FINANCIAL SERVICES VOLUNTEER CORPS

1
FINANCIAL SERVICES VOLUNTEER CORPS

• Overview of the Development of Agri-Credit in the
  U.S.

2

• Stephen Hatz
• Senior Vice President
• Bank of the West
• Omaha, Nebraska

3
Overview of the Development of Agri-Credit in
the U.S.

• Todays Outline
• Transition in Agriculture
• Urbanization of the U.S. driven by the
  industrialization of U.S. agriculture
• Large farms capture economies of scale
• The structure of U.S. agriculture has changed
• Food production is specialized
• Multiple types of farms have emerged
• Changing face of Agriculture Lending Today
• Domestic Foreign Commercial Banking
• Farm Credit System
• Vendor Financing
• Non-Institutional Lenders
• Captive Finance Companies

4
Urban and Rural Population (1790 to 2000)
The U.S. is an Urban Nation
Percent of Population
Urban
Rural
Source U.S. Census Bureau
5
Horses, Mules, and Tractors
U.S. Agriculture Becomes Mechanized.
Millions
Millions
(Right Scale) Tractors
Horses and Mules (Left Scale)
Center for the Study of Rural America, FRBKC
6
Plow and Harrow, 1930s
7
Tractor and Disk, 2008
8
Corn Planter, 1940
9
Corn Planter, 2008
10
Corn Picker, 1930s
Center for the Study of Rural America, FRBKC
Photo courtesy of USDA
11
Corn Harvest, 2008
12
Farm Dependent Counties1950
13
Farm Dependent Counties 2008
14
Changing Structure of U.S. Agriculture

• Less labor is required for production.
• Large farms capture economies of scale.
• Food production is specialized.
• Multiple types of farmers have emerged.

Center for the Study of Rural America, FRBKC
Photo courtesy of USDA
15
Labor Needed for Corn Production
Mechanization and Technology Reduce the Need for
Labor
Hours to produce 100 bushels of corn
Source USDA
16
Labor Needs fall in Larger Operations
Labor Efficiency in Hog Production
Hours per hundredweight gain
Source USDA
17
Fostering Specialization in Agriculture
Diversity in Farm Production
Percent of Farms Producing
1900
1997
Source USDA
Center for the Study of Rural America, FRBKC
Photo courtesy of USDA
18
Structure of the U.S. Pork Industry

• Consolidation
• Consolidation of hog farms
• Consolidation of packer / processors
• Industrialization
• Improved productivity
• Improved efficiency
• Systems approach to production
• Health (All-in, All-out strategies)
• Genetics (Genetic Improvement)
• Management (Specialization of labor)

19
(No Transcript)
20
U.S. Producer Statistics and Change
21
U.S. Pig Production Density
22
(No Transcript)
23
(No Transcript)
24
United States Feedlots gt 4,000 Head
January 1, 2005
25
(No Transcript)
26
The Farm Economy is Booming
U.S. Net Farm Income
Billion dollars
Direct Govt Payments
Ad hoc Emergency Assistance
Source USDA
27
Crop Prices Are Surging With Strong Demand And
Shorter Global Supplies
Dollars per bushel
Soybeans
Wheat
Corn
28
Sources of Operating Credit over 3 Years
29
Sources of Real Estate Credit over Past 5 Years
30
Top 5 Agriculture Lending Banks

• Rank Bank Location Total Ag
  Loans
• 1 Wells Fargo Sioux Falls, SD
  6,697,000
• 2 B of A Charlotte, NC
  2,852,083
• 3 Bank of the West San Fran, CA 2,370,083
  
• 4 US Bank Cincinnati, OH 1,881,558
• 6 Rabobank El Centro, CA 1,772,553

31
History of the Farm Credit System

• 1916 12 Federal Land Banks Established
• Long Term Ag-Credit
• 1923 Federal Intermediate Credit banks
• Provide Short term Intermediate Ag Credit
• 1933 13 Banks for Cooperatives created
• Federal Land banks are exempt from Federal, State
  and Local Taxation, which was established in the
  organizational act of 1916
• Funding through the Federal Fam Credit Bond
  Funding Corporation
• GSEGovernment Sponsored Enterprise

32
Farm Credit System

• 3/31/08 Combined financials (millions)
• Gross Loans 152,932
• Total Assets 197,433
• Debt Securities 165,076
• Equity 28,824
• Net Income Quarter 770
• Net Income 2007 2,708

33
Non Traditional Agricultural Lenders

• Non Traditional lenders are defined as dealers
  who offer financing for the purchase of a
  product.
• Why famers use non traditional lenders
• Convenience in obtaining the loan
• Dealer financing incentives
• Interest rate

34
The Landscape of Agriculture

• Commercial banks Agricultural lending
• Current 2,500 institutions will decline to 1,000
• Farm Credits
• 100 association and five district banks
• Consolidated down to 25-30 associations
• Non-traditional Lenders
• Will continue to compete as niche players
• Target segments of the agribusiness market