Commodity Futures Trading Co

Agricultural Advisory Committe

July 29, 2008

CoBank Grain Industry Fina

Presented by:Phil DiPofi, Executive Vice PresidentAgribusiness Banking Group
Loan & Lease Portfolio (1)

Total 

$46.8 billion

CE$

Strategic 

Relationships

$12.8 billion

Agribusiness

$17.8 billion

(1) As of March 31, 2008
Agribusiness Banking Group

Portfolio Summary (1)

Total 

$17.8 billion

Other | 5%

Fish, Livestock, Poultry | 3%

Dairy | 2%

Biofuel

s | 2%

Wood, Paper Products | 3%

Fruits, Nuts, Vegetables | 5%

Lease Financing | 8%

(1) As of March 31, 2008
CoBank Farm Supply & Grain Marketing 

y Over 750 customers y Geographic diversification –

customers in 37 sta

y Commodity diversification (corn, soybeans, whey Feed manufacturing and marketingy Crop inputs (seed, fertilizer, chemicals)y Petroleum and propaney Most customers are agricultural cooperatives bu

increasing number that are LLCs, S corps. and C 

Grain Marketing and Farm Supply Indus

• 750+ Customers in Grain Marketing and Far

› Feb 2006 Commitments of $7.6 billion› Feb 2007 Commitments of $11.1 billion› Feb 2008 Commitments of $17.5 billion
Agribusine ss Volume & Commodity Price s Tr

$-

$3,000$6,000$9,000

$12,000$15,000

Jan-03 Apr-03Jul-03 Oct-03 Jan-04 Apr-04Jul-04 Oct-04 Jan-05 Apr-05Jul-05 Oct-05 Jan-06 Apr-06Jul-06 Oct-06 Jan-07 Apr

Volume($ in mil)

Farm Supply, Grain Marketing Volume Corn Price Soybean Prices 
Working Capital Impacty No-one anticipated the higher WC requirements from tigh

inventories and rising prices 

y From September, 2006 to June, 2008 the corn price increa

$5/ bushel

y A typical advance against grain inventory is 85-90%, meani

needs liquid assets to fund the other 10-15%

y A $2 bushel of corn requires $.20-$.30 of working capitaly A $7 bushel of corn requires $.70-$1.05 of working capitaly $.50-$.75/bushel additional working capital needed for gra

the accrued gains/losses on forward purchase and sale con

y Takes several y

ears to generate this additional WC from ea

100% in WC!

y At 5/31/08 CoBank customers had 2.3 billion bushels of s

(1.725 corn; .4 soybeans; .175 wheat)
6.9

02468

10121416

2005 2006 2007 

4.2

6.6

9.1

2.7

3.4

4.7

Billions

Year

Commercial Agribusiness Loa

Farm Supply & Grain Other

10.1

13.8 

6.9
Impact on the Industry/CoBank’s Portfo

y CoBank has supported its customer-owners through this per

price inflation 

y

L

oans to this c

ustomer-owne

r segme

nt have increased from

$4.2 billion (as of 2/28/05) to $11.6 billion (as of 5/31/08) 

y Risk, as measured by our established methods, has incre

ased 

increased to support the buildup of current assets

y CoBank has or is changing its traditional methods of credit e

administration in response to these unexpected and rapid ev

› Closer scrutiny and assessment o

f Forward Purchase Contractin

and contract management

› Consulting with customer-owners to manage their way back int

collateralized”

condition exists 

› Most have the need and capacity to increase earnings› Many also have capacity to increase working capital levels by ob

from under-leveraged fixed assets
Agribusiness RUSH Credit Actions throu

Year Credit Actions RUSHes % of Credit 

2005 1878 256

13.63%

2006 2190 503

22.97%

2007 2709 766

28.28%

6/30/2008

1677 649

38.70%
Syndication of Grain and Farm Supply 

y Loans to this segment have generally been held 100% y As loans have increased, we’ve sold or prepared to sell 

management purposes

y Additional requirements for sell-down

› Preparation of borrower to have additional lenders › Pricing to ensure market levels (while market has al› Reporting procedures: financial, collateral, risk polic› Documentation› Appraisals› These are being addressed on all loans, but require 

deals
Farm Credit System Loan Portfolio Diversification($ in thousa

$142.8 Billion as of 12/31/07 

Cotton

1%

Biofuels

Communication 1%

2%

Other Livestock

1% Other Livestock 

3%

Ag Services&Fishing

3%

Poultry&Eggs

3%

General Farm (Crop)

5%

Energy& Water

5%

Field Crops

6%

Food Products

6% Home Loans

6%

Fruits, Nuts, Grains

6%

Forestry 

7%

Farm Supply/

Marketing

7%

Dairy

7%

Cattle

10%

Cash Grain

General Farm (Livestock) 12%

3%

Hogs 

3%

International

1%

Cash GrCattle $1Dairy $1Farm SuForestry Fruits, NHome LoFood ProField CroEnergy& General Poultry&Ag ServiHogs $3General CommunBiofuels InternatioCotton $Other LivOther Liv
Where We Are Going

y More of an asset based lending approachy Increased reporting and monitoringy BBR will define credit availabilityyAdditional term debt to enhance working capitaly Independent appraisals to value fixed assetsy Higher pricing for servicing and risky Increased participation with FCS and other lende

diversification

y Look forward to working in a collaborative fashi

financing arrangements such as loan guarantees, swaps, grain repo program, etc. 
Summary and Implicationsy The industry (farm supply, grain marketing, proce

is in an adjustment phase as business models evolvsignificantly higher and more volatile prices

y Grain and farm supply companies serve a vital nee

rural America and now more than ever are essentithe U.S. grain producer

y There will be significant opportunities for those th

make the transition 

y CoBank will continue to work collaboratively as th

its practices related to hedging grain/risk managem