1. Ag environment outside the pork industry
Jeff Wiepen – VP Commercial Lender – Swine Industry Farm Credit Services of America
June, 2016

2. Combined service area overview
Serve all of Iowa, Nebraska, South Dakota, Wyoming, and the eastern portion (41 counties) of Kansas
More than 57,000 customers
FCSA only
1,390+ employees
42 offices across 4 states
51,000+ customer-owners

3. Farm producers served

4. Current environment Key drivers have changed:
Demand driven by ethanol expansion leveled off
Emerging economy slowdown
Abundant supply – U.S. and world
Strength of the U.S. dollar, particularly relative to currency of competitors for U.S. ag exports

5. Supply/demand have returned to an equilibrium similar to that prior to the commodity boom in 2009 – 2013, though at somewhat higher prices.
Most forecasts are for relatively sideways prices, with corn in the $3-$4 range for the next several years.

6. Current & Future Reality - Grain
Grain production agriculture needs to reconcile the reality of our current revenue stream – $ $4.00 corn the likely trading range – Until Now??
It is not likely “price” will fix the problem. Cost reductions are the likely solution. If we have higher price, likely lower bushels.

7. Focus on big items
Source: Purdue University estimated 2016 corn production costs

8. Adjusting to the new environment – Message to Cash Grain Operators
Understand / embrace the new realities
Financial risk bearing capacity is critical
Fixed cost adjustments
Know the difference between “rental rate” and “breakeven rent”. (Rule of Thumb: 35% of Gross Income – i.e. 180bu x $3.75 x .35 = $236).
Know your “burn rate” in working capital if rent is not reduced.

9. Debt-to-asset ratio, %
The debt-to-asset ratio peaked at 22.2% in 1985, while the 2015 debt-to-asset ratio was about 11%.
Debt has not reached the level seen in 1980.

10. It is not the 1980s
The key difference: The 1980s represented a leverage crisis driven by:
High RE prices
High leverage
High interest rates
Use of variable rate loans
Today? Cash flow challenge – driven primarily by:
High cash rent
Machinery & equipment investments
Living expense

11. Impact to Grain Portfolio
Grain Portfolio Credit Quality off by 5.1%
About $600 million – About Operators.
Delinquency Rate up .30%
Still allot of operations with strong balance sheets and liquidity
Impact to total portfolio softened somewhat by strength in other industries (except Beef Feedlots)

12. Impact to Land Values

13. Impact to Land Values

14. Impact to RE Sales Activity

15. Summary Grain producer focus is on cash flow adjustments
The market will continue to re-establish the value of a rented acre
Land values will continue to adjust to the new margin reality
Still some strong grain producers
Consolidation of industries will continue
Political/policy/environmental risks continue
Bullish on the future of agriculture – though cycles are a reality and volatility risk has doubled in 10 years

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