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Dairy challenge presentation

Dairy challenge presentation. What is Farm Credit?. Farm Credit was established in 1916 as the Country’s first Government Sponsored Enterprise (GSE). 100% of funding is non-government, private investments exceeding $244 Billion in loans.

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Dairy challenge presentation

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  1. Dairy challenge presentation

  2. What is Farm Credit? • Farm Credit was established in 1916 as the Country’s first Government Sponsored Enterprise (GSE). 100% of funding is non-government, private investments exceeding $244 Billion in loans. • The “cooperative organizational structure” of the nation-wide Farm Credit System (FCS) is comprised of the following: • FCS has 4 banks and 74 associations • CoBank 24 associations ($98 Billion) • AgriBank 17 associations ($95 Billion) • FCB of Texas 14 associations ($21 Billion) • AgFirst 19 associations ($26 Billion) • The Farm Credit System funds approximately 41% of all US farm business debt.

  3. Farm Credit • What do we do? • Mission Based – Dependable Source of Credit for Agriculture and Rural America • Lend money for ag-related purposes: • Operating Loans • Typically from 1-3 years • Intermediate Term Loans : • Typically from 3-7 years • For machinery, production equipment, chattel, permits, etc. • Long Term Loans • Typically 5-30 years • For real estate purchases • Repayment matched to income timing (monthly, qrtly, semi-annual, etc.)

  4. Western AgCredit’s Mission To provide the most dependable source of credit and related services to agriculture and the rural community.

  5. Assessing RISK • Core of our business – “Provide a dependable source of credit to agriculture” • How do we do that? • Evaluate risk (credit analysis) • Receive a return on risk (interest rate) • Be a dependable source (retain capital/earnings)

  6. Assessing RISK Credit Analysis • 5 C’s of Credit • Capacity • Capital • Character • Collateral • Conditions

  7. Assessing Risk Borrower Risk • Probability of Default (Financial Analysis) Transaction Risk • Loss Given Default (Loan to Collateral Analysis) Production Risk • Management Analysis

  8. Lending Standards • Will you add dairy specific lending standards here in some type of nice format?

  9. CAPACITY – INCOME STATEMENT • Capacity is the ability to generate enough earnings to • Repay existing debt and/or new debt • Replace capital assets (equipment) • Provide for family living expenses • Build a reserve fund • Historical, Current and Projected Information • Accrual Adjustments • Important to understand cash vs. accrual statements

  10. CAPACITY – INCOME STATEMENT • Net Income • Capital Debt Repayment Capacity (CDRC) – Measures the amount of funds generated from the farm & other sources that can be used to pay debt on time and to cover expenses to replace capital items

  11. CAPITAL – BALANCE SHEET • Liquidity – A borrowers ability to cover short term debt obligations & expenses • Current Ratio

  12. CAPITAL – BALANCE SHEET • Solvency – A useful tool to gauge the extent to which a company is taking on debt as means of leveraging its assets • Debt-to-Equity

  13. CHARACTER Evaluation of Character • Repayment history • Experience • Management Practices • Production Mgmt. • Marketing Mgmt. • Financial Mgmt.

  14. COLLATERAL • Property taken as security for a loan • Real Estate • Personal Property – equipment, cattle, inventories, accounts receivable, etc. • Secondary source of repayment for the loan • Banks require a “security margin” between the loan and the collateral value

  15. COLLATERAL • Loan Amount to Appraised Value • Appraised Value vs Net Realizable Value • Specialized vs Non-Specialized

  16. CONDITIONS • Loan Amortization lined up with life of asset • Operating lines for operating expenses 1-3 years • Cattle/Equipment 3-7 years • Real Estate 5-30 years • Payments • Seasonality/cyclicality • Real estate – Monthly, Quarterly, Semi-Annual & Annual • Fees • Origination, title, appraisal, etc.

  17. CONDITIONS CONTINUED • Covenants • Financial Covenants – Example: Current ratio of 1.20:1 • Guarantees (individual or FSA) • Reporting Requirements, i.e. borrowing bases, annual financials • Insurance – Property/Casualty, Crop Insurance, etc.

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