiscal 2018

to be approximately $602.0 million, compared to capital expenditures of

$446.7 million in fiscal 2017. Included in that amount for fiscal 2018 is

approximately $221.0 million for the acquisition of property, plant and

equipment and major repairs at our Laurel, Montana and McPherson, Kansas

refineries.

• Major repairs. Refineries have planned major maintenance to overhaul,

repair, inspect and replace process materials and equipment (referred to

as "turnaround") which typically occur for a five-to-six week period every

2-5 years. Our Laurel, Montana refinery has planned maintenance scheduled

       for fiscal 2018 for approximately $92.0 million.


•      Debt and interest. We expect to repay approximately $149.1 million of

long-term debt obligations and incur interest payments of approximately

$87.8 million during fiscal 2018.

• Preferred stock dividends. We had approximately $2.3 billion of preferred

       stock outstanding at August 31, 2017. We expect to pay dividends on our
       preferred stock of approximately $168.7 million during fiscal 2018.

• Guarantees. We intend to fund a total of approximately $170 million in

loan guarantees to our Brazilian operations in the next nine months as a

result of losses caused by a trading partner of ours in Brazil entering

into bankruptcy-like proceedings under Brazilian law.

Future Sources of Cash


We fund our operations primarily through a combination of cash flows from
operations and committed and uncommitted revolving credit facilities, including
our Securitization Facility. We believe these sources will provide adequate
liquidity to meet our working capital needs. We fund certain of our long-term
capital needs, primarily those related to acquisitions of property, plant and
equipment by issuing privately placed long-term debt and term loans. In
addition, our wholly-owned subsidiary, CHS Capital, makes loans to member
cooperatives, businesses and individual producers of agricultural products
included in our cash flows from investing activities, and has financing sources
as detailed below in CHS Capital Financing.

Working Capital Financing


We finance our working capital needs through committed and uncommitted lines of
credit with domestic and international banks. We believe our current cash
balances and our available capacity on our committed lines of credit will
provide adequate liquidity to meet our working capital needs. The following
table summarizes our primary lines of credit as of August 31, 2017, and 2016:
Revolving Credit Facilities     Maturities     Total Capacity       Borrowings Outstanding        Interest Rates
                                                    2017             2017           2016
                                                         (Dollars in thousands)
Committed Five-Year Unsecured
Facility                           2020      $      3,000,000      $480,000       $700,000     LIBOR+0.00% to 1.45%
Uncommitted Bilateral
Facilities                         2017               250,000       250,000 

300,000 LIBOR+0.00% to 1.05%



In addition to our primary revolving lines of credit, we have a three-year
$325.0 million committed revolving pre-export credit facility for CHS
Agronegocio Industria e Comercio Ltda ("CHS Agronegocio"), our wholly-owned
subsidiary in Brazil. CHS Agronegocio uses the facility, which expires in April
2019, to finance its working capital needs related to its purchases and sales of
grains, fertilizers and other agricultural products. As of August 31, 2017, the
outstanding balance under the facility was $250.0 million.
In addition to our uncommitted bilateral facility above, as of August 31, 2017,
our wholly-owned subsidiaries, CHS Europe S.a.r.l and CHS Agronegocio, had
uncommitted lines of credit with $433.9 million outstanding. In addition, our
other international subsidiaries had lines of credit with a total of $168.4
million outstanding as of August 31, 2017, of which $15.4 million was
collateralized.


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On August 31, 2017, and 2016, we had total short-term indebtedness outstanding
on these various primary and other facilities, as well as other miscellaneous
short-term notes payable, in the amount of $1.7 billion and $1.8 billion,
respectively.
Long-term Debt Financing
The following table presents summarized long-term debt data for the years ended
August 31, 2017, and 2016.
                                    For the Years Ended August 31
                                        2017               2016
                                       (Dollars in thousands)
Private placement debt           $     1,643,886       $ 1,775,924
Bank financing                           445,000           345,000
Capital lease obligations                 33,075           105,708
Other notes and contract payable          62,652            76,147
Deferred financing costs                  (4,820 )          (5,574 )
                                 $     2,179,793       $ 2,297,205


Long-term debt outstanding as of August 31, 2017, has aggregate maturities, excluding fair value adjustments and capital leases, as follows:

            (Dollars in thousands)
2018       $                149,050
2019                        167,412
2020                         31,478
2021                        182,949
2022                            126
Thereafter                1,611,385
           $              2,142,400


See Note 7, Notes Payable and Long-Term Debt, of the notes to consolidated
financial statements that are included in this Annual Report on Form 10-K for
additional information.
CHS Capital Financing
For a description of the Securitization Facility, see above in Fiscal 2017 and
2016 activity.
CHS Capital has available credit under master participation agreements with
numerous counterparties. Prior to the fourth quarter of fiscal 2017, all
borrowings under these agreements were accounted for as secured borrowings.
During the fourth quarter of fiscal 2017, certain of these agreements were
amended resulting in the Company accounting for the participations as the sale
of financial assets. As of August 31, 2017, the remaining participations
accounted for as secured borrowings bear interest at variable rates ranging from
2.61% to 4.45%. As of August 31, 2017, the total funding commitment under these
agreements was $94.1 million, of which $29.4 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 $220.2 million as of August 31, 2017, of which $144.1
million was borrowed under these commitments with an interest rate of 2.45%.

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 August 31, 2017, and are due
upon demand. Borrowings under these notes totaled $119.3 million as of
August 31, 2017.

Covenants

Our long-term debt is unsecured; however, restrictive covenants under various
debt agreements have requirements for maintenance of minimum consolidated net
worth and other financial ratios. We were in compliance with all debt covenants
and restrictions as of August 31, 2017. Based on our current 2018 projections,
we expect continued covenant compliance in the near term.

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In September 2015, we amended all outstanding notes to conform the financial
covenants applicable thereto to those of our amended and restated five-year,
unsecured, revolving credit facility. The amended notes provide that if our
ratio of consolidated funded debt to consolidated cash flow is greater than 3.0
to 1.0, the interest rate on all outstanding notes will be increased by 0.25%
until the ratio becomes 3.0 or less. During both fiscal 2017 and 2016, our ratio
of funded debt to consolidated cash flow remained below 3.0 to 1.0.
Patronage and Equity Redemptions
In accordance with our bylaws and upon approval of our Board of Directors,
annual net earnings from patronage sources are distributed to consenting patrons
following the close of each fiscal year. For the year ended August 31, 2017, our
Board of Directors authorized only non-qualified distributions, with no cash
patronage. For the years ended August 31, 2016, 2015, and 2014, the cash portion
of the qualified distributions was deemed by our Board of Directors to be 40%.
The following table presents estimated patronage data for the year ending August
31, 2018, and actual patronage data for the years ended August 31, 2017, 2016,
and 2015:
                                  2018       2017       2016       2015
                                          (Dollars in millions)

Patronage Distributed in Cash $ - $ 103.9 $ 251.7 $ 271.2 Patronage Distributed in Equity 126.3 153.6 375.5 550.3 Total Patronage Distributed $ 126.3 $ 257.5 $ 627.2 $ 821.5




In accordance with authorization from our Board of Directors, we expect total
redemptions related to the year ended August 31, 2017, that will be distributed
in fiscal 2018, to be approximately $10.0 million and to be mostly in the form
of redemptions of equity owned by the estates of deceased individual producer
members. These redemptions are classified as a current liability on the
August 31, 2017, Consolidated Balance Sheet.
On March 30, 2017, we issued 695,390 shares of Class B Series 1 Preferred Stock
to redeem approximately $20.0 million of qualified equity certificates to
eligible owners. Each share of Class B Series 1 Preferred Stock was issued in
redemption of $28.74 of qualified equity certificates.
In March 2016, we redeemed approximately $76.8 million of qualified equity
certificates by issuing 2,693,195 shares of Class B Series 1 Preferred Stock,
with a total redemption value of $67.3 million, excluding accumulated dividends.
For each share of Class B Series 1 Preferred Stock that was issued, we redeemed
$28.50 worth of capital equity certificates.
See Note 9, Equities, of the notes to consolidated financial statements that are
included in this Annual Report on Form 10-K for a summary of our outstanding
preferred stock as of August 31, 2017, each series of which is listed on the
Global Select Market of NASDAQ.

Off Balance Sheet Financing Arrangements

Guarantees:


We are a guarantor for lines of credit and performance obligations of related,
non-consolidated companies. Our bank covenants allow maximum guarantees of $1.0
billion, of which $105.3 million were outstanding on August 31, 2017. 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 August 31, 2017.

Operating leases:

Minimum future lease payments required under noncancelable operating leases as of August 31, 2017, were $236.6 million.

Debt:

There is no material off balance sheet debt.

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Receivables Securitization Facility and Loan Participations:


In fiscal 2017, we engaged in off-balance sheet arrangements through our
Securitization Facility and certain loan participation agreements. Refer to
further details about these arrangements in Note 2, Receivables, of the notes to
the consolidated financial statements that are included in this Annual Report on
Form 10-K.

Contractual Obligations

We had certain contractual obligations at August 31, 2017, which require the following payments to be made:

                                                    Payments Due by Period
                                            Less than         1 - 3          3 - 5         More than
                             Total           1 Year           Years          Years          5 Years
                                                    (Dollars in thousands)
Long-term debt
obligations (1)          $  2,142,400     $   149,050     $   198,890     $  183,075     $ 1,611,385
Interest payments (2)         647,782          87,756         159,427        141,984         258,615
Capital lease
obligations (3)                39,500           6,867          10,878          8,470          13,285
Operating lease
obligations                   236,620          57,957          76,989         44,874          56,800
Purchase obligations (4)    7,534,491       5,802,142         812,211        243,978         676,160
Other liabilities (5)         635,490          37,984          35,836         21,832         539,838
Total obligations        $ 11,236,283     $ 6,141,756     $ 1,294,231     $ 

644,213 $ 3,156,083

_______________________________________

(1)    Excludes fair value adjustments to the long-term debt reported on our
       Consolidated Balance Sheet at August 31, 2017, resulting from fair value
       interest rate swaps and the related hedge accounting.

(2) Based on interest rates and long-term debt balances at August 31, 2017.

(3) Future minimum lease payments under capital leases include amounts related

to bargain purchase options and residual value guarantees, which represent

       economic obligations as opposed to contractual payment obligations.


(4)    Purchase obligations are legally binding and enforceable agreements to

purchase goods or services that specify all significant terms, including

fixed or minimum quantities; fixed, minimum or variable price provisions;

and approximate time of the transactions. In the ordinary course of

business, we enter into a significant number of forward purchase

commitments for agricultural and energy commodities and the related

freight. The purchase obligation amounts shown above include both short-

and long-term obligations and are based on: a) fixed or minimum quantities

to be purchased; and b) fixed or estimated prices to be paid at the time

of settlement. Current estimates are based on assumptions about future

market conditions that will exist at the time of settlement. Consequently,

actual amounts paid under these contracts may differ due to the variable

pricing provisions. Market risk related to the variability of our forward

       purchase commitments is economically hedged by offsetting forward sale
       contracts that are not included in the amounts above.

(5) Other liabilities include the long-term portion of deferred compensation,

deferred tax liabilities and contractual redemptions. Of the total other

liabilities and deferred tax liabilities of $611.9 million on our

Consolidated Balance Sheet at August 31, 2017, the timing of the payments

of $519.8 million of such liabilities cannot be determined.

Critical Accounting Estimates


Our consolidated financial statements are prepared in conformity with U.S. GAAP.
The preparation of these consolidated financial statements requires the use of
estimates as well as management's judgments and assumptions regarding matters
that are subjective, uncertain or involve a high degree of complexity, all of
which affect the results of operations and financial condition for the periods
presented. We believe that of our significant accounting policies, the following
may involve a higher degree of estimates, judgments and complexity.


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Inventory Valuation and Reserves


Grain, processed grain, oilseed and processed oilseed inventories are stated at
net realizable value. All other inventories are stated at the lower of cost or
net realizable value. The costs of certain energy inventories (wholesale refined
products, crude oil and asphalt) are determined on the last-in, first-out
("LIFO") method; all other inventories of non-grain products purchased for
resale are valued on the first-in, first-out ("FIFO") and average cost methods.
Estimates are used in determining the net realizable values of grain and oilseed
and processed grains and oilseeds inventories. These estimates include the
measurement of grain in bins and other storage facilities, which use formulas in
addition to actual measurements taken to arrive at appropriate quantities. Other
determinations made by management include quality of the inventory and estimates
for freight. Grain shrink reserves and other reserves that account for spoilage
also affect inventory valuations. If estimates regarding the valuation of
inventories, or the adequacy of reserves, are less favorable than management's
assumptions, then additional reserves or write-downs of inventories may be
required.

Derivative Financial Instruments


We enter into exchange-traded commodity futures and options contracts to hedge
our exposure to price fluctuations on energy, grain and oilseed transactions to
the extent considered practicable for minimizing risk. Futures and options
contracts used for hedging are purchased and sold through regulated commodity
exchanges. We also use over-the-counter ("OTC") instruments to hedge our
exposure on fixed-price contracts. Fluctuations in inventory valuations,
however, may not be completely hedged, due in part to the absence of
satisfactory hedging facilities for certain commodities and geographical areas
and, in part, to our assessment of our exposure from expected price
fluctuations. We also manage our risks by entering into fixed-price purchase
contracts with preapproved producers and establishing appropriate limits for
individual suppliers. Fixed-price sales contracts are entered into with
customers of acceptable creditworthiness, as internally evaluated. The fair
values of futures and options contracts are determined primarily from quotes
listed on regulated commodity exchanges. Fixed-price purchase and sales
contracts are with various counterparties, and the fair values of such contracts
are determined from the market price of the underlying product. We are exposed
to loss in the event of nonperformance by the counterparties to the contracts
and, therefore, contract values are reviewed and adjusted to reflect potential
nonperformance. Risk of nonperformance by counterparties includes the inability
to perform because of a counterparty's financial condition and also the risk
that the counterparty will refuse to perform on a contract during periods of
price fluctuations where contract prices are significantly different than the
current market prices.

Pension and Other Postretirement Benefits


Pension and other postretirement benefits costs and obligations are dependent on
assumptions used in calculating such amounts. These assumptions include discount
rates, health care cost trend rates, benefits earned, interest costs, expected
return on plan assets, mortality rates and other factors. In accordance with
U.S. GAAP, actual results that differ from the assumptions are accumulated and
amortized over future periods and, therefore, generally affect recognized
expenses and the recorded obligations in future periods. While our management
believes that the assumptions used are appropriate, differences in actual
experience or changes in assumptions may affect our pension and other
postretirement obligations and future expenses.

Deferred Tax Assets and Uncertain Tax Positions


We assess whether a valuation allowance is necessary to reduce our deferred tax
assets to the amount that we believe is more likely than not to be realized.
While we have considered future taxable income, as well as other factors, in
assessing the need for the valuation allowance, in the event that we were to
determine that we would not be able to realize all, or part of, our net deferred
tax assets in the future, an adjustment to our deferred tax assets would be
charged to income in the period such determination was made. We are also
significantly impacted by the utilization of tax credits, some of which were
passed to us from CHS McPherson (formerly known as NCRA), related to refinery
upgrades that enable us to produce ultra-low sulfur fuels. Our tax credit
carryforwards are available to offset future federal and state tax liabilities
with the tax credits becoming unavailable to us if not used by their expiration
date. Our net operating loss carryforwards for tax purposes are available to
offset future taxable income. If our loss carryforwards are not used, these loss
carryforwards will expire.

Tax benefits related to uncertain tax positions are recognized in our financial
statements if it is more likely than not that the position would be sustained
upon examination by a tax authority that has full knowledge of all relevant
information. The benefits are measured using a cumulative probability approach.
Under this approach, we record in our financial statements the greatest amount
of tax benefits that have a more than 50% probability of being realized upon
final settlement with the tax authorities. In determining these tax benefits, we
assign probabilities to a range of outcomes that we feel we could ultimately
settle on with the tax authorities using all relevant facts and information
available at the reporting date. Due to the complexity of these uncertainties,
the ultimate resolution may result in a benefit that is materially different
than our current estimate.

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Long-Lived Assets

Property, plant and equipment is depreciated or amortized over the expected useful lives of individual or groups of assets based on the straight-line method. Economic circumstances, or other factors, may cause management's estimates of expected useful lives to differ from actual.


All long-lived assets, including property, plant and equipment, goodwill,
investments in unconsolidated affiliates and other identifiable intangibles, are
evaluated for impairment in accordance with U.S. GAAP, at least annually for
goodwill, and whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset or asset group may not be recoverable. For
goodwill, our annual impairment testing occurs in our fourth quarter. An
impaired asset is written down to its estimated fair value based on the best
information available. Fair value is generally measured by discounting estimated
future cash flows. Considerable management judgment is necessary to estimate
discounted future cash flows and may differ from actual.

We have asset retirement obligations with respect to certain of our refineries
and other assets due to various legal obligations to clean and/or dispose of the
component parts at the time they are retired. In most cases, these assets can be
used for extended and indeterminate periods of time, as long as they are
properly maintained and/or upgraded. It is our practice and current intent to
maintain refineries and related assets and to continue making improvements to
those assets based on technological advances. As a result, we believe our
refineries and related assets have indeterminate lives for purposes of
estimating asset retirement obligations because dates or ranges of dates upon
which we would retire a refinery and related assets cannot reasonably be
estimated at this time. When a date or range of dates can reasonably be
estimated for the retirement of any component part of a refinery or other asset,
we will estimate the cost of performing the retirement activities and record a
liability for the fair value of that future cost.

We have other assets that we may be obligated to dismantle at the end of corresponding lease terms subject to lessor discretion for which we have recorded asset retirement obligations. Based on our estimates of the timing, cost and probability of removal, these obligations are not material.

Effect of Inflation and Foreign Currency Transactions

We believe that inflation and foreign currency fluctuations have not had a significant effect on our operations during the three years ended August 31, 2017, since we conduct a significant portion of our business in U.S. dollars.

Recent Accounting Pronouncements

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

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Perry L. Meyer Independent Director
Shirley E. Cunningham Chief Operating Officer-Ag Business & EVP
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