Quarterly Report on 

FCS Condition 

December 13, 2018

Dennis A. Shields

Hal Johnson

FCA Board Meeting 

December 2018

1

Exhibit D
Topics for Open Session

▶ Economic Conditions Affecting the Farm Credit System

▪Macroeconomic factors

▪Farm income and commodity indicators

▪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
Favorable U.S. and global economic conditions 

continue amid concerns 

▶ Solid world economic growth

▶ Improving U.S. employment

▶ Consumer wage and income 

growth

▶ Moderating crude oil prices 

4

Favorable factors Concerns

▶ Higher costs from labor and tariffs

▶ Rising consumer, business, and 

government debt 

▶ Rising interest rates and stronger 

dollar

▶ Slowdown in housing
Unemployment rate remains low in all states

Unemployment rate by state (%)

October 2018

Note: AK = 6.4%; HI = 2.3%; states without numbers are less than 5%.

Source: Bureau of Labor Statistics, https://data.bls.gov/map/.

5

At least 10.0% (none)

7.0% to 9.9% (none)

6.0% to 6.9% (1 state)

5.0% to 5.9% (2 states)

4.0% to 4.9% (16 states)

3.0% to 3.9% (22 states)

Less than 3.0% (9 states)

2.8

3.0

2.8

2.8

2.4

3.3 3.1

3.0

4.2

3.9

3.5 4.6

3.4

3.7

4.6

3.2

4.1

3.7

2.7

4.3

3.8

4.4

4.1

4.7 3.5

4.7

5.0

4.1 3.6

3.4

3.3

3.6 3.7

4.5 2.9 5.2

4.1

4.0

3.4

3.2

U.S. = 3.7%
Farm income in 2018 is supplemented by 

Market Facilitation Program payments

U.S. net cash farm income 

(adjusted for inflation)

Source: USDA/ERS, November 30, 2018. 6

1998-2017 

average = $104 bil.

0

50

100

150

1998 2000 02 04 06 08 10 12 14 16 18F

$ billion 

(2018 dollars) 1st tranche of 

Market Facilitation 

Program payments
Corn prices stay below $4 despite tighter stocks

U.S. corn prices received by farmers

Aug. 2012 = $7.63

Nov. 2017 = $3.15

Oct. 2018

= $3.41

2

3

4

5

6

7

8

$/bu.

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Stocks/

use (%) 13.1 8.7 7.9 7.4 9.2 12.6 12.7 15.7 14.5 11.5

Note: Calendar year monthly farm prices; stocks/use ratio is crop year beginning September. 

Source: USDA/NASS and USDA/WAOB, November 2018. 7
Soybean prices sink as stocks rise sharply

U.S. soybean prices received by farmers

Aug. 2012 = $16.20

Feb. 2016 = $8.51

Oct. 2018

= $8.58

7

9

11

13

15

17

$/bu.

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Stocks/

use (%) 4.5 6.6 5.4 4.5 2.6 4.9 5.0 7.2 10.3 23.3

Note: Calendar year monthly farm prices; stocks/use ratio is crop year beginning September. 

Source: USDA/NASS and USDA/WAOB, November 2018. 8
Soybean bids have been below USDA’s 

monthly farm prices 

U.S. soybean prices in 2018

7.00

7.50

8.00

8.50

9.00

9.50

10.00

J F M A M J J A S O N D

$/bu. National average elevator bid (MGEX) Price received by farmers (USDA)

Source: Minneapolis Grain Exchange, Inc. (MGEX) and USDA/NASS. 9
8.0

2.7

1.4

Current assets / 

current liabilities = 

1.0 0.8

< 10% 10% to 30% 30% to 50% 50% to 75% > 75%

Debt-to-asset ratio (percent)

Farm liquidity approaches danger zone for 

high-debt grain producers

Average current ratio declines as farm debt increases

Note: Illinois grain farms, year-end 2017.

Source: Schnitkey, G. and K. Swanson, farmdoc daily (8): 196, Univ. of Illinois, October 23, 2018.

Debt level Very low Low Medium High Very high

% of farms 

in category 21% 39% 28% 10% 2%

10
Low milk prices and higher feed costs squeeze 

dairy producers

U.S. farm milk price Milk-feed price ratio*

Source: Livestock Marketing Information Center using USDA data. 11

1.40

1.60

1.80

2.00

2.20

2.40

2.60

2.80

Jan Mar May Jul Sep Nov

Price ratio 

2017 2018

10

12

14

16

18

20

Jan Mar May Jul Sep Nov

$ per cwt

2017 2018

*U.S. farm milk ($ per cwt) divided by feed price ($ per cwt).
Cow/calf returns are projected to remain low 

but above breakeven

Cow/calf returns 

Source: Informa Economics. 12

-100

100

300

500

2007 2009 2011 2013 2015 2017 2019F

$ per head
Almond production expands and the grower 

price adjusts downward

Note: 2018 price estimate available in June 2019. 

Source: USDA/NASS.

U.S. almond production and grower price

13

$0

$1

$2

$3

$4

$5

0.0

0.5

1.0

1.5

2.0

2.5

2004 2006 2008 2010 2012 2014 2016 2018F

Bil. pounds $ per pound

Production Price
Risks ahead

▶ Trade (and farm) policy 

▶ Pricing opportunities for grain and soybean producers

▶ Rising interest and input costs

▶ Changes in farmland supply and demand

▶ Slowdown in U.S. and global economic growth

14
Questions

THANK YOU

15
Farm Credit System 

Condition and Performance 

as of 

September 30, 2018

Hal Johnson

Sr. Financial Analyst

Office of Examination

16
Topics

▶ System Growth

▶ Portfolio Credit Quality

▶ Earnings

▶ Capital

▶ FIRS

17
System shows modest growth for the 1st nine 

months of 2018; primarily RE mortgage lending

Source: FCS Information Statements

Loan Growth by Loan Type

(% change year-to-date through September)

18

Total 

Assets

9/30/18

$335.0

billion

+0.3% Qtr

 +1.7% YTD

Gross 

Loans

9/30/18

$263.6

billion

 +1.1% Qtr

 +1.9% YTD

2.6%

4.9%

-1.1%

1.0% 1.0%

2.8%

0.1%

-3.4%

1.9%

3.2%

-0.1%

0.6%

-5%

0%

5%

10%

Total Loan

Portfolio

RE Mortgage

(47%)

Prod. &

Intermediate

(20%)

Agribusiness

(16%)

09/30/16 09/30/17 09/30/18

271 279

291

305

314 320 322

333 335

208

216

227

238 242 250 251 261 264

1.5%

4.3%

-0.4%

2.0%

4.0% 2.3%

-0.7%

2.7%

0.1%

3.0%

1.0%

-0.3%

1.1%

 Total System Assets ($B)

 Total Gross Loans ($B)

% change Qtr-over-Qtr Loans
Loan quality is down from a year ago; System 

is well-positioned for increased risk levels

Nonperforming Loans as a % of Gross Loans

% of Loans Classified less than Acceptable

Source: FCS Information Statements 19

2.22% 1.94%

1.53%

1.15% 0.85% 0.76% 0.82% 0.81% 0.89%

6.5

7.0

10.6

4.5

6.4

6.4

10.9

4.6

5.6

5.0

9.4

5.4

0.0 5.0 10.0

Total

Portfolio

Real Estate

Mortgage

Production &

Intermediate

Agribusiness

Sep-18 Sep-17 Sep-16

Qtr chg: - $54M down 2.2%

YTD chg: + $380M up 19.3%

 3Q '18 0.27%

YE '17 0.25%

Delinquencies

 accruing loans ≥ 30 days past due

% of total 

accruing loans

Allowance for 

Loan Losses

$1.682

billion

 69% of nonperforming assets

 84% of nonaccrual loans

Nonperforming Loans $2.347

billion
The System’s financial condition is sound; 

earnings are up year-over-year

Source: FCS Information Statements

% increase in YTD Average Earning Assets 

(compared to the same period a year ago)

20

2,633 

2,994 3,158 

3,499 3,569 3,481 3,589 3,716 

4,012 

474 

352 

188 

9 7 87 

218 188 146 

System Net Income

Provisions for Loan Losses

System Earnings

(year-to-date through September) Sept. '18 Sept. '17

2.13% 2.24%

Sept. '18 Sept. '17

2.45% 2.47%

Net Interest Spread

(YTD annualized)

Net Interest Margin

(YTD annualized)

0.9%

7.1%

1.9%

6.3% 7.0% 6.4%

9.8%

4.1% 4.2%

2010 2011 2012 2013 2014 2015 2016 2017 2018
System is strongly capitalized

Capital and Liquidity

as of September 30, 2018

▶ Retained earnings as a 

percentage of total capital 

equaled 80.1% of total 

capital.

▶ The System’s liquidity 

position equaled 171 days of 

coverage. 

Days of available liquidity for 

the 4 funding banks ranged 

from 144 to 226 days.

Source: FCS Information Statements Restricted capital represents capital associated with the Insurance Fund. 21

35.9 

38.5 

41.7 

45.8 

48.9 

52.4 

55.5 

58.2 

15.8%

16.1% 16.5% 16.9% 16.8% 16.7%

17.3% 17.4%

Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18

Restricted Capital

Total Capital less Restricted

Capital-to-Assets Ratio

Total System Capital ($B)
System FIRS ratings

FIRS Ratings

▶ Composite FIRS ratings reflect 

the System’s solid financial 

performance and good portfolio 

credit quality

▶ Over 93% of System Banks and 

Associations have a Composite 

FIRS rating of 1 or 2

▶ Institutions rated 3 or lower 

account for less than 2.0% of 

System assets

Composite FIRS Ratings

Farm Credit System Banks and Associations

Source: FCA’s FIRS ratings database 22

30 37 43 44 46 44 39 35

44 38 31 32 29 31

29 33

13 11 8 4 3 2

5 5

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

▶ Challenges for agriculture:

▪General economic factors: higher interest rates; strength of 

the dollar; rising consumer, business, and government debt 

levels; labor availability and costs

▪Farm sector concerns: matching supply with demand needs; 

rising input costs; trade policies; pricing opportunities for 

grain/soybean producers

▶ The System is financially strong and well-capitalized

▶ Portfolio credit stress is higher in 2018, but System 

institutions are well-positioned for the challenges facing the 

farm economy and have significant risk-bearing capacity 23
Questions

THANK YOU

24