FCA Board Meeting 

September 2018

Quarterly Report on 

FCS Condition 

September 13, 2018

Dennis A. Shields

Hal Johnson

1
Economic Conditions Affecting 

the Farm Credit System

Dennis A. Shields

Chief Economist

Office of Regulatory Policy
Overview

▶ Economic growth continues to underpin agricultural 

demand

▶ Land values remain stable

▶ Farm cash receipts trend sideways; farm liquidity falls

▶ Soybean and hog prices weaken

▶ Trade situation still developing

▶ Additional farm assistance (and the Farm Bill) to arrive

3
Global economic growth continues in major 

U.S. agricultural markets

4

Real gross domestic product per capita

Source: USDA/ERS using data and forecasts from Global Insight, International Monetary Fund, and Oxford 

Economics. 
Favorable trends for U.S. income, 

unemployment, and housing

Source: Consensus Economics, Inc. 5
Long-term interest rates moving up

Percent, 10-year Treasury rate

Source: Federal Reserve Bank of St. Louis. 6
Cropland values are flat to slightly higher in 

2018

▶ U.S. average 

cropland value up 

1.0% in 2018 

▶ Small increase in 

Corn Belt (+0.6%) 

and no change in 

Northern Plains 

▶ Increases in most 

other regions 

Cropland values

Source: USDA/NASS. 7
U.S. farm cash receipts decline to pre-boom 

levels

Cash receipts adjusted for inflation 

Source: USDA/ERS. 8
U.S. soybean stocks to rise, corn and wheat stocks 

to fall

U.S. ending stocks

Source: USDA. 9
U.S. soybean prices to fall in 2018/19

U.S. season-average farm prices and returns

2016/17 2017/18 2018/19F

Soybean price ($/bu.) 9.47 9.35 8.73

Returns after variable costs ($/acre) 328 296 288

Corn price ($/bu.) 3.36 3.4 3.62

Returns after variable costs ($/acre) 237 259 306

Wheat price ($/bu.) 3.89 4.73 5.12

Returns after variable costs ($/acre) 95 110 131

Source: Food & Agricultural Policy Research Institute, University of Missouri. 10
Cow/calf returns are near breakeven

Source: Informa Economics. 11
Hog returns head south

Source: Informa Economics. 12
Milk prices run below last year

U.S. milk price received by farmers

Source: USDA/NASS. 13
Trade situation creates uncertainty

▶ China’s retaliatory tariffs

▶ Negotiations with Mexico and Canada

▶ Trade diversion and alternative suppliers

U.S. agricultural export forecasts 

Source: USDA, August 30, 2018. 14
Global soybean flows could shift

Source: USDA/ERS. 

Typical trade flows using 2013 data for soybeans and products. 

15
Possible impacts on California fruit and tree 

nuts from additional tariffs

Share of U.S. production exported to affected markets*

16

*Affected markets include China & Hong Kong, India, Mexico, and Turkey. 

**Assumes all production exported to affected markets is absorbed by domestic or other foreign markets. 

Source: University of California Agricultural Issues Center. August 1, 2018.
Emergency assistance for farmers affected by 

tariffs

USDA authorizes up to $12 billion in programs 

1. Initial farm payments to arrive this fall ($4.7 billion)

Payment rate times 50% of producer’s 2018 production, hog inventory, or historical milk production

Soybeans Hogs Cotton Sorghum Milk Wheat Corn

$1.65 / bu. $8 / head $0.06 / lb. $0.86 / bu. $0.12 / cwt. $0.14 / bu. $0.01 / bu.

$3,630 mil. $290 mil. $277 mil. $157 mil. $127 mil. $119 mil. $96 mil.

2. Commodities for nutrition programs ($1.2 billion)

Purchases scheduled for 31 products (e.g., fruits, tree nuts, beans, meat)

3. Trade promotion ($0.2 billion)

17
Farm Bill heads to the finish line

▶ Farm safety net expected to remain intact

▶ Modest changes/upgrades expected for farm programs

▶ Modifications in early 2018 

▪Improvements to margin protection program for dairy 

▪Cotton returns as a “covered” commodity 

▪Eliminated payment limits on certain disaster programs

18
Risks ahead

▶ Upward pressure on interest expenses

▶ Supply gains and demand changes

▶ Trade policy that would shift U.S. export potential to 

competitors 

▶ Liquidity at the borrower level

19
Questions

THANK YOU

20
Farm Credit System 

Condition and Performance 

as of 

June 30, 2018

Hal Johnson

Sr. Financial Analyst

Office of Examination

21
Topics

▶ System Growth

▶ Portfolio Credit Quality

▶ Earnings

▶ Capital

▶ FIRS

22
System grows at a measured pace for the 1st 6 

months of 2018

Loan Growth by Loan Type

(% change year-to-date through June)

Source: FCS Information Statements 23
Loan portfolio risk edges up; level remains 

manageable

% of Loans Classified less than Acceptable

Source: FCS Information Statements 24

Nonperforming Loans as a % of Gross Loans
System is financially sound

System Earnings

Year-to-date through June

Source: FCS Information Statements 25
Strong earnings support continued capital 

growth

Total System Capital ($B)

Restricted capital represents capital associated with the 

Insurance Fund.

Source: FCS Quarterly Information Statements 26
System FIRS ratings

Composite FIRS Ratings

Farm Credit System Banks and Associations

Source: FCA's FIRS ratings database 27
Summary and final points

▶ Risks for agriculture:

▪trade uncertainties, rising interest rates, aligning production with demand, 

declining farm liquidity, drought in the Southwest

▶ The System is financially safe and sound

▶ Loan portfolio risk is rising as financial challenges continue 

for certain ag sectors, but the level remains manageable. 

▶ System institutions are well-capitalized and have substantial 

risk-bearing capacity

28
Questions

THANK YOU

29