Livestock Financing Perspectives Angie Treptow Regional Vice President

Farm Credit Services of America Customer-Owned Cooperative serving all of Iowa, Nebraska, South Dakota, Wyoming, and the eastern 1/3 of Kansas 57,000 Member-Customers $30 billion in loans 48 retail offices 1,750 employees

Industry concentration Farm Credit Services of America Finances $8.2 Billion to Livestock Operations

Agenda Considerations for Financing Expectations of Customers Financial Management Strategies

Considerations for Financing 2-3 years financial information Breakeven analysis Sensitivity analysis or What If’s Production records for at least 1 year Production efficiency ratios compared to industry Provide Good understanding Source of livestock (possible due diligence needed) Genetics Livestock Flow

Consideration for Financing Risk Management Agreements / supplier contracts Monitoring Borrowing Base Monthly / Quarterly Financials Monthly production Payments to match income stream

Borrowing Base Analysis   Collateral Advance Borrowing Owned Cattle $735,243 70% $514,670 Owned Cattle - Hedged/Contracts $277,369 80% $221,895 623 Totat head Deposits in Transit (≤ 10 Days) $32,000 100% Cattle Purchase Down Payment $66,500 75% $49,875 Other Eligible Trade A/R's (<30 days) Other A/R's as approved by Lender $0 Feed & Grain Inventory $359,000 $251,300 Feedyard Supplies & Meds $20,000 $14,000 Prepaid Expenses Liquidated Value of Secured Trading Account Crop Inputs Potential Crop in Field $330,000 $231,000 Total Collateral: $1,820,112 $1,314,740 Less: FCSA Loan Balance $750,000 Accrued Interest $173,673 Drafts Outstanding $24,045 Accounts Payable - External Other Deductions Total Liabilities $947,718 Borrowing Base Margin (Deficit): $872,393 $367,022 52.07% 72.08% Borrowing Base Analysis

Considerations for Financing Construction Disbursements Lien Waivers Inspections Cost and Cost Overruns Coverage Business interruption, personal property, key person, construction insurance

Customer Expectations Have a Written Business Plan Executive Summary Elevator Pitch Business Description Size and Scope of operation Players- who’s involved Production Records / Herd Health Appropriate concern for the environment Financial reporting and record keeping What are you willing to change?

Customer Expectations Know Your Expenses – beyond the napkin math Spend as much time on managing your finances and risks as you do on managing your production Complete a Realistic Cash Flow Income, Expense, Debt Service, Family Living Breakeven analysis Communicate with your Lender and Ask for Help Advice and Adjustments Lender has a vested interest

Components of Breakeven B/E Price ESTABLISH WHAT WE ARE SHOWING: The left axis represents theoretical corn breakeven per bushel. The right side of the balance beam are costs; the left side, revenue. As you can see on the far right, as the cost balance beam moves down, it adds to working capital and vice versa. Working Capital – the first shock absorber

Impact of lowering Cost or restructuring debt B/E Price If you reduce your debt or extend the repayment period, it lowers current cash repayment needs drop and debt has less impact on cost. CLICK - BAR DROPS NO ANIMATION: The same impact occurs if you lower other inputs, such as variable inputs or cash rent. CLICK

Revenue Impacts B/E Price Adding or subtracting income will cause the balance beam to fall or rise. For instance, more non-farm income has the same effect as cost cutting: It causes the breakeven balance beam to drop. CLICK

Revenue falls B/E Price Now, say a weather event reduces your production. The value of production falls and the breakeven balance beam rises. CLICK On the right side, the balance beam dips into working capital. But your crop insurance stops how far the balance beam is able to go on the right.

Customer Expectations Have a Written Marketing Plan Based on Strategy and Strike Price (Break-evens) Strategy Best days should be emptying the barn Break-even Hit Singles and get on base Good Relationships with Marketing Advisors

Financial Management Strategies Contract Finishing Fixed Cost $25/space (PITI) Operating Expense $9.25/Space Labor $6/space Swine- Owned Working Capital $40/head marketed/year Sow Unit P&I $4-6/head marketed/year Guidelines NOTE- this cost is $40.25

Financial Management Strategies Beef Cow / Calf Working Capital $100/cow Fixed Cost (term principal & interest +land rent+ RE taxes) $200-300/head Cattle Feeding Working Capital Minimum $250/head on feed or 25-30% of feeder cattle purchase price Fixed Cost (term principal & interest +land rent+ RE taxes) $50-85/head Guidelines

Questions?

Farm Credit Services of America THANK YOU Farm Credit Services of America www.fcsamerica.com 800-884-FARM The following material is provided for informational purposes only.  Farm Credit Services of America is not providing advice, nor does Farm Credit Services of America warrant the accuracy or completeness of this information or undertake to update it.    Copyright © 2016 Farm Credit Services of America