Quarterly Report on 

FCS Condition 

September 12, 2019

Dennis A. Shields

Hal Johnson

FCA Board Meeting 

September 2019

1
Topics for Open Session

▶ Economic Conditions Affecting the Farm Credit System

▪Macroeconomic conditions

▪Farm income and government payments

▪Farm sector debt servicing and leverage 

▶ 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
Slower economic growth expected for key 

U.S. agricultural export markets 

-2

0

2

4

6

8

World U.S. Canada Mexico Japan South

Korea

Europe China

Real gross domestic product per capita

% change 2018 2019F 2020F

4

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

5

▶ Trade war triggers recession 

▶ Uncertainty reduces business investment 

▶ Consumer spending and slowdown in industrial production

▶ Inverted yield curve 

▶ Rising consumer, business, and government debt

▶ Relative interest rates and impact on value of U.S. dollar
China’s retaliatory tariffs reduce (and re-direct) 

U.S. agricultural exports 

China now accounts for only 5% of U.S. ag. exports, down from 16% in 2017

Fiscal year U.S. agricultural export value ($bil.)

Source: USDA. 6

0

20

40

60

80

100

120

140

2017 2018 2019F 2020F

China Mexico Canada Other
Market Facilitation Program payments 

represent sizable support for U.S. farm sector 

Ratio of estimated 2019 MFP payments to 

total agricultural sales by county

Source: FCA analysis of USDA payment rates, acreage, production; and county sales and income from 2017 Census 

of Agriculture.

Impact of 2019 MFP payments 

Ratio of 

payments 

to sales

Ratio of 

payment to net 

cash income

U.S. total 3.7% 16.5%

FCS district (geographic) footprint 

using county estimates

AgriBank 5.4% 22.0%

Texas 4.4% 22.1%

AgFirst 2.5% 8.9%

CoBank 1.8% 9.9%

7
1.75

-0.91

0.29

-2.00

-1.00

0.00

1.00

2.00

2018 2019F

$/bu.

With MFP of 

$1.18 per bu. 

Average crop margins are lifted by Market 

Facilitation Program payments

Kansas wheat

Source: FCA using data from USDA, Iowa State University, and Kansas State University data.

Note: Includes 2018 MFP per-bushel payments of $1.65 for soybeans, $0.01 for corn, and $0.14 for wheat. 

The 2019 rates are estimated by dividing average per-acre payment by average state yield. 8

-1.40

-0.41

0.86

-2.00

-1.00

0.00

1.00

2.00

2018 2019F

$/bu.

0.31

0.00

0.41

-2.00

-1.00

0.00

1.00

2.00

2018 2019F

$/bu.

Iowa soybeans Iowa corn

With MFP of 

$0.35 per bu.

With MFP of 

$0.99 per bu.
Crop insurance indemnities flow into areas 

with poor planting weather

Source: FCA analysis of USDA/RMA data. 

Note: Total liability is amount equal to a complete crop loss (after deductible is incurred). 

Corn and soybean 

indemnities as a share of total liability

9

Geographic 

footprint $ mil.

FCS of America $575

Compeer $275

AgCountry $226

Mid-America $153

U.S. total $1,680

Indemnities as of 8/26/19
$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

2017 18 19 20 21 22

Wheat

$5.50/bu.

$3.20

$3.40

$3.60

$3.80

$4.00

2017 18 19 20 21 22

Corn

$3.70/bu.

$7.50

$8.00

$8.50

$9.00

$9.50

2017 18 19 20 21 22

Soybeans

$8.40/bu.

Crop prices are projected to remain weak

Source: Food & Agricultural Policy Research Institute baseline projections (assumes current policies), 8/28/19. 10

Farm price ($/bu.)

Farm Bill reference price ($/bu.) that triggers Price Loss Coverage payments
Livestock margins to remain near break-even

▶ Cow-calf producer margins to remain near breakeven 

▶ Hog producer returns to slide with uncertain 

prospects for exports to China

▶ Dairy margins to improve in late 2019, but 

pressure remains on high-cost producers 

11
0

20

40

60

80

100

120

140

0

50

100

150

1998 01 04 07 10 13 16 19F

1998-2018 average 

= $106 bil.

Expected farm income approaches “average” 

with help from Market Facilitation Program

Source: USDA/ERS, August 30, 2019; FCA analysis of USDA forecasts and subsequent revisions.

U.S. net cash farm income

12

$ billion in 

2019 dollars

2019 forecast is 

$112.6 billion.

Based on USDA’s 

historical forecast 

accuracy, it could be 

as low as $106 

billion or as high as 

$127 billion.

MFP 

payments
0.0

1.0

2.0

3.0

4.0

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

1970-2018 average 

= 2.5

2019F = 3.2

2012 = 2.0

1981 = 3.5

Caution ahead: U.S. farm sector debt-toincome remains historically high

Source: USDA/ERS, August 30, 2019.

Note: Income before interest expense.

Debt / net cash farm income

13

Ratio

Without MFP 

payments, the 

debt-to-income 

ratio in 2019 

would be 3.4.

2019F
Debt-to-income ratio has deteriorated in the 

Midwest since 2012 

Source: FCA analysis of data from 2012 and 2017 Census of Agriculture.

Note: Income before interest expense. 14

Relatively flat

Improved by at least 5

Improved by 1 to less than 5

Deteriorated by at least 5

Deteriorated by 1 to less than 5

Point change in county debt-to-income 

ratio from 2012 to 2017

Data unavailable
0%

5%

10%

15%

20%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

1970-2018 average 

= 10.6% 2006 = 7.4%

1985 = 16.1%

U.S. farm sector real estate leverage rises 

toward historical average

Source: USDA/ERS, August 30, 2019; FCA analysis of USDA forecasts and subsequent revisions.

Real estate debt / real estate assets

15

2019 forecast is 10.0%. 

Based on USDA’s 

historical forecast 

accuracy, the 2019 

ratio could be as low 

as 9.0% or as high as 

11.2%.

2019F
Change in real estate leverage is a mixed bag 

across counties in the Midwest

Source: FCA analysis of data from 2012 and 2017 Census of Agriculture. 16

Relatively flat

Improved by at least 5

Improved by 2.5 to < 5

Deteriorated by at least 5

Deteriorated by 2.5 < 5

Percentage-point change in debtto-asset ratio from 2012 to 2017
0

8

16

24

32

40

$0

$2

$4

$6

$8

$10

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Iowa land value / Iowa net cash farm income (ratio)

Iowa agricultural land including buildings ($/acre)

Caution ahead: Iowa land values are elevated 

relative to the state’s net cash income

$1,000 / acre

Source: FCA analysis of USDA/NASS land values and USDA/ERS net cash farm income by state. 17

Ratio of land value to 

income

2019F
Concluding comments

▶ Unprecedented weather in 2019 is colliding with agricultural trade policy

▶ Trade-related payments prop up farm income in the short run

▶ Farm sector debt-to-income is high, but leverage is near average with room 

to grow as long as land values hold

Risks ahead

▶ Any potential price reversal from smaller 2019 U.S. crops will be affected 

by current trade policy environment and competitor production

▶ A severe global recession would reduce demand for agricultural products 

▶ A shift toward major government payments creates a major downside risk 

for farm borrowers and lenders when discretionary support is discontinued 

18
Questions

THANK YOU

19
Farm Credit System 

Condition and Performance 

as of 

June 30, 2019

Hal Johnson

Sr. Financial Analyst

Office of Examination

20
Topics

▶ System growth

▶ Portfolio credit quality

▶ Earnings

▶ Capital

▶ FIRS

21
System reports little growth in the 1st half of 2019

Source: FCS Information Statements 22

283

304

315 320 320 330 334

349 353

221

236 244 249 250 259 262

273 276

2.0%

4.0%

1.1% 2.3%

-0.7%

2.7%

0.1%

3.0%

1.5%

-0.2%

3.2%

0.8%

 Total FCS Assets

 Total Gross Loans

% change Qtr-over-Qtr Loans

 Total 

 Assets

6/30/19

$352.5

billion

 +1.1% Qtr

 +1.0% YTD

 Gross 

 Loans

6/30/19

$276.2

billion

 +0.8% Qtr

 +1.0% YTD

0.7%

1.7%

-2.5%

0.8% 1.3% 1.7%

-4.9%

4.7%

1.0% 0.9%

-2.0%

6.6%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Total Loan

Portfolio

RE Mortgage

(46%)

Prod. &

Intermediate

(19%)

Agribusiness

(18%)

Jun-17 Jun-18 Jun-19

Loan Growth by Loan Type

% change year-to-date through June
Credit risk rises; producers challenged by 

low margins and market uncertainty

Source: FCS Information Statements 23

0.55%

1.99%

2.65%

2.22%

1.53%

0.92% 0.77% 0.76% 0.89%

0%

1%

2%

3%

4%

5%

0.43%

0.68%

0.42%

0.23% 0.32% 0.22%

0.36%

0.0%

0.5%

1.0%

1.5%

$2.450 YTD Chg. + $252M or 11.5%

billion Yr. over Yr. + $49M or 2.0%

YE '18 0.31%

Q2 '18 0.28%

(1) accruing loans 30 days or more past due as a % of accruing loans

 Nonperforming Loans

 Delinquencies (1) 0.36%


Nonperforming Loans as a % of Gross Loans

Delinquencies as a % of Accruing Loans
Despite some deterioration in portfolio 

quality, the level of credit risk is manageable

Source: FCS Information Statements 24

7.2

7.5

12.0

5.0

2.9

6.5

7.0

10.6

4.5

2.4

6.2

6.2

10.6

4.6

2.3

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Total

Portfolio

Real Estate

Mortgage

Production &

Intermediate

Agribusiness

Rural

 Infrastructure

Jun-19 Jun-18 Jun-17

% of Loans Classified less than Acceptable

3.4

9.6

3.6

7.2

1.5

5.2

1.8

3.6

0

4

8

12

16

% Less than Acceptable % Substandard/Doubtful
System’s financial condition is sound

Source: FCS Information Statements

Q2 '19 Q2 '18

2.00% 2.13%

Q2 '19 Q2 '18

2.40% 2.44%

Net Interest Spread

(YTD annualized)

Net Interest Margin

(YTD annualized)

25

1,986 2,119 2,246 2,341 2,273 2,337 2,466 

2,649 2,668 

234 

67 41 

(35)

50 

160 117 87 66 

System Net Income

Provision for Loan Losses

System Earnings

year-to-date through June

4.06 3.79 3.59 3.46 3.41 3.48 3.75 

4.21 4.46 

1.38 1.08 0.95 0.96 1.01 1.17 1.50

2.09 2.46

2.68 2.71 2.64 

2.50 2.40 2.31 2.25 2.12 2.00 

2.86 2.87 2.78 

2.64 2.55 2.49 2.48 2.46 2.40 

2011 2012 2013 2014 2015 2016 2017 2018 YTD '19

Rate: Earning Assets

Rate: Interest-Bearing Liabilities

% Net Interest Spread

% Net interest Margin
Capital and Liquidity

- as of June 30, 2019 -

▶ Retained earnings as a 

percentage of total capital 

equaled 79.1% of total 

capital

▶ The System’s liquidity 

position equaled 178 days 

of coverage

▶ Days of available liquidity 

for the 4 funding banks 

ranged from 147 to 235 

days

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

31.8 

35.1 

37.5 

40.6 

44.7 

47.8 

51.4 

54.5 

57.3 

61.2 

14.7%

15.2%

15.9%

16.3%

16.8% 16.9%

16.3%

17.0% 17.2% 17.4%

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

System Capital

Total Capital less Restricted

Capital-to Asset-Ratio

Capital-to-Asset Ratio

Total System Capital ($B)

The System continues to maintain its 

strong capital position
System FIRS ratings

FIRS Ratings

▶ Composite FIRS ratings reflect 

the System’s solid financial 

performance and acceptable 

portfolio credit quality

▶ Over 91% 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 31

38 31 32 29 31

29 32 35

11 8 4 3 2

5 7 6

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 Jun-19

Number of Rated Institutions

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

▶ Challenges for the farm economy

▪Trade policy uncertainties, slowing global economic 

growth, low margins, production concerns, existing stocks 

▶ Rising credit risk underscores the significant operating 

difficulties facing System borrowers

▶ System institutions are financially sound, strongly 

capitalized and well-positioned to support agricultural 

producers

28
Questions

THANK YOU

29