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Finance and Credit I ssues for Finance and Credit I ssues for Agriculture and the Food System : Agriculture and the Food System : Update 2 0 1 0 Update 2 0 1 0 Paul N. Ellinger Professor and Head pellinge@illinois.edu University of I

  1. Finance and Credit I ssues for Finance and Credit I ssues for Agriculture and the Food System : Agriculture and the Food System : Update 2 0 1 0 Update 2 0 1 0 Paul N. Ellinger Professor and Head pellinge@illinois.edu University of I llinois

  2. Summary: Key Changes November 2008 - Today � Short-term liquidity � Financial market volatilty � Unemployment � Deleveraging � Public debt: level, duration, yield curve � Federal and state budgets � Corporate and farm profitability � Securitization markets � Bank failures & stress on FDIC � Agricultural financial stress: dairy, protein and ethanol markets Farm Foundation Forum

  3. Financial Health of the Consumer � Income declines � 15 million unemployed + 11.5 underemployed � Average work week 33.3 hours � Median unemployment 19.9 weeks (up 100% Nov 2008) � Wealth declines � $3.6 trillion off home price peak � $8.3 trillion off financial asset peak values � 23% home mortgages with negative equity � 9.24% mortgages past due (up 44%) Farm Foundation Forum

  4. Labor Market % Unemployed Farm Foundation Forum Source: U.S. Bureau of Labor Statistics Seasonally adjusted

  5. Source: BLS and Latoya Egwuekwe

  6. Source: BLS and Latoya Egwuekwe

  7. Source: BLS and Latoya Egwuekwe

  8. Source: BLS and Latoya Egwuekwe

  9. Source: BLS and Latoya Egwuekwe

  10. Source: BLS and Latoya Egwuekwe

  11. Source: BLS and Latoya Egwuekwe

  12. Source: BLS and Latoya Egwuekwe

  13. Source: BLS and Latoya Egwuekwe

  14. Source: BLS and Latoya Egwuekwe

  15. Source: BLS and Latoya Egwuekwe

  16. Source: BLS and Latoya Egwuekwe

  17. Source: BLS and Latoya Egwuekwe

  18. Source: BLS and Latoya Egwuekwe

  19. Source: BLS and Latoya Egwuekwe

  20. Source: BLS and Latoya Egwuekwe

  21. Source: BLS and Latoya Egwuekwe

  22. Source: BLS and Latoya Egwuekwe

  23. Source: BLS and Latoya Egwuekwe

  24. Source: BLS and Latoya Egwuekwe

  25. Source: BLS and Latoya Egwuekwe

  26. Source: BLS and Latoya Egwuekwe

  27. Source: BLS and Latoya Egwuekwe

  28. Source: BLS and Latoya Egwuekwe

  29. Source: BLS and Latoya Egwuekwe

  30. Source: BLS and Latoya Egwuekwe

  31. Source: BLS and Latoya Egwuekwe

  32. Source: BLS and Latoya Egwuekwe

  33. Source: BLS and Latoya Egwuekwe

  34. Source: BLS and Latoya Egwuekwe

  35. Source: BLS and Latoya Egwuekwe

  36. Source: BLS and Latoya Egwuekwe

  37. Source: BLS and Latoya Egwuekwe

  38. Source: BLS and Latoya Egwuekwe

  39. Source: BLS and Latoya Egwuekwe

  40. Source: BLS and Latoya Egwuekwe

  44. Commercial, Residential and Farm Real Estate Prices Base = 2000 Farm Foundation Forum

  45. Farmland prices Farm Foundation Forum

  46. Price of Legacy/Toxic Securities ABX-06-02-AAA ABX-06-02-BBB Farm Foundation Forum

  47. Significance of Farmland Total Assets Used in Farming: United States $1.943 Trillion 2009p Source: Economic Research Service Farm Foundation Forum

  48. Current Economic Drivers Farmland Prices � Net returns to land � Level � Volatility � Energy prices � Interest / inflation rates � Housing crisis � Scope & economic situation of buyers � Demand for recreational land � Capital gains tax rates Farm Foundation Forum

  49. Total Farm Debt $239 Billion 2008 $249 Billion 2009p $233 Billion 2010f Does not include other sectors of the supply chain Economic Research Service Farm Foundation Forum

  50. Perspective of $250 Billion Does not include Asset bank commercial paper MM Mutual Fund facili Source: WSJ Temporary guarantee for MM funds Farm Foundation Forum

  51. I ndividual Lenders in I ndividual Lenders in Production Agriculture Production Agriculture

  52. How Many Banks Does It Take? % of Commercial Bank Loans to Agriculture 1 5 Banks 4 7 4 Banks 1 5 Banks 8 2 1 Banks 8 2 1 Banks 3 3 2 Banks 5 ,0 0 0 + Banks 0 % 2 0 % 4 0 % 5 0 % 1 0 0 % Farm Foundation Forum

  53. Loans Secured by RE Production Loans Total Ag Loans 1 Wells Fargo Bank, NA $ 2,597,000 $ 5,972,000 $ 8,569,000 2 Bank of America, NA 1,815,530 1,511,970 3,327,500 3 Bank of the West 987,753 1,978,060 2,965,813 4 Rabobank, NA 1,527,271 562,229 2,089,500 5 U.S. Bank NA 744,309 1,042,911 1,787,220 6 M&I Marshall and Ilsley Bank 761,496 450,166 1,211,662 7 Regions Bank 733,065 303,174 1,036,239 8 Wachovia Bank, NA 378,000 448,000 826,000 9 Citibank, NA 16,000 799,000 815,000 10 KeyBank NA 214,206 529,294 743,500 11 Great Western Bank 285,153 442,300 727,453 12 First National Bank of Omaha 69,907 649,497 719,404 13 Citizens Business Bank 204,298 424,653 628,951 14 Pinnacle Bank 213,531 322,075 535,606 15 Fulton Bank, NA 399,579 135,466 535,045 $ 10,947,098 $ 15,570,795 $ 26,517,893 Proportion of all banks 16% 26% 21%

  54. Delinquency Rates Commercial Banks Source: Federal Reserve Farm Foundation Forum

  55. Banks Initially Participating in TARP � 400 Firms (530 Banks) � 6% of banks lending to Agriculture � 24% of Agricultural Volume � 0.09% ROA TARP Banks � 0.42% ROA NonTARP Banks Farm Foundation Forum

  56. 185 Bank Failures Since 1/2008 Source: WSJ Farm Foundation Forum

  57. 162 Bank Failures: 2009-present Secured by Farm Real Ag Total Ag Estate Production Loans Ag Loan Volume ($ billion) $ 1.30 $ 0.89 $ 2.19 Number of banks with volume 103 60 106 Percent of total bank volume 1.06% 1.51% 1.20% Farm Foundation Forum

  58. Agricultural Banks 2007 2008 2009 Return on assets 1.20% 1.00% 0.83% Core Capital/Total Assets 10.31% 9.99% 9.96% Percent all loans noncurrent 1.05% 1.43% 1.83% Farm Foundation Forum

  59. Summary: Commercial Banks Lending to Agr. � 702 on FDIC problem list � Availability of credit � Unemployment impacts � Construction and Development Loans � Community Banks � Less benefit from maturity spreads � Interest rate risk exposure � FDIC premium costs � Additional provisions Farm Foundation Forum

  60. Farm Credit System � Bond markets have stabilized � $2.850 Billion Income 2009 � Capital / Assets grew to 13.9% � Nonaccrual loans increase $1.087 billion 2.14% from 1.50% � Exposure to dairy, protein and ethanol Farm Foundation Forum

  61. Farmer Mac � Repay 2008 emergency capital infusion � Capital surplus $126 million Q3 - 2009 Up $100 million � Currently has largest capital surplus in history � Ethanol losses and exposure � Benefits from expanded authorities of rural utilities Farm Foundation Forum

  62. Captive Finance Securitization rebound Source: Bloomberg and Morgan Stanley Farm Foundation Forum

  63. Summary � In general, health lenders to agriculture remains adequate � Nonagricultural income and unemployment large issue � Profit margins narrowing and risks increasing More winners – more losers Farm Foundation Forum

  64. Challenges: Producer Risk Pipeline � Commodity price risks � Input price risks � Cash rent � Interest rate risks � Counterparty risks Pushed back to producer Farm Foundation Forum

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