Quarterly Report on 

FCS Condition 

September 9, 2021 

Steve Koenig

Hal Johnson

FCA Board Meeting 

September 2021

1
Topics for Open Session

 Economic Conditions Affecting the Farm Credit System

▪Macro economy

▪Commodity markets

▪Farm economy

 FCS Condition and Performance

▪System growth and loan portfolio

▪Earnings and capital

▪Financial Institution Rating System (FIRS)

2
3

Economic Conditions Affecting 

the Farm Credit System

Steve Koenig

Senior Agricultural Economist 

Office of Data Analytics and Economics
Strong economic growth anticipated

 Historically high 6.4% GDP growth

rate in the 1st half of 2021

 U.S. and rural labor markets healing

 Robust business investment and

balance sheets

 High levels of government support

 July consumer confidence falls to a

10-year low and consumer

spending slows

GDP Growth to Remain High?

Data source: Federal Reserve Bank of St. Louis. 4
Inflation worries continue

 GDP Implicit Price Deflator

exceeds 6% in the 2nd Quarter

 June and July CPI at 5.4%

 Debate on the “transitory”

nature of inflation rages on

 10-Year Treasury breakeven

yield suggests the market

anticipates more modest

inflation ahead

Data source: Federal Reserve Bank of St. Louis. 5

Inflation accelerates in 1st half

2.04% Average
Central Bank response

Data source: Federal Reserve Bank of St. Louis. 6

 $5 trillion in money supply

growth

 Signals it will “soon” be

“tapering” its $120 billion in

monthly purchases

 Has been extensively using

Overnight Reverse Repurchase

Agreements since March

M2 Stock
Negative real returns after 40-year absence

7 Data source: Federal Reserve Bank of St. Louis. 
Value of agricultural exports rise in first half

 $ volume up 24% in the first half

of 2021

 Relatively stable dollar

 Exports to China are key

8 Data source: Bureau of Census.

# Includes, seafood, forestry, and biofuels. * First 6 months.

U.S. Export Values to China (millions)

Top 10 Jan - Jun 2021 Jan - Jun 2020

Soybeans $3,566 $1,339

Corn $3,320 $61

Course Grains $1,160 $471

Pork & Pork Products $1,086 $1,362

Forest Products 1,012 815

Cotton $854 $643

Beef & Beef Products $623 $54

Wheat $458 $136

Poultry Meat & Prods (exclude eggs) $396 $306

Dairy Products $353 $242
Key grain and oilseed revenues soar 

Projected 2021/22 corn and 

soybean revenues to rise $55 

billion over 2019/20

Strong export and domestic 

demand and limited supplies 

should keep prices elevated

Tight supplies forecasted 

Data source: USDA/WASDE, August 12, 2021. 9

Commodity Ratio

Soybeans 3.5%

Feed grains 8.6%

Rice 15.4%

Cotton 17.1%

Wheat 30.5%

U.S. 2021/2022 Ending 

Stocks-to-Total Use 
Higher costs to erode crop revenue gains 

Illinois input costs forecasted 

to rise sharply in 2022 

Higher fertilizer expenses to be 

the biggest cost driver

Land costs (rental costs) 

should also rise significantly

Any lowering of revenues 

would translate into thinner 

margins for next year’s crop

10 Source: University of Illinois.
Stronger crop revenues fires up land markets 

Data sources: District Federal Reserve Banks and USDA. 11

Year-over-year changes in the second quarter of 2021

Federal Reserve 

District Survey

Cropland 

Value*

Cropland 

Rental 

Rates*

Ranch 

Pastureland 

Value

Pasture 

Rental 

Rates

Chicago 14 - - -

Kansas City 11 7 11 1

Minneapolis 16 9 13 6

*Nonirrigated

Annual Percent

 Cropland: $4,420 per acre up 7.8%

 Pastureland: $1,480 per acre up 5.7%

 Rental rate increases lag land value 

increases

 Midwest banker surveys and others 

suggest stronger price increases
Land markets reflect financial conditions 

Land market drivers

 Higher crop revenues

 Large government payments

 Negative real borrowing rates

 Inflation fears and nonfarmer interest

 Limited supply of land on the market

 Stronger farm financial footing

Farm Financial Indicators

 Land prices push farm assets higher

 Strong farm income

 Improving credit quality 

 Rising farm debt 

12
Drought damage piles up 

Estimated Production cuts vs. 2020 

Northern Plains

 Spring wheat – 41%

 Durum wheat – 50%

 Montana barley – 54% 

 North Dakota dry edible beans – 46%

 South Dakota alfalfa hay – 50%

Western States 

 Washington winter wheat – 44%

 Washington pears – 20% 

 California almonds – 10% 

Pasture rated “Poor to Very Poor”

 10 states > than 60% on 8/23/21

WY, UT, SD, ND, NV, MN, MT, WA, OR, ID

Source: USDA. 13
Outlook for proteins 

 USDA’s 2022 forecast calls for

modest increases in cattle

prices but lower hog prices

 With exception of milk, prices

are forecast to be above 2019

or 2020 levels

 Except for dairy, near-term

producer margins are

generally favorable

 Higher production costs are

likely to erode 2022 gains

USDA Price Outlook

Data source: USDA/WASDE August 2021. 14
Improving cattle outlook

Cattle numbers are declining, aided 

by herd liquidations from drought

Tighter cattle supplies and robust 

consumer demand lift packer bids 

Retail beef prices are approaching 

new highs, making pork and chicken 

more attractively priced

Feedlot profitability is being 

hampered by higher feeder cattle 

costs and higher feed costs

15

Source: USDA.

Source: USDA & Livestock Marketing Information Center.
Higher returns predicated for cow-calf 

producers 

1/3 of total cattle inventory is in drought 

areas – West and Northern Plains

Poor pastures and high hay costs in those 

regions to accelerate cow slaughter rates

Higher cow-calf returns are predicated on 

higher calf prices due to the constraints 

on supply resulting from herd liquidations 

This cattle cycle could generate calf prices 

that outpace those in 2015 if the 

liquidation continues at the current pace Source: USDA

16

 & Livestock Marketing Information Center.
Dairy production pressures margins 

 Production increased 2% in July relative to last year with a 1.3% herd expansion

 Dairies face limited margins due to flat pricing and higher feed costs

 While exports have been healthy, domestic demand remains unsettled

 USDA announced $350M in new pandemic assistance payments to dairy farmers 

17

Source: USDA-AMS & USDA-NASS. Livestock Marketing Information Center.
Historic lumber price run-up ends 

 Lumber and wood product prices set records this spring, but have since fallen back

 Softwood timber did not experience the large price rise

 Housing starts stall on affordability problems and building material shortages

 Supply catching up as exceptional demand wanes

18

Source: Federal Reserve Bank of St. Louis. 
Concluding comments

Robust near-term U.S. economy

Future inflation rates and central 

bank responses remain critical

Strong U.S. farm economy with 

certain commodities and regions 

(drought) facing challenges

Exports, particularly to China are key

Fall harvests are underway

19
Questions

20

Thank You!
Farm Credit System 

Condition and Performance 

as of 

June 30, 2021

Hal Johnson

Sr. Financial Analyst

Office of Examination

21
Topics

▶ System growth

▶ Portfolio credit quality

▶ Earnings

▶ Capital | Liquidity

▶ FIRS

22
Real estate mortgage lending drives System 

growth in the first half of the year

Source: FCS Information Statements 23

Total 

Assets

6/30/21

$407.8

billion

+0.9% Qtr

+1.8% YTD

+6.0% 12M

Gross

Loans

6/30/21

$323.2

billion

+0.4% Qtr

+2.4% YTD

+8.8% 12M

-0.2%

1.2%

3.2%

0.3% 0.8%

0.0%

3.9%

2.0% 1.6% 1.5%

4.6%

2.0%

0.4%

Quarterly Loan Growth

1.0% 0.9%

-2.0%

6.6%

3.6% 4.4%

0.2%

1.3%

2.4%

5.4%

-4.0%

1.8%

-8%

-4%

0%

4%

8%

12%

16%

20%

Total Loan

Portfolio

RE Mortgage

(47%)

Prod. &

Intermediate

(18%)

Agribusiness

(18%)

Loan Growth by Loan Type

% change year-to-date through June
Portfolio loan quality is very good; credit risk 

elevated for certain agricultural sectors

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

1.44%

1.00% 0.85% 0.78% 0.84% 0.95% 0.92% 0.84%

0.58%

 -

 500

 1,000

 1,500

 2,000

 2,500

 3,000

 3,500

 4,000

 4,500

 5,000 Nonperforming Assets ($M)

Nonperforming Assets as a % of Gross Loans + OPO

5.2

4.9

7.9

6.6

1.1

6.8

6.8

10.4

6.1

3.3

7.2

7.5

12.0

5.0

2.9

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Total

Portfolio

Real Estate

Mortgage

Production &

Intermediate

Agribusiness

Rural

 Infrastructure

Jun-21 Jun-20 Jun-19

Source: FCS Information Statements 24

% of Loans Classified less than Acceptable

% of Nonperforming Assets

$1.861 Qtr chg. -$44M or -2.3%

billion 12 month chg. -$626M or -33.6%

Q4 '20 0.28%

Q2 '20 0.37%

 Nonperforming 

Assets

(6/30/21)

 Delinquencies (1)

(6/30/21) 0.24%
System is financially sound; reports strong 

year-over-year earnings growth

Source: FCS Information Statements 25

% increase in Average Earning Assets(1)

(compared to the same period a year ago)

(1) year-to-date annualized

Jun '19 Jun '20 Jun '21

Net Interest Spread

(YTD annualized)

Net Interest Margin

(YTD annualized)

2.00% 2.21% 2.33%

2.40% 2.44% 2.46%

6.8%

6.2%

9.8%

5.0%

4.1%

4.9%

6.5%

8.8%

2Q-14 2Q-15 2Q-16 2Q-17 2Q-18 2Q-19 2Q-20 2Q-21

2,341 2,273 2,337 2,466 

2,649 2,668 

2,873 

3,441 

(35)

50 

160 117 87 66 

158 

(30)

Year-to-date System Net Income

Year-to-date Provisions for Loan Losses

System Earnings ($M)
Capital and Liquidity

( as of June 30, 2021 )

▶ Total Regulatory Capital:

Banks| 14.7% to 18.5%

Associations| 11.5% to 35.2%

▶ Days of liquidity for the four

funding banks ranged from 165

to 223 days

▶ Capital and the allowance for

loan losses as a % of loans

outstanding ranged from 18.2%

to 23.2% at a combined district

level

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

System is strongly capitalized; well-positioned 

for the current risk environment

44.7 

47.8 

51.4 

54.5 

57.3 

61.2 

64.8 

68.4 

16.8% 16.9%

16.3%

17.0% 17.2% 17.4%

16.8% 16.8%

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21

System Capital

Total Capital less Restricted

Capital-to-Assets Ratio

Total System Capital ($B)
System FIRS ratings

FIRS Ratings

( based on 6/30/21 financial reporting )

▶ Composite FIRS ratings were largely

unchanged in the 2nd quarter

▶ Over 95% of System banks and

associations have a Composite FIRS

rating of 1 or 2

▶ Institutions rated 3 or lower hold

less than 1.0% of System assets

Composite FIRS Ratings

Farm Credit System Banks and Associations

Source: FCA’s FIRS ratings database 27

44 46 44 39 34 30 32 30

32 29 31

29

32 35 35 38

4 3 2

5 7 7 4 3

0

10

20

30

40

50

60

70

80

90

100

Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Jun-21

Number of Rated Institutions

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

▶ U.S. economic activity ramps-up, inflation worries remain

▶ Soaring grain and oilseed revenues push farmland prices higher

▶ Revenues for much of the livestock sector are expected to

improve next year, but higher production costs could erode gains

▶ All eyes focused on continuing drought and weather in the West

▶ The Farm Credit System continues to be safe and financially

sound. Portfolio loan quality is strong, but credit risk is elevated

for certain sectors and geographic regions

▶ System institutions are strongly capitalized and well-positioned

to meet borrower funding and liquidity needs 28
Questions

THANK YOU

29