Quarterly Report on FCS Condition December 12, 2019 · Quarterly Report on FCS Condition December...
Transcript of Quarterly Report on FCS Condition December 12, 2019 · Quarterly Report on FCS Condition December...
Quarterly Report on FCS Condition
December 12, 2019
Dennis A. ShieldsHal Johnson
FCA Board Meeting December 2019
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Exhibit xx
Topics for Open Session
▶ Economic Conditions Affecting the Farm Credit System▪Trade and farm income▪Crop insurance indemnities▪Farm prices and risks in 2020
▶ FCS Condition and Performance▪System growth and loan portfolio▪Earnings and capital▪Financial Institution Rating System (FIRS)
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Economic Conditions Affecting the Farm Credit System
Dennis A. ShieldsChief Economist
Office of Data Analytics and Economics
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U.S. soybean exports to China try to regain traction; pork exports advance in 2019
U.S. soybean exports to China
Source: USDA/FAS.
U.S. pork exports to China
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0
50
100
150
Jan. Mar. May July Sept. Nov.
$ mil. 2017 2018 2019
0
1,000
2,000
3,000
Jan. Mar. May July Sept. Nov.
$ mil. 2017 2018 2019
0
20
40
60
80
100
120
140
0
50
100
150
2007 2009 2011 2013 2015 2017 2019F
1998-2018 average = $106.6 bil.
Farm income is lifted by Market Facilitation Program payments
Source: USDA/ERS, November 27, 2019.
U.S. net cash farm income (includes government payments)
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$ billion in 2019 dollars
Market Facilitation Program payments
2019 forecast of net cash farm income is $119.0 billion.
Based on USDA’s historical forecast accuracy, farm income could be as low as $115.1 billion or as high as $136.2 billion.
Crop insurance indemnities provide support to areas experiencing poor weather in 2019
Source: FCA analysis of USDA/RMA data. Notes: Includes corn, soybeans, wheat, sorghum, cotton, and rice. Total liability is amount equal to a complete crop loss (after deductible is incurred).
2019 indemnities for 6 major program cropsas a share of their total liability
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Selected FCS geographic footprint
Indemnities ($ mil.)
Compeer $535
Mid-America $644
FCS of America $1,265
Northwest FCS $80
Amer. AgCredit $147
U.S. total $5,725
6-crop indemnities as of 12/2/19
Farmers in the Corn Belt purchase relatively higher levels of crop insurance coverage
Average crop insurance coverage level in 2019 for combined corn, soybeans, wheat, sorghum, cotton, and rice
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Selected FCS geographic footprint
Average coverage level
Compeer 81.2%
Mid-America 80.0%
FCS of America 78.4%
Northwest FCS 78.7%
American AgCredit 71.1%
U.S. total 77.1%
Source: FCA analysis of USDA/RMA data. Note: Average coverage level in 2019 for 6 major program crops, weighted by crop value of insured acres. The insured absorbs the deductible (1 minus coverage %) before indemnity is paid.
2019 crop year
2012
2013
201720182019 2020
89
101112131415
0 5 10 15 20 25
$/bu.
Ending stocks-to-use ratio in percent
For the 2020 crop year, another high soybean stocks-to-use ratio could keep a lid on prices
U.S. soybean price and stocks-to-use ratio
Source: FCA using USDA data (November 2019 WASDE for 2019 forecast; Baseline Projections for 2020 crop; ERS Oil Crops Yearbook for historical data). 8
$10$11$12$13$14$15
2018 19 20 21 22
Rice ($/cwt.)$14
$2.75
$3.25
$3.75
$4.25
2018 19 20 21 22
Sorghum ($/bu.)$3.95
$3.20$3.40$3.60$3.80$4.00
2018 19 20 21 22
Corn ($/bu.)
$3.70
$0.25
$0.30
$0.35
$0.40
2018 19 20 21 22
Seed cotton ($/lb.)$0.367
$4.50
$5.00
$5.50
$6.00
2018 19 20 21 22
Wheat ($/bu.)
$5.50/bu.
$8.25$8.50$8.75$9.00$9.25
2018 19 20 21 22
Soybeans ($/bu.)
$8.40/bu.
Crop prices for the next 3 years are projected below reference prices (except soybeans)
Source: USDA Baseline Projections, November 2019. 9
Farm priceFarm Bill reference price that triggers Price Loss Coverage payments
Projected price weakness (relative to reference price) varies across growing regions
Source: FCA analysis of USDA’s November 2019 baseline prices for 2020-2022 and 2017-19 planted area by county. Note: For each county, the 3-year average ratio (projected price/reference price) for each crop is weighted by the crop’s planted area.
2020-2022 projected farm price as percentage of Farm Bill reference price(combined corn, soybeans, wheat, sorghum, cotton, and rice)
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Selected FCS geographic footprint
Projected price as % of ref. price
Compeer 96.5%
Mid-America 97.5%
FCS of America 96.1%
Northwest FCS 89.4%
American AgCredit 90.2%
U.S. total 94.1%
Hog producer returns are expected above break-even in early 2020, but risks remain ▶ U.S. supply ramps up and
demand prospects brighten ▶ Risk posed by African swine
fever approaches U.S. agriculture from different angles
Source: 2018 FCS Information Statement.
Hog margins
Source: IHS Markit Agribusiness.
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Hog share of total FCS loan
portfolio = 2.4%-50
-25
0
25
50
75
Jan.2016
Jan.2017
Jan.2018
Jan.2019
Jan.2020
$/head
Forecasts
Government assistance for farmers in 2020
▶ Permanent disaster programs for livestock losses▶ Crop insurance addresses within-season revenue or yield risk;
coverage varies by System territory ▶ Farm program payments provide downside protection for some
commodities (but they weren’t enough in 2018 and 2019)▶ Tranche 3 payments from 2019 Market Facilitation Program? ▶ Additional assistance from the Administration or Congress?
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15% 14% 16% 13% 8% 8% 8% 7% 10% 14% 11% 13% 19%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F
Government payments as a share of net cash farm income(USDA)
Concluding comments
▶ As 2020 approaches, global crop supplies remain ample, limiting attractive pricing opportunities for U.S. farmers
▶ Farm financial conditions become more challenging next year in the absence of stronger markets or another injection of payments
▶ Expected livestock/dairy returns in early 2020 are positive, but trade and disease risk remains elevated; a recession would dim prospects
▶ Without broader foreign trade access, U.S. agriculture could become a “residual” supplier with farm prices remaining under pressure
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Questions
THANK YOU
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Farm Credit System Condition and Performance
as of September 30, 2019
Hal JohnsonSr. Financial AnalystOffice of Examination
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Topics
▶ System growth
▶ Portfolio credit quality
▶ Earnings
▶ Capital
▶ FIRS
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System reports little growth through the first nine months of 2019
Source: FCS Information Statements 17
1.0%
2.8%
0.1%
-3.4%
2.0%
3.4%
-0.1%
0.6%1.0%
2.3%1.2%
-1.4%
-4%
-2%
0%
2%
4%
6%
8%
Total LoanPortfolio
RE Mortgage(47%)
Prod. &Intermediate
(19%)
Agribusiness(17%)
Sep-17Sep-18Sep-19
Loan Growth by Loan Type% change year-to-date through September Total
Assets9/30/19
$354.0billion
+0.4% Qtr +1.4% YTD
Gross Loans9/30/19
$276.1billion
-0.04% Qtr +1.0% YTD
-0.7%
2.7%
0.6%0.1% 0.3%
3.0%
1.5%
-0.2%
1.2%
3.2%
0.3%0.8%
0.0%
Quarterly System Loan Growth
Credit stress edges higher; risk varies by region and sector
Source: FCS Information Statements 18
2.46%2.20%
1.71%
1.29%0.91% 0.80% 0.85% 0.84% 0.92% 0.92%
% of Nonperforming Assets (1)
(1) calculated as a percentage of gross loans outstanding and other property owned (OPO)
$2.549 Qtr Chg. + $19M or 0.8%
billionYTD Chg. + $267M or 11.7%
Q2 '19 0.36%
Q3 '18 0.29%
Nonperforming Assets
(9/30/19)
Delinquencies (1)
(9/30/19)0.30%
(1) accruing loans 30 days or more past due as a % of accruing loans
Loans classified less than Acceptable are up in 2019 for all major loan types
Source: FCS Information Statements 19
4.1 3.7 2.4 5.3 9.6 9.4 7.4 5.5 4.2 3.6 4.0 5.5 6.1 6.6 7.4
3.3 4.0
8.0
7.9
3.6 3.8
6.5 7.4
4.9
7.1
13.1
9.4
4.4 5.5
10.0
11.9
6.9
9.4
16.6
4.3 4.7
5.8
-
3.0
6.0
9.0
12.0
15.0
18.0
-
3.0
6.0
9.0
12.0
15.0
18.0
TotalPortfolio
Real EstateMortgage
Production &Intermediate
AgriBusiness
% for Total Portfolio
% of Loans classified less than Acceptable by Loan Type
System’s financial condition is sound; year-to-date earnings stable
2,633 2,994 3,158
3,499 3,569 3,481 3,589 3,716 4,012 4,055
474 352 188
9 7 87 218 188 146 95
System Net Income
Provision for Loan Losses
System Earningsyear-to-date through September
Source: FCS Information Statements 20
7.1%
1.9%
6.3% 7.0% 6.4%
9.8%
4.1% 4.2% 5.2%
Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19
% increase in YTD Average Earning Assets(compared to the same period a year ago)
Q3 '19 Q2 '19 Q3 '18
2.02% 2.00% 2.13%
Q3 '19 Q2 '19 Q3 '18
2.41% 2.40% 2.45%
Net Interest Spread(YTD annualized)
Net Interest Margin(YTD annualized)
Capital and Liquidity- as of September 30, 2019 -
▶ Total Regulatory Capital levels:Banks: 16.1% to 19.1%Associations: 13.5% to 39.5%
▶ The System’s liquidity position equaled 177 days of coverage
▶ Days of available liquidity for the 4 funding banks ranged from 149 to 232 days
Source: FCS Information StatementsNote: Restricted capital represents capital associated with the Insurance Fund.
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The System is strongly capitalized
38.6 42.6
45.7 48.8
52.3 55.4 58.4
62.4
15.7%
16.3% 16.2% 16.1% 16.4%16.8% 16.7%
17.6%
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Sep-19
System CapitalTotal Capital less Restricted
Capital-to-Assets Ratio
Total System Capital ($B)
System FIRS ratings
FIRS Ratings▶ Composite FIRS ratings reflect
the System’s solid financial performance and 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 RatingsFarm Credit System Banks and Associations
Source: FCA’s FIRS ratings database22
37 43 44 46 44 39 34 31
38 31 32 29 3129 32 34
11 8 4 3 25 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 Sep-19N
umbe
r of R
ated
Inst
itutio
ns
1 Rated 2 Rated 3 Rated or lower
Summary and final points
▶ Agricultural producers are facing tough times▪Trade policy uncertainties, low margins, weak crop prices,
large global stocks, changing markets
▶ Rising credit stress in the loan portfolio reflects the financial challenges confronting System borrowers
▶ System institutions are financially sound, well-capitalized, and have the risk-bearing capacity to respond to the credit needs of U.S. agriculture
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Questions
THANK YOU
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