Evaluating Producer Investment in New Generation Cooperatives

Changes in the agricultural industry in recent years have caused producers to seek new ways of remaining competitive. One way producers have gained a competitive advantage is engaging in processing and marketing activities that increase the value of their products. These value - added opportunities can be achieved through new generation cooperatives. However, differences between new generation cooperatives and traditional cooperatives have caused new areas of concern, especially in the valuation of equity. This research begins to evaluate the investment environment that new generation cooperatives have brought forth. An investment valuation model was developed using techniques used by underwriters in valuing initial public offerings. A one-time simulation was performed to find the intrinsic value of new generation cooperative stock, and then tested for producer response using decision analysis, namely Net Present Value and Real Option Theory. In addition, sensitivity analysis was performed on the simulation to observe the effects of changing the model components. Results from the simulation suggest that the Investment Valuation Model provided an accurate estimate of the underlying value of new generation cooperative stock and provided a measure of the average producer\u27 s view of the investment. This paper lays a foundation for future research in the area of new generation cooperative equity valuation