Quarterly Report on 

FCS Condition 

June 13, 2019

Dennis A. Shields

Hal Johnson

FCA Board Meeting 

June 2019

1
Topics for Open Session

▶ Economic Conditions Affecting the Farm Credit System

▪Commodity price outlook

▪Farm programs and other government assistance

▪Weather, trade, and other risks ahead

▶ FCS Condition and Performance

▪System growth 

▪Loan portfolio

▪Earnings and capital

▪Financial Institution Rating System (FIRS)

2
Economic Conditions Affecting 

the Farm Credit System

Dennis A. Shields

Chief Economist 

Office of Regulatory Policy

3
Weather moved the markets in May

Corn futures

Source: CME Group. Note: December 2019 corn futures and November 2019 soybean futures. 

Soybean futures

4

May 31

$4.44/bu.

May 31

$9.05/bu.

May 10

$3.72/bu.

May 13

$8.27/bu.
2007 2008

2009

2010

2011

2012

2013

2014

2015 2016 2017 2018

May 2019 

forecast 6

8

10

12

14

16

0 5 10 15 20 25

$/bu.

Ending stocks-to-use ratio in percent

Soybean stocks-to-use ratio to remain high

U.S. soybean price and stocks-to-use ratio

Source: FCA using USDA data (May). 5
Soybean margins to turn negative without 

Market Facilitation Program payments

Iowa soybean margins

Source: FCA using USDA (May) and Iowa State University data. 6

0.06

2.85

3.55

2.47

1.20

-0.90

-0.60

0.45

0.77

1.80

-1.00 -0.84

0.00

1.00

2.00

3.00

4.00

2009 10 11 12 13 14 15 16 17 18 2019F

$/bu.

Includes $1.65 

2018 Market Facilitation 

Program payment

Excludes 

pending 2019 

MFP payment
2007 2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 May 2019 

forecast

1

2

3

4

5

6

7

5 10 15 20

$/bu.

Ending stocks-to-use ratio in percent

Corn stocks-to-use ratio could decline sharply 

from initial forecast

U.S. corn price and stocks-to-use ratio

Source: FCA using USDA data. Note: 2019 production scenario A=- 0.9 mil. bu. and B=-1.4 bil. bu. from May forecast. 7

B

A
Corn margins to remain near break-even levels

Iowa corn margins

Source: FCA using USDA (May) and Iowa State University data. 8

-0.10

1.64

2.23

1.45

-0.18 -0.29 -0.23 -0.19

0.14 0.21 0.05

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

2009 10 11 12 13 14 15 16 17 18 2019F

$/bu.

Includes $0.01 

2018 Market Facilitation 

Program payment

Excludes 

pending 2019 

MFP payment
2007 2008

2009 2010

2011

2012

2013

2014

2015

2016

2017

2018

May 2019 

forecast

2

3

4

5

6

7

8

10 20 30 40 50 60

$/bu.

Ending stocks-to-use ratio in percent

Wheat stocks are also large relative to use

U.S. wheat price and stocks-to-use ratio

Source: FCA using USDA data (May). 9
Wheat margin loss continues to narrow

Kansas wheat margins

Source: FCA using USDA (May) and Kansas State University data. 10

-1.25

0.79 0.98

1.53

0.33

-4.03

-2.73

-1.09 -1.39 -1.31

-0.41

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

2009 10 11 12 13 14 15 16 17 18 2019F

$/bu. Includes $0.14 

2018 Market Facilitation 

Program payment

Excludes 

pending 2019 

MFP payment
$6.01

$4.00

$13.49

$9.54

$0

$2

$4

$6

$8

$10

$12

$14

$16

2011 13 15 17 19

Corn Soybeans

Weather drives crop insurance and planting 

decisions

Projected crop insurance price ($/bu.) 

Source: USDA/RMA. 

11

Scenario: Low corn yield and 

prices below projected levels Corn Soybeans

Prevent plant indemnity 

(after weed control) OR $331 $252

Crop revenue $581 $475

+ crop insurance indemnity + $41 + 0

- non-land costs - $469 - $256

= expected return before land 

cost = $153 = $219

Expected net returns in 2019 ($/acre)

Source: Farmdoc daily, May 14, 2019.
Farm programs provide some downside price 

protection in 2019

Part of the gap between the Farm Bill reference price and the 

season-average farm price is paid under Price Loss Coverage

Source: FCA using USDA prices (May) and statutory reference prices. 12

2019 farm price 

May forecast = $3.30/bu.

$3.00

$3.25

$3.50

$3.75

$4.00

2014 15 16 17 18 19F

Corn

Reference price

= $3.70/bu.

2019 farm price 

May forecast = $8.10/bu.

$7.50

$8.00

$8.50

$9.00

$9.50

$10.00

$10.50

2014 15 16 17 18 19F

Soybeans

Reference price

= $8.40/bu.

2019 farm price 

May forecast = $4.70/bu.

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

2014 15 16 17 18 19F

Wheat

Reference price

= $5.50/bu.
Cow-calf margins to remain slightly positive 

▶ High hay costs limit cow-calf 

margins; May 1 hay stocks 

down nearly one -third from 

2014-18 average

▶ Recent export demand 

strength expected to 

continue in 2019

▶ Domestic beef demand 

remains healthy

Average cow-calf returns

-100

100

300

500

2009 2011 2013 2015 2017 2019F

$/head

Source: Informa Economics. 13
Hog producers return to profitability

▶ African Swine Fever is 

sharply reducing China’s hog 

inventory

▶ Pork exporting opportunities 

lead to market volatility and 

hedging opportunities

▶ U.S. guards against adverse 

impacts of a potential 

outbreak

Hog producer margins

-50

-25

0

25

50

75

Jan.

2016

Jan.

2017

Jan.

2018

Jan.

2019

Dec.

2019

$/head

Forecasts

Source: Informa Economics. 14
Dairy margins improve after running in the red 

in 2018 

▶ Slowdown in production 

growth has lifted prices

▶ Margins are running slightly 

above breakeven

▶ High-cost producers remain 

under pressure

Dairy producer margins

-3

-2

-1

0

1

2

3

Jan.

2016

Jan.

2017

Jan.

2018

Jan.

2019

Dec.

2019

$/cwt.

Forecasts

Source: Informa Economics. 15
Kansas farm management data indicate 

contrasting returns by income group

Average net income per farm

16

-200

-100

0

100

200

300

400

All farms Low income group (25%) High income group (25%)

$1,000 per farm

2014 15 16 17 18 2014 15 16 17 18 2014 15 16 17 18 

Source: Kansas Farm Management Association, May 2019.
U.S. export intensity is relatively high for key 

agricultural commodities

U.S. exports as a share of production in 2018

Source: USDA/FAS Production, Supply and Distribution; and Global Agricultural Trade System.

Top 3 markets

17

55%

55%

33%

17%

10%

22%

17%

12%

80%

49%

39%

23%

16%

Pistachios

Almonds

Grapes

Apples

Oranges

Pork

Broiler meat

Beef

Cotton

Wheat

Soybeans

Sorghum

Corn Mexico, Japan, S. Korea

China, Japan, Spain

China, Mexico, Netherlands

Japan, Mexico, Philippines

Vietnam, China, Turkey

Japan, S. Korea, Mexico

Mexico, Hong Kong, Canada

Japan, Mexico, Canada

S. Korea, Canada, Japan

Mexico, Canada, India

Canada, Mexico, S. Korea

India, Spain, Hong Kong

Hong Kong, Germany, Belgium
0%

10%

20%

30%

40%

50%

60%

70%

2000 01 02 03 04 2005 06 07 08 09 2010 11 12 13 14 2015 16 17 18 19F

Soybeans Corn Wheat

Waning competitiveness: U.S. share of global 

exports declined in 2018

U.S. share of global exports by crop year

Source: USDA/FAS Global Agricultural Trade System. 18
Concluding comments

▶ Weather in 2019 creates production risk and pricing opportunities

▶ Additional trade-related payments and disaster assistance form a 

bridge to next year’s loan renewal season

▶ Low-cost operations survive and thrive in a low price environment

▶ Marginal producers may not survive, even with support

Risks ahead

▶ U.S. animal disease outbreak and market volatility 

▶ Resilience of U.S. and global economic growth amid trade issues 

19
Questions

THANK YOU

20
Farm Credit System 

Condition and Performance 

as of 

March 31, 2019

Hal Johnson

Sr. Financial Analyst

Office of Examination

21
Topics

▶ System growth

▶ Portfolio credit quality

▶ Earnings

▶ Capital

▶ FIRS

22
System reports little growth in the 1st quarter, 

seasonal factors drive financing needs

Source: FCS Information Statements 23

Total 

Assets

3/31/19

$348.7

billion

-0.1% Qtr

+4.7% YOY

Gross 

Loans

3/31/19

$274.2

billion

+0.3% Qtr

+4.4% YOY

279

291

305

314 320 322 333 335

349

216

227 238

242 250 251 263

265 274

-0.4%

2.0%

4.0%

2.3%

-0.7%

2.7%

0.1%

3.0%

-0.2%

1.2% 0.3%

 Total FCS Assets

 Total Gross Loans

% change Qtr-over-Qtr Loans

0.6% 0.2%

-6.9%

11.8%

1.0%

0.1%

-9.2%

16.8%

0.3%

-0.2%

-4.4%

8.0%

-10%

0%

10%

20%

Total Loan

Portfolio

RE Mortgage

(46%)

Prod. &

Intermediate

(19%)

Agribusiness

(18%)

Mar-17 Mar-18 Mar-19

Loan Growth by Loan Type

(% change quarter-over-quarter)
Credit risk rises as agricultural producers face 

continued low prices and market uncertainty 

Nonperforming Loans as a % of Gross Loans

% of Loans Classified less than Acceptable

Source: FCS Information Statements 24

6.8

7.1

11.4

4.3

2.9

6.6

7.1

10.6

4.3

2.2

6.3

6.7

10.4

4.4

2.6

0.0 5.0 10.0

Total

Portfolio

Real Estate

Mortgage

Production &

Intermediate

Agribusiness

Rural

 Infrastructure

Mar-19 Dec-18 Mar-18

1.99%

1.66%

1.41%

1.01% 0.82% 0.77% 0.81% 0.84% 0.86%

$2.365 Qtr chg + $167M | up 7.6%

billion Yr. over Yr. + $156M | up 7.1%

YE '18 0.31%

Q1 '18 0.34%

(1) accruing loans 30 days or more past due

Nonperforming Loans

Delinquencies (1) 0.48%
System earning remained strong in the 1st

quarter; interest spreads continued to compress

Source: FCS Information Statements 25

% increase in Average Earning Assets 

(compared to the same period a year ago)

1,157 

1,252 1,244 

1,473 

1,266 

1,363 1,288 

69 58 37 9 69 59 65 

System Net Income

Provisions for Loan Losses

includes $104M net 

deferred tax adjust.

Quarterly System Earnings ($M) Q1'19 Q1 '18

2.00% 2.15%

Q1'19 Q1 '18

2.40% 2.44%

Net Interest Spread

(YTD annualized)

Net Interest Margin

(YTD annualized)

9.0%

-1.3%

7.7%

6.4% 6.5%

8.6%

6.3%

3.6%

5.2%
Strong earnings support continued capital 

growth

Capital and Liquidity

- as of March 31, 2019 -

▶ Retained earnings as a 

percentage of total capital 

equaled 79.4% of total 

capital.

▶ The System’s liquidity 

position equaled 177 days 

of coverage. 

▶ Days of available liquidity for 

the 4 funding banks ranged 

from 149 to 227 days.

Source: FCS Information Statements Note: Restricted capital represents capital associated with the Insurance Fund. 26

30.8 

34.1 

36.6 

39.6 

43.7 

46.8 

50.0 

53.4 

56.2 

59.7 

14.5%

14.7%

15.8% 16.0%

16.6% 16.8%

16.4% 16.7% 16.9% 17.1%

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

System Capital

Total Capital less Restricted

Capital-to Asset-Ratio

Capital-to-Asset Ratio

Total System Capital ($B)
System FIRS ratings

FIRS Ratings

▶ Composite FIRS ratings reflect

the System’s solid financial 

performance and acceptable 

portfolio credit quality

▶ Over 90% of System Banks and

Associations have a Composite 

FIRS rating of 1 or 2

▶ Institutions rated 3 or lower

account for less than 2.5% of

System assets

Composite FIRS Ratings

Farm Credit System Banks and Associations

Source: FCA’s FIRS ratings database 27

37 43 44 46 44 39 34 33

38 31 32 29 31

29 32 33

11 8 4 3 2

5 7 7

0

10

20

30

40

50

60

70

80

90

100

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Mar-19

Number of Rated Institutions

1 Rated 2 Rated 3 Rated or lower
Summary and final points

▶ Challenges for the farm economy:

▪Volatile markets, trade issues, weather, low margins, 

production levels and existing supplies

▶ Declining credit quality underscores the significant 

operating challenges facing System borrowers in many 

ag sectors

▶ The System remains financially sound and strongly 

capitalized

▶ System institutions have the risk-bearing capacity to 

support agricultural producers 28
Questions

THANK YOU

29