CHS Inc., the nation's largest farmer-owned cooperative, continues to expand in the energy business.

The company based in Inver Grove Heights said Thursday that it will invest $406 million to increase output of its Laurel, Mont., oil refinery, mainly to boost diesel production. It comes as CHS already is expanding its McPherson, Kan., oil refinery in a $327 million project announced last year.

The upgrades to CHS' two oil refineries will increase their combined output to 160,000 barrels per day, up from 140,000 barrels, or a 14 percent gain. The projects position the co-op to produce more diesel fuel, which is widely used by farmers.

"In our markets diesel demand is very, very strong," Jay Debertin, CHS executive vice president and chief operating officer for energy and foods, said in an interview. "Diesel is a very big need of our owners. We focused hard on increasing diesel production. Demand in our area is growing."

In June, CHS also re-entered the ethanol production business by acquiring a 133-million-gallon-per-year ethanol plant in Rochelle, Ill.

Debertin said the oil refinery investments are a key part of CHS' strategy to be the leading energy supplier in rural America. CHS also sells motor fuels under the Cenex brand, with 1,400 retailers in 19 states. The cooperative has 600,000 farmer owners.

Energy is a major part of the co-op's balance sheet. CHS' energy segment earned $816.7 million before taxes for the fiscal year that ended in August 2013. Energy has produced 55 percent to 75 percent of CHS pretax earnings over the past three years.

The CHS oil refinery upgrades also include a new, $555 million coker to process heavy crude oil in Kansas. The latest project at the Montana refinery will install a new hydrogen plant and modify its crude unit and key component called a hydrocracker to boost diesel production and allow the refinery to process additional types of crude oil. The projects are expected to be finished in 2019.

Debertin said the Montana refinery mostly processes heavy crude oil from Alberta along with lesser amounts of crude from northern Montana and Wyoming. The Kansas refinery runs light crude extracted in that state, some Bakken crude oil and Canadian heavy crude. Both refineries are supplied via pipelines.

About half the output of the CHS refineries is diesel fuel, which is higher than typical U.S. refineries, he added.

CHS is in the final year of a four-year process to acquire full ownership of the Kansas refinery for $350 million. CHS had owned 75 percent of that facility. After CHS completes the takeover and the refining upgrades, its output of refined products will be one-third greater than in the past.