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

3

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

6

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

9

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

11

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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