2019Annual Report. 100 years of our cooperative roots.

OO ne hundred years ago... on March 23, 1918—a group of 60 farmers gathered together in West Salem, Wisconsin to see if they could come up with a more efficient way to feed their livestock and bring their beef cattle to market. Together they raised $20,000 and on June 10, 1918 our cooperative was born. They purchased the site of an old hotel for $1,000 and sold feed direct from car to farmer until a warehouse could be built.

In the 1920s the farm economy began a long downward trend. Realizing the value of joining together, it wasn’t long before farmers in Kilbourn (which was later named Wisconsin Dells), Tomah, Mauston and eventually Adams-Friendship also formed co-ops as they sought to gain stability in their farming operations. The sweat equity of our cooperative forefathers got these co-ops off the ground and ensured their early success.

As the co-ops grew there were many obstacles along the way. And they knew that to be successful they would need to be willing to change with the times. Over the years there have been many seasons of change—crop losses, a bank moratorium in the 30s, the energy crisis of the 70s, the farm crisis of the 80s, the list could go on and on. And yet the co-ops continued to adapt to their marketplace—making changes as necessary to ensure the longevity of their organizations.

The look of our co-op changed considerably through the mergers of recent years and yet our commitment to our members and the co-op tradition has stood the test of time. We have become one of Wisconsin’s leading cooperatives while staying true to our roots which are buried deep in mid-Wisconsin soil.

Our 2019 fiscal year closes the books on our first century as a cooperative. Our year was full of challenges, opportunities and change. The agricultural industry experienced a decline in net farm income that reached its lowest level in a decade. The USDA predicted median farm income for 2018 as—$1,553 and a significant increase to that figure is not expected in the year ahead. Worries of another farm crisis have rippled across rural America. Wisconsin lost 638 dairy farms in 2018, according to the Wisconsin Department of Agriculture Trade and Consumer Protection. That’s a 7.25 percent decline in the number of registered dairy herds.

As our members face challenges on the farm, we too have felt the impact at the cooperative level. Yet despite a turbulent marketplace, our focus, hard work and determination yielded better results than one would expect.

The Board of Directors made several key decisions designed to better focus our efforts and our capital on our core businesses of agronomy, feed, grain and energy.

We closed the Mr. Tire Shop in West Salem due to an increase in competition, overall decline in business, and difficulty in finding qualified employees. At the same time, the co-op was presented with an opportunity to sell the I-90 Cenex® convenience store. Competition from competitors with more modern facilities had made it difficult to achieve profitability at this location in recent years. After careful consideration and serious negotiation, Allied Cooperative made the decision to sell the convenience store.

As we continued to take a hard look at underperforming assets, the opportunity presented itself to sell the Fast Fuel business in Wisconsin Dells. Growing regulations and aging equipment required expensive upgrades at this location—upgrades that were not merited given the site’s profitability and potential.

Finally, in October we sold the transload facility in Arcadia. While this was a unique niche in Arcadia for several years, the dynamics in the international distiller market changed dramatically in recent years making profitability very difficult. Because of this, the transload facility had become unoperational.

Addressing the losses at this facility was paramount and so when presented with an opportunity to sell, the Board made the decision to move forward with the sale.

Speaking of change, Timothy Diemert who served as CEO through September 2018, retired after nearly 30 years at the helm. On behalf of our Board of Directors and our entire staff we would like to express our sincere thanks to Tim for his great contribution to our co-op throughout the years. His dedication to the cooperative system and the agricultural industry has been key factors in our growth and success. We thank him and extend to him our best wishes for the future.

As we enter a new era, we are looking forward—willing and eager to explore opportunities for continued success. We will strive to continue offering high-impact, high-value services that provide value to our members. Creating this value is a balancing act that requires discipline and flexibility.

The world we operate in is changing faster than ever before. It is also increasingly complex. It demands technological advances, risk management and oversight as never before. The realities of navigating this challenging environment are many and we must balance member returns with investments in growth and innovation.

Ours is an exceptional company with an extraordinary heritage. Your support is vital as we grow and change to meet the demands of today and the future. I am thankful for our members, who are at the center of everything we do. And I am especially grateful for our 350 talented team members, who work hard every day to ensure we meet our members’ needs. I am honored to lead them.

I look forward to serving you as we embark on our next century as a cooperative. Thank you for your trust and your business!

Sincerely, Timothy Clemens, CEO

Agronomy DivisionAOne hundred years ago, life was changing dramatically for mid-Wisconsin farmers. The shift from animal-powered farming to tractors and combines increased productivity and made what had always been a challenging occupation more efficient. At the time, the largest industry in the U.S. was meatpacking, which was over 50 percent larger than the number two industry, iron and steel. As the population grew so did the need for more farms and more food.

With the rise of machinery American farmers could produce more yields and feed more people. By 1925 one farmer could care for up to 34 acres of land which was almost double what they could care for 30 years prior. Wisconsin had already taken its place as a national leader in the production of vegetables for the food processing industry—a position it maintains a century later.

Where wheat used to be the principal cash crop planted, farmers all but abandoned wheat for corn and alfalfa which were grown to support the growing dairy industry. Still, farm yields were often low with corn producing anywhere from 15-30 bushels per acre. Farmers often faced the perils of drought, crop failure and diseases. In the waning years of the Dust Bowl and Great Depression, new corn hybrids resulted in yield improvements of about .8 bu/acre each year through 1955.

In the mid-1950s yields really took off as the use of nitrogen fertilizer and chemical pesticides became more prevalent. Since 1955, corn grain yields have increased an average of 1.9 bu/acre per year thanks to continued improvements in genetics and crop production technologies.

Weather played a significant role in crops during our 2019 fiscal year. Late spring snow and late summer flooding affected crops throughout our trade territory. Still, overall corn yields averaged 177 bu/acre and some of our growers achieved yields over 300 bu/acre.

With low commodity prices taking a toll on farm income, helping growers achieve maximum yields is a priority for us now more than ever. Whether it’s a row crop, vegetable crop, cranberries or something else—our goal is to provide practical and profitable solutions that fit each unique operation.

We have invested in the technology, facilities, and capabilities that will support our growers now and into the future. We added seven new machines to replace some older equipment and added a new dry spinner machine in Plover. Replacing equipment as it ages helps us keep breakdowns to a minimum and helps keeps our dependability where it needs to be.

Our precision ag team has worked hard to stay on top of the latest technologies and advancements that improve efficiencies, minimize waste and maximize our grower’s return on investment for crop inputs. Our Pest Pros labs forged a partnership with Wisconsin Soybean Marketing Board to provide free SCN (soybean cyst nematode) testing to producers helping them stay ahead of the damage caused by nematode infestations.

Our 2019 fiscal year had its challenges. High crop input prices pushed inventory expenses and created volatility across the board. But our team worked hard to manage these issues and is making adjustments to help ensure future success with a sensible business plan. As we close the books on our first century of doing business, Allied’s agronomy division is optimistic about the future.

Energy Division EPetroleum products have been an important part of your cooperative’s product mix since the days of the Great Depression. The co-op entered into the distribution of petroleum products in 1935, using one truck until 1938 when a second tankwagon was purchased.

Through the years the Energy Division has only grown—both in products and services and the number of customers served. Mergers and acquisitions grew our trade territory and today the department has 26 employees and serves customers throughout mid-Wisconsin.

The Energy Division enjoyed a good financial year in the 2019 fiscal year. Energy is a fundamental requirement of all of our patrons and we continue to provide a wide range of products and services to keep your farm and business moving forward and your home warm and comfortable.

Bulk PetroleumVolatility is the key word in the refined fuels department. Prices in this fiscal year started out on an upward trend and continued strong through most of the summer and early fall before decreasing near the end of the year to prices below where they started the year. Our risk management tools are increasingly popular in these current times.

We work hard to Customer service, reliable high-quality fuel, and employee knowledge are the factors that set us apart from our competitors. Sales in this department increased from $8.9 million to $10.8 million -- nearly a $2 million increase. We continue to increase our sales in the ag segment, as well as with construction and fleets.

Transport FuelsSimilar to bulk petroleum, this high volume department had a solid year. Total gallons were slightly down from last year, but total sales were up.

The benefits of Cenex® Premium diesel fuel continue to show especially in several new trucking fleets which have seen tremendous performance and savings with Cenex Premium diesel.

The frac sand industry has also had its ups and down throughout the year, but it continues to be an important part of this division.

AFD Our AFD (Automated Fuel Delivery) department had another solid year delivering Cenex premium fuels. With a fuel sensor and electronic tank monitoring system installed on the customer’s tank, this program practically manages itself and is well-regarded by our customers who utilize the service.

PropaneMother Nature plays a major role in the success of our propane department, and our 2019 fiscal year was one for the record books. We purchased a new bobtail and were thankful for it as the extra truck came in handy during the busy heating season. The year started fairly mild, but record snowfall in late April kept the propane department busy well past its normal heating season. Fall flooding resulted in a very busy grain drying season. We finished the year with a polar vortex which plummeted the thermometer to extreme temperatures that we haven’t seen in decades. While the results looked good on the bottom line, it was a tough season for our hard-working operations team, who faced brutal conditions and worked long days and many Saturdays to make sure our customers stayed cozy and comfortable.

Feed Division FIn early 1918, farmers were seeing prosperity like they had never seen before. Tractors were taking off and they were improving production considerably. At the time, 9 out of every 10 acres farmed in Wisconsin was used for the feeding of cattle and West Salem was the hub for the cattle shipping business in rural Wisconsin. The demand for farm goods and services were great, but the logistics of meeting that demand was troublesome.

Just like farmers of today, the Wisconsin farmers of 1918 were good at taking care of business. And so a movement was started to create a cooperative that could facilitate the shipping of cattle and the purchase of feed products in bulk for area farmers. Thus, Farmer’s Cooperative Supply and Shipping Association of West Salem, Wisconsin was born.

Through the years the number of farms in Wisconsin has decreased each year, yet production has consistently increased. Changes in equipment and nutritional supplements have made a huge impact on the output seen on the farm. Production has never been higher than it was in our last fiscal year. Still, it has not been without its highs and lows.

2019 was a tough year in the Feed Division. Challenging market conditions, primarily in the dairy and hog industries, have made profitability extremely difficulty. Our producer members have worked diligently to manage purchased feed costs, having just completed a fourth consecutive year of depressed milk prices.

As our producers have felt the sting of a difficult market environment, so has your cooperative. The Feed Division has worked diligently to manage costs and

improve efficiencies in our own operations, and will continue to focus on this in the new year.

We have implemented new software program to manage HACCP (Hazard Analysis and Critical Control Points) and FSMA (Food Safety Modernization Act) regulatory issues. While the process is time-consuming the new program is adding efficiency to the complicated procedures now required by the FDA.

Unfortunately, it was an expensive year for repairs. We made major repairs to both our mixer and our hammer mill. Truck repairs and general maintenance on aging equipment added to the expense of an already difficult year.

The changing landscape of the feed and livestock industry is not difficult to see, but we are working hard to try to keep feed costs as low as possible while maintaining the service you have come to expect from your cooperative.

Grain Division GIn 1922 Congress passed the Capper-Volstead Act. This act specifically recognized the value of cooperatives by granting farmers the right to “act together in associations” without violating the federal antitrust laws. This act provided co-ops with the opportunity for a fair price on the open market. Kilbourn Co-op Exchange, Tomah Co-op Services and Mauston Farmer’s Co-op—which had been founded in 1919, 1920 and 1922 respectively—really came into their own during this period as they helped area growers market their goods.

The Kilbourn Co-op Exchange became a valuable resource for the potato growers to the north in shipping their product to market. At the same time, members of the Mauston and Tomah co-ops were able to collectively market their grain for a better profit.

With each passing year, dating all the way back to those early beginnings, the only thing certain in agriculture is change. No two years present the same challenges, or obstacles and this year was full of plenty for your cooperative to navigate. This year the grain division faced a familiar challenge of extreme weather conditions that effected yields, but it also faced new political challenges that disrupted much needed export markets that effect demand for commodities.

The growing season started a little later than we have become accustomed to in previous years, due to plenty of snowfall in the month of April. This kept most producers out of the fields ‘til May. May weather cooperated nicely and provided a window to get the crop in the ground. The month of June provided above average temperatures for the crop to catch up quickly and things looked promising. The month of July was a challenge for many areas of our trade territory as we were entering pollination for corn and precipitation was scarce for many. With warm weather and little to no rain for several weeks in areas of our trade territory, yields were severely affected compared to previous years. With August came historic flooding for the southern half of our trade territory. A single storm event dumped in excess of 7.5” of rain overnight in localized areas caused flooding that flattened and destroyed once promising fields.

The month of September marked the start of harvest. Harvest began on September 11th this year with the first load of new crop soybeans. That load marks the earliest harvest start date ever for Allied. Although we got an early start to harvest, a cold wet fall led to a long drawn out harvest that lasted into December and January for much of the trade territory. Wind and snow events provided more challenges for many growers with downed crops and yield left in the field. The United States as a whole had a tremendous growing season, unfortunately our yields locally were down around 10% from the previous year. Average harvest moisture on corn was drier than the previous year, which led to a reduction in drying revenue for the grain division from the previous year.

It was another year of low commodity prices for corn, soybeans, and wheat. There were opportunities for profitable sales for producers if they contracted when we had futures market rallies. Those that chose not to contract faced prices below the cost of production at harvest. With large old crop carry-out ending stocks domestically the grain division was able to capitalize on strong futures market carries to achieve solid margins on grain sales.

The trade war with China escalated in July when China imposed a 25% tariff on soybeans imported from the United States. This had a negative effect for soybean basis as China is the largest export buyer of U.S. soybeans. With the

reduced demand for U.S. soybeans it led to the weakest basis levels many of us have ever experienced locally due to low demand. Despite the weakening basis values, the grain division was still able to experience solid margins on soybean sales due to its risk management strategies.

In October, the decision was made to sell the trans-load business in Arcadia. A once booming niche business had seen tough times in recent years due to changing demand and logistical models for DDGS, its primary trans-load product. The sale of this asset allows the grain division more time to focus on core business functions moving forward and providing excellent service to our producers.

Retail Division RThe retail marketplace has changed considerably over the past 100 years. Back when our co-op was founded, families shopped at the local general store or rifled through the pages of the Sears Roebuck and Montgomery Ward catalogues to purchase just about anything they needed or wanted. In many ways the early catalogues were a precursor to the internet and how people are doing business today, with the biggest difference being analog versus digital.

Your cooperative has held a retail presence for decades, primarily with farm supply products. As the world around has changed, the co-op has adapted its stores, services and product mix in order to better meet the needs of its members.

Over the past decade, we’ve seen significant changes in Wisconsin’s retail landscape. Our retail division has faced a variety of challenges, from the changing demographics of the communities we serve to the impact of competition from both traditional and non-traditional retailers in their markets. Quite simply, people don’t shop the same way they used to.

As retail profits have declined, your cooperative has diligently studied each department, implementing changes as necessary in an effort to boost profitability for the co-op as a whole.

Ace HardwareAllied’s Ace Hardware team was recognized by Ace Hardware Corporation as a “Platinum Performing Retailing Store” for its outstanding performance—performance that revolves around the expertise and knowledge of our friendly staff. That is what sets us apart from the Big Box stores; still we continue to feel the shift in customer purchase patterns and continually address what is selling and what is not.

The LP filling station was moved from Mr. Tire to the Ace location and has been well received by our customers. Conveniently located between two campgrounds, we continue to increase LP sales. Plans are in place to complete a store reset in the upcoming year to improve our product selection and customer shopping experiences along with added online ordering through Ace with pickup at our store.

Arcadia Service CenterThe Arcadia Service Center continues to provide superior customer service in an ever changing and competitive market.

Personal care of our customers’ vehicles keeps them coming back. The addition of an LP filling station to this location is seeing increased use and provides another great service to our members.

Cenex Pump 24The staff at Cenex Pump 24 continued to focus on customer service, and it paid off in two perfect scores from Cenex in its Secret Shopper evaluations. Though increased local competition created some challenges for the department, the store’s adjacency to McDonalds helped drive store traffic. The store installed a new air-pump for the convenience of its customers.

Fast FuelsProfits had been dwindling at Fast Fuel in Wisconsin Dells. At the same time growing regulations and aging equipment required expensive upgrades that were not merited given the profitability and potential at this location. So in April 2018 when presented with the opportunity to sell, the Board of Directors made the decision to move forward with the sale.

Transportation DivisionTAllied Cooperative’s Transportation Division supports our agronomy, energy, feed and grain divisions. With a large fleet of semi-trucks and trailers, the co-op is able to move product quickly and act on market opportunities as they arise.

Our professional drivers haul fuel, anhydrous ammonia, liquid fertilizer, dry fertilizer and propane throughout the region. Their goal is to support the divisions of Allied Cooperative and our customers by giving them the best and most efficient service possible.

The Transportation Division has drivers throughout our trade territory with hubs in Adams, Arcadia, Mauston and West Salem.

I-90 CenexFor years the I-90 Cenex convenience store has struggled to hold its own against the competition in the West Salem marketplace. To make this site profitable again we knew we would need to spend hundreds of thousands of dollars to remodel and revitalize this facility. And even then it would be a gamble as to whether we could effectively compete in this marketplace. After careful consideration and serious negotiation, Allied Cooperative made the decision to sell the I-90 Cenex convenience store. The sale was finalized in July 2018.

Mauston Tire ShopThe Mauston Tire Shop continues to excel, working out of their small shop in Mauston. A new tire truck was put into service and has been a real asset to the department.

Mindoro Country StoreThe Mindoro Country Store continues to provide an important presence in the Mindoro area. While several changes were made to the services and selection of products offered, the store remains a vital stop for our customers. Even with these changes, total sales and profitability of the store were up from last year.

Mr. TireIn April, we made the decision to close the Mr. Tire shop in West Salem. After the retirement of our lead mechanic, the challenge of finding qualified mechanics was a very real obstacle for this business. In addition, the changing marketplace, increased competition and an overall decline in the amount of business performed at this location made it the right decision for our cooperative.

NAPA – Adams & MaustonAllied Cooperative continues to provide a valuable service to area shops and local communities through its NAPA Auto

Parts stores. The store’s focus this year has been on improving efficiencies through training of employees and streamlining daily management practices. The stores have also been looking closely at updating inventory and adding new product lines.

Tomah Country StoreThe Tomah store rebranded itself the “Tomah Country Store” in an effort to increase traffic and boost its retail identity. Store management is continuing to adjust the product marketing mix and as it works to grow the business at our Tomah location.

ALLIED COOPERATIVE AND ITS SUBSIDIARYCONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended January 31, 2019 and 2018

ALLIED COOPERATIVE AND ITS SUBSIDIARYCONSOLIDATED BALANCE SHEETS

Years Ended January 31, 2019 and 2018

Total Sales $205,859,761

Highlights John VehrenkampChairman of the Board

Tom WalkerFirst Vice-Chairman

Leon PfaffSecond Vice-Chairman

David RundahlFirst Secretary

Paul ZastoupilSecond Secretary

Jim Bays IIBoard Member

Rick GeskeBoard Member

Mark HelmingBoard Member

Jeremie PavelskiBoard Member

Board of Directors:From top (L to R):The Year in Review

Our MissionTo provide quality products and services to our customers at a competitive advantage while creating value and profitability for our member patrons and our cooperative.

Our VisionTo be one of the best agri-businesses by providing an environment for change with future technology, communication, and business practices.

February 2018 • Feed division hosts spring beef meetings • Allied team works hard during busy event seasonMarch 2018 • Allied hosts leadership training seminar • Feed team holds calf meetings • Mauston Tire Shop gets new service truck • Mr. Tire closes its doors • Ace hosts Kids Craft dayApril 2018 • Cold and snowy April gives spring planting a late start • Feed department hosts Chick Days • Feed departments hosts “Just Show It” livestock showing and fitting clinic • Allied participates in Adams-Friendship’s Kids DayMay 2018 • Excessive May rains complicate spring planting • Alice in Dairyland contestants tour Allied Cooperative • LP filling station installed at Ace Hardware • Allied awards $13,000 in scholarships to area students

June 2018 • Allied Cooperative hosts Annual Meeting • Agronomy division assists UW with innovative endeavor at Hancock Research Station • Ace Hardware recognized as a “Platinum Performance Retail Store” • Energy division exhibited at Wisconsin School Bus Association trade show • Tomah Store rebranded “Tomah Country Store” • Allied employees step up to promote dairy during June Dairy Month • Allied participates in state FFA conventionJuly 2018 • Allied participates in area parades • Allied sells I-90 Cenex to Kwik Trip • Answer Plot held to educate growers • Allied exhibits at Farm Technology DaysAugust 2018 • Allied supports youth at area livestock shows • Late August storms flood communities throughout Allied trade territory • Feed division participates in the Adams County Humane Society’s annual Park & Bark event • Allied breaks ground for new storage facility in West Salem

September 2018 • Long-time CEO Tim Diemert retires • Tim Clemens hired as new CEO • Allied participates in Blair Cheese Fest Parade • Arcadia Agronomy hosts Field Day • Answer Plot Open House held in West SalemOctober 2018 • Grain Division inspires the next generation at “Agriculture Career Day” • Allied shows community spirit at “Trunk or Treat” festivities • Construction continued at West Salem warehouse facilitiesNovember 2018 • Tim Diemert honored by Cooperative Network with the “Cooperative Builder Award” • Allied sells Arcadia transload facility • $200,000 scratch-off lottery ticket sold at Mindoro Country Store • Feed division teach Animal Fundamentals at A-F High SchoolDecember 2018 • Mauston NAPA hosts “Pet Pictures with Santa” • Allied teams with Land O’Lakes to deliver $26,000 to area food pantriesJanuary 2019 • Growers recognized at annual yield banquets • Employees celebrated together at annual holiday party

CEO, Tim Clemens receiving the leadership baton from former CEO Tim Diemert.

ADAMS ADMINISTRATION OFFICE / LP GAS / FUEL 540 S Main St • PO Box 729 • Adams, WI 53910 608.339.3394 / 800.247.5679AGRONOMY & GRAIN 251 Railroad St • Adams, WI 53910 608.339.3698 / 800.331.3073 (Agronomy) 608.339.0357 (Grain)CENEX PUMP 24 451 S Main St • Adams, WI 53910 608.339.3626NAPA AUTO PARTS 540 S Main St • Adams, WI 53910 608.339.6412

ARCADIAOFFICE / LP / AUTO SERVICE CENTER N28281 State Rd 93 • Arcadia, WI 54612 608.323.3311FEED Commercial St • Arcadia, WI 54612 608.323.3818AGRONOMY 245 Van Buren St • Arcadia, WI 54612 608.323.2144

BLAIR EAST GRAIN PLANT 1015 E Broadway St • Blair, WI 54661 608.989.2298WEST GRAIN PLANT 420 N Park Rd • Blair, WI 54661 608.989.2335

GALESVILLE AGRONOMY W19801 Winnebago Rd • Galesville, WI 54630 608.582.4711

MAUSTON AGRONOMY / FEED / GRAIN / TRANSPORTATION N3709 LL Townline Rd • Mauston, WI 53948 608.847.6006 (Agronomy) 608.847.6896 (Feed) 608.847.5212 (Grain) 608.847.1642 (Transportation)MAUSTON TIRE SHOP / NAPA AUTO PARTS 310 Prairie St • Mauston, WI 53948 608.847.1640 (Tire Shop) 608.847.7501 (NAPA)

MINDORO MINDORO COUNTRY STORE N8319 Cty Rd C • Mindoro, WI 54644 608.857.3414

PLAINFIELD PEST PROS 10086 1st St • Plainfield, WI 54966 715.335.4046

PLOVER AGRONOMY 4809 Monroe Ave • Plover, WI 54467 715.345.1955 715.498.2767 (cell)

TOMAH DOWNTOWN OFFICE / LP TOMAH COUNTRY STORE & FEED 711 Fair St • Tomah, WI 54660 608.372.2458 / 800.338.6624AGRONOMY / GRAIN 10533 Estate Rd • Tomah, WI 54660 608.372.2090

WEST SALEM OFFICE LP GAS / FUEL / ACE HARDWARE 570 Commerce St • West Salem, WI 54669 608.786.1100 / 800.657.5189 (Office/LP/Fuel) 608.786.4141 (Ace Hardware)AGRONOMY / FEED / GRAIN 165 S Mill St • West Salem, WI 54669 608.786.1103 (Agronomy) 608.786.1102 (Feed) 608.786.4154 (Grain)

WISCONSIN RAPIDS GRAIN PLANT 3990 Commerce Dr • Wis Rapids, WI 54494 715-423-3000

www.allied.coop 2019