Bob Young – Chief Economist/Deputy Director Public Policy Farm Credit Council 32 nd Annual Meeting January 29, 2015 San Francisco

 Energy sector guesses & crop implications  The organic challenge to F&V’s  Beef’s demographic issue  What an amazing ride & what did we spend our money on?  Where does ag – and Farm Credit – go from here?

CountryOil Price Needed CountryOil Price Needed Iran$136Iraq$116 Kuwait$59Nigeria$124 Qatar$58Saudi Arabia$92 UAE$90Venezuela$117 Source: ‘Oil prices below most OPEC producer’s budget needs’ – Reuters, Sept 8, 2014 Rowena Caine Average Weighted by Production - $98/bbl

Region$/BarrelRegion$/Barrel Artic$ C. & S. America $29-35 Deepwater$54-60Mid-East Onshore $10-17 North Sea$46-53Oil Sands$89-96 Russia Onshore $15-21U.S. Shale$70-77

 92 Octane Gasoline Price: $2.71/gal  87 Octane Gasoline Price: $2.38/gal  Cost of Per Point of Octane: $0.067/gal  Cost of 113 Octane Ethanol: $2.23/gal  Cost of 1 Pt Octne from Eth: $0.02/gal  Ethanol Octane Cost Adv: 84 to 87 Octane: $0.141/gal

World Ending Stocks Grains* Cotton Soybeans *includes barley, corn, oats, rice, sorghum, wheat. Data Source: USDA Foreign Agricultural Service. PSD Online.

C, S, W Planting Example Planted Acreage Comparison: 2014 and 2015 Corn Soybeans Wheat 3-crop Acres 2014/152015/162014/152015/162014/152015/ /152015/16 Planted Acres Harvested Acres Yield (harv. ac.) Beginning Stocks 1,232 1, Production 14,216 13,273 3,969 3,524 2,026 2,164 Total Supply 15,472 15,165 4,076 3,949 2,796 2,971 Total Use 13,595 13,799 3,666 3,720 2,109 2,150 Ending Stocks 1,877 1, Stocks:Use13.8%9.9%11.2%6.1%32.6%38.2% +5% yields14.7% 10.9%43.2% -5% yields 5.1% 1.4% 33.2%

644 Farms Produce Half of All Organic Product Sales

But it is 14% of Fruit & Veggie Sales

 At 2% Net… A $2.28 half-gallon bottle of milk adds $0.04 to the bottom line… A $3.75 half-gallon bottle of milk adds $0.07 to the same bottom line…  Recognizing All The Retailer Is Really Selling Is Space Which Would You Rather Sell?

 Would at least ask about their organic production plans…  Whether or not consumer agrees, incentive certainly there for retailers to pander to food snobs…  Hard to see how we get off this slope…  You know how I feel about it…

U.S. Total: Data Source: USDA-NASS Livestock Marketing Information Center Average Age of Farmer: 58

U.S. Total: Data Source: USDA-NASS Livestock Marketing Information Center Decline in these herds almost all from herds less than 50 cows Texas herd decline almost all from herd size

REAL ESTATE DEBTNONREAL ESTATE DEBT

 Mainline crops need to loose 8-10 million acres.. Usually only happens with red ink…  Fruit and Veggies need to consider organic strategy  Cattle sector has – and will continue – to adjust  Rents going to ratchet down, but will take time