Newsletter Archive

Patronage allocation explained by Mike Thomas, CFO

Heart to Heart, March 2010 Connections

Following the distribution of patronage checks in January, we received a number of calls with questions regarding patronage distribution. I thought this would be the perfect opportunity to provide a brief explanation of patronage distribution.

During our normal business cycle most of the revenue recognized falls in the October-February time frame. Grain is merchandised, fall field work is being done, heating season is in full swing, drying and storage of grain takes place and rebates on crop protection products and seed are received. This generates most of the local operating savings for the year. The rest of the year, even though there is a great amount of activity taking place, is almost breakeven as far as local operating savings.

This period of high local operating savings was not included during Heart of Iowa Cooperative’s eight month year from February 1, 2009 to September 30, 2009.  If you recall, HOIC/SCE operated its first fiscal year on a short, eight month year. This was necessary to bring two companies with different year ends, into the same cycle. This was reflected in patronage distribution as operating savings available to be returned to members as patronage was greatly diminished. Our budget and goal for this eight month period was to generate local savings of approximately $500,000.  We were able to generate almost $1.3 million in local savings so we were quite pleased with the outcome, which totaled about 260% of what we had hoped to achieve.

Members from the NW Region (old HOIC) received their harvest 2008 patronage in their checks written in March 2009.  Members in the SE Region (old SCE) received their harvest 2008 patronage in their checks written in April 2009 for that five month year.  Harvest 2009 patronage for all members will be in the patronage checks written in January 2011, assuming that patronage is declared. No member lost the business that they did during harvest of 2009 just the timing changed with the change of our fiscal year end to September 30. 

Specifically, this is how we calculate patronage.

If Refined Fuel/LP savings and income are 20.00%, then expenses distributed are 20.00% of the total expenses distributed.
Member business is calculated by taking amount of business done by members in each area and dividing by the total sales in each area.
If total sales for Refined Fuel/LP is 10,000,000 gallons and members bought 3,000,000 gallons, then the member business percentage is 30 perceent.
Net savings is taken times percentage of member business
Savings & Income – Expense x Member Percentage = Member Business Profit to be allocated
2,500,000 – 2,200,000 x .30 = 90,000
This number is then divided by member business to determine patronage rates
Allowable Allocated Patronage / Member sales = Patronage Rate
90,000 / 3,000,000 = .0300/gallon