working together for long-term financial success
TRANSCRIPT
WORKING TOGETHER FOR LONG-TERM
FINANCIAL SUCCESS
Robert (Bob) White, Farm Loan Chief - FSA
Greg Reno, Regional Banking Executive
• Honestly, where are we
economically?
• How did we get here?
• Is everyone feeling the same
pressure?
• How have lenders & FSA
responded?
QUESTIONS OF THE DAY
• During the 1990s U.S.
net farm income
averaged $76 billion
• From 2020 through
2025, U.S. net farm
income is forecasted
to average $75 billion
• This forecast is well
above the 1980s
($60.5) but well below
the 2010s ($92.8)
0
20
40
60
80
100
120
140
160
180
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
U.S. Net Farm Income
Net Farm Income 1990s 1980s
Billion Dollars, $2019
What is normal?
The average net farm income from 1960
to 2019 is $79 billion
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NATIONALLY, WE’RE BACK TO THE ‘NORMAL’ 1990s
Source: USDA
• Sharp price decline
similar to mid-1990s
• On an inflation
adjusted scale, prices
aren’t much better
today than the 1990s
• Interest rates are too
different for a 1980s
comparison
• When did you start
farming?
50
100
150
200
250
300
Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
Kansas Weighted Price Index
Kansas Weighted Price Index* Inflation Adjusted
Index, 2005 = 100
Above 100 =
Prices Higher
than 2005
Increasing global demand, ethanol, major
U.S. and global supply disruption
(drought), zero-bound interest rates, etc.
B C D
A
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HOW DID WE GET HERE?
* Weighted based on each commodities share of production
Sources: USDA, Federal Reserve Bank of St. Louis and author’s calculation
Despite Price Decline,
Expenses Continue to Climb
50
75
100
125
150
175
200
225
250
1990 1995 2000 2005 2010 2015
Inputs Machinery Labor Interest
Index, 2005 = 100
Above 100 = Inflation
adjusted spending
higher than 2005
Farmers and Bankers Feel the
Pinch
5
HOW DID WE GET HERE?
0
20
40
60
80
100
120
140
160
1991 1995 1999 2003 2007 2011 2015 2019
Repayment Rates Household Spending Capital Spending
Diffusion Index, 100 = Neutral
Increasing
Decreasing
Sources: USDA, Federal Reserve Bank of Kansas City and author’s calculations
* This does not factor in living expenses, health care costs, cash distributions, etc. In other words, this does not mean that each farmer pocketed $95,530 during
the 1990s.
Sources: Kansas Farm Management Association, USDA and author’s estimates
• The average Kansas
farm income during the
1990s was $95,530
per farm (inflation
adjusted)*
• Like the national
situation, Kansas is
doing somewhat better
than the 1980s but
worse than the 2010s
• A 1990s-like scenario
seems logical-200,000
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Kansas Farm Income
Range of Bottom & Top 25% Average 1990s Avg 1980s Avg
Dollars, $2019
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WHAT ABOUT KANSAS FARMS?
Author’s estimation
“The business of the market
is to put average
businesses out of business”- M i ke G unde r son , P ur due Un i ve r s i ty
Sources: Kansas Farm Management Association, USDA and author’s estimates
• Manage as a business
• Long-term planners and
strategists
• Seek out value additions
to their operation
• Integrated price and
supply chains
• Fight harder during the
good times
• Niche market
extraordinaire
• Have great finance
business solution
partners
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Kansas Farm Income
Average Top 25%
Dollars, $2019
There is a consistent group that does
well… who are they?
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IS EVERYONE STRUGGLING? WHO IS NOT AN AVERAGE
BUSINESS?
• Historically, land
values have
been
comparatively
stable
• Stable to
increasing
values in 2018
• Stable values
provide a
backbone to ag
-40
-30
-20
-10
0
10
20
30
40
50
1990 1994 1998 2002 2006 2010 2014 2018
Annual Percent Change in Asset Values
Dow Jones Industrial Average Gold Nonirrigated Land Value*
Percent Change from Previous Year
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LAND VALUES ARE STILL HOLDING
* Includes Kansas, Nebraska, Colorado, Oklahoma and western Missouri
Source: Federal Reserve Board of Governors, Federal Reserve Banks of Kansas City and St. Louis.
0
100
200
300
400
500
600
700
800
900
1000
1990 1994 1998 2002 2006 2010 2014 2018
Changes in Asset Values
Dow Jones Industrial Avg Commercial RE Gold Nonirrigated Land*
Index, 1990 = 100
Above 100 = Asset
Value Increasing
Above 1990
10
LAND VALUES ARE STILL HOLDING
* Includes Kansas, Nebraska, Colorado, Oklahoma and western Missouri
Source: Federal Reserve Board of Governors, Federal Reserve Banks of Kansas City and St. Louis.
• Historically, land
values have
been
comparatively
stable
• Stable to
increasing
values in 2018
• Stable values
provide a
backbone to ag
• Charge-off rates
remain very low
• Historically,
farms are more
resilient than
other industries
• Cycles are
unforgiving, but
farmers have
weathered them0
1
2
3
4
5
6
7
1990 1994 1998 2002 2006 2010 2014 2018
Charge-Off Rates by Industry
Business Loans Farmland Consumer Loans
Commerical Mortgages Farm Operating Residential Mortgages
Percent
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LOAN PERFORMANCE: AGRICULTURE VS THE REST
Source: Federal Reserve Board of Governors
Sources: American AgCredit, Federal Reserve Bank of Kansas City
• Growth continues to
outperform the industry
• Asset and credit quality
remains excellent
• Loan portfolio remains
diverse and therefore
more resistant to
individual commodity
shocks
• Strong financial
performance leads to
strong patronage
dividends
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AMERICAN AGCREDIT IS GROWING LIKE THE TOP 25%
80
100
120
140
160
180
200
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
American AgCredit Loan Growth
Total AAC Loans U.S. Commercial Bank Ag Loans
Index, Dec 2012 = 100
Above 100 = Loan
volume higher than
Dec 2012
HOW HAVE LENDERS & FSA
RESPONDED?
Farm Service Agency,
Farm Loan Programs
Direct Loan – Loans are
made and serviced by
FSA.
Guaranteed Loan – FSA
provides a guarantee of up
to 95% to a commercial
lender.
Farm Service Agency,
Farm Loan Programs
• Farm Ownership (FO)
• Operating (OL)
• Line of Credit (LOC)
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Loans to Beginning Farmers & Ranchers
• Has not operated a farm for more than 10 years.
• Does not own real farm property or who, directly or
through interests in family farm entities owns real
farm property, the aggregate acreage of which does
not exceed 30% of the average acreage of the
farms in the county where the property is located.
(127.5 acres in Riley Co.)
Beginning Farmer Loans
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Definition of Underserved Applicant for FSA Farm Loan Purposes:
A group whose members have been subject to racial, ethnic, or gender prejudice because of their identity as members of the group without regard to their individual qualities.
These groups include:
Women
American Indians
Alaskan Natives
Asians
Hispanics
Native Hawaiians or other Pacific Islanders
Blacks or African Americans
A certain percentage of farm loan program funding is targeted for Underserved Applicants.
Underserved Applicant
Beginning Farmer – Jane Doe
Purchasing 25 Cows for $50,000
Purchasing 80 acres for $200,000
Parents to Provide Machinery
No debts, $15,000 Cash on Hand
Projected Income and Expenses
Gross Farm Income 40,000
Farm Operating Expenses 30,000
Non Farm Income 45,000
Living Expenses 30,000
Income / Social Security Taxes 2,500
Net Funds Available for Debt Repayment 22,500
Beginning Farmer – Jane Doe
Purchasing 25 Cows for $50,000
Purchasing 80 acres for $200,000
Parents to Provide Machinery
No debts, $15,000 Cash on Hand
Net Funds Available for Debt Repayment 22,500
Proposed Loans
Guaranteed FO $100,000 30 yr. 6.5% 7,658
FSA Down Payment FO $90,000 20 yr. 1.5% 5,243
(5%, $10,000 Paid down on the real estate)
FSA Microloan OL $50,000 7yr 4% 7,913
20,814
Financially Challenged Operation - John and Jane Doe
Value of Real Estate Owned 1,300,000
Value of Machinery Owned 250,000
Projected Income and Expenses
Gross Farm Income 1,000,000
Farm Operating Expenses 800,000
Living Expenses 50,000
Income / Social Security Taxes 10,000
Net Funds Available for Debt Repayment 140,000
Financially Challenged Operation - John and Jane Doe
Value of Real Estate Owned 1,300,000
Value of Machinery Owned 250,000
Net Funds Available for Debt Repayment 140,000
Existing Loan Payments
ABC Bank Real Estate - $500,000 10 yr. 6.5% 69,553
Purchase on Contract - $400,000 5 yr. 6% 94,959
Dealer Equipment - $150,000 3 yr. 4% 54,053
Carry-Over Coop - $150,000 all due 150,000
368,565
Proposed Loans
Guaranteed FO - $900,000 20 yr. 6% 78,467
Guaranteed LOC - $500,000 5 yr. 5.5% 27,500
FSA Direct OL - $300,000 7 yr. note, 15 yr., 2.625% 24,454
130,421
Honestly, where are we?
• The income cycle is corrected back to the “normal” 1990s, we must reset
our businesses to profit under these conditions
How did we get to this here?
• Revenues have flattened and cost containment continues to be a
challenge
Are all producers struggling?
• A few producers are struggling but others are profitable and there are
options and opportunities available for each group
What are Lenders & FSA doing to help my operation?
• Beginning farmer direct loans and guarantees
• Rebalancing debt to improve liquidity for existing farmers
• Restructuring existing debt to improve cash flow
• Providing long term fixed-rate loans to remove risk from farm loans
• Working together for the long-term financial health of Kansas Agriculture
HERE’S HOW WE SEE IT…
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