summer 2012 farm credit view

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Enjoy the summer 2012 edition of Farm Credit VIEW - providing timely and informative articles for the stockholders of Farm Credit Services of Illinois.

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  • I N T H I S I S S U E

    2 INTERESTing TImESTom Tracy, Senior Vice President, Operations

    3 CROP INSuRaNCE NEwS Drought Discussion meetings

    Gary Kopp, Regional Sales manager

    4 NEwS fROm ThE fIElD New employees, milestones, retirements

    and upcoming events

    5 CuSTOmER SPOTlIGhT Create family memories at Eckerts

    6 mEalS IN ThE fIElD September 17-21

    Register for a free meal for you, your family,

    friends and neighbors!

    FARM CREDIT view

    The market for

    farmland in Farm

    Credit Services of

    Illinois sixty county

    Farm Credit Services

    of Illinois territory

    remains strong at mid year. Land values are

    monitored using a 20 farm benchmark ap-

    praisal system which is updated during the

    first six months of each year.

    The updates for 2012 show a continuation

    of a developing trend over the past several

    years with an average increase of 22.2%

    compared to an 18.9% increase in 2011. All

    20 benchmark farms showed an increase in

    value. As always, the market for agricultural

    real estate is extremely location specific;

    however some general observations can

    be made. Values of Class A land were up

    15.6% with Class B increasing on aver-

    age by 24.7%. Class C land varies widely

    throughout the territory but on average was

    up 22.9%. It appears that although inves-

    tors are still in the market, a majority of land

    is being purchased by local farmers.

    The current drought conditions being felt in

    a large portion of our territory do not seem

    to be reflected in these values however;

    the long term effect the drought will have

    is yet to be determined. Drought conditions

    appear to be worse in the southern portion

    of the territory but are generally fair to poor

    Farmland Market ConditionsBy Kent Reid, Chief Appraiser

    throughout the sixty counties. On the bright

    side, commodity prices remain strong and inter-

    est rates are historically low.

    SummeR eDITION 2012 NEwS & hIGhlIGhTS fROm faRm CREDIT SERVICES Of Ill INOIS

  • 2

    INTERESTing TimesBy Tom Tracy, Senior Vice President, Operations

    We hear a lot of discussion

    these days about interest

    rates. Most often the

    reference is about floating

    rates specifically the

    prime rate of interest which

    is based on the federal funds rate set by the

    Federal Open Market Committee (FOMC). For

    the purpose of this discussion, lets focus on the

    outlook for floating rates. Well tackle longer

    duration rates next time. Specifically, lets focus

    on the prime rate and examine an abbreviated

    version of the most recent statement from the

    FOMC: The Committee decided to keep the

    target range for the federal funds rate at 0

    to 1/4 percent and currently anticipates that

    economic conditions--including low rates of

    resource utilization and a subdued outlook for

    inflation over the medium run--are likely to

    warrant exceptionally low levels for the federal

    funds rate at least through late 2014.

    In the U.S., the prime rate runs about 300 basis

    points (thats a fancy way of saying 3%; a basis

    point is 1/100th of a percentage point) above

    the federal funds rate. Simply put: federal funds

    rate + 3 % = prime rate. The current prime rate

    is 3.25%. Most discussion today indicates the

    FOMC is saying they will leave rates alone until

    2014!

    Effectively, they are saying the prime rate is

    going to stay put until 2014. That, however, is

    not entirely what the FOMC statement says.

    The statement says they currently anticipate

    the factors dictating this accommodative

    policy will persist until late 2014. They even

    tell us what factors they

    are watching: resource

    utilization and inflation. So

    if we see significant upward

    movement in these factors,

    it would seem the FOMC

    would be well within the

    guidance they have given

    us to increase the discount

    rate. This will effectively

    increase the prime rate prior

    to late 2014. How much

    has the Federal funds rate

    stayed put over the years?

    The rate has moved frequently and in many

    years significantly. Above is a graph showing

    the degree of change in the prime rate by

    calendar year for roughly the past 40 years. Take

    note that there were nine occasions in which the

    prime rate changed 300 basis points or more

    within one calendar period. This would represent

    a near doubling of the rate today. There were

    just five years in which the rate did not move;

    four of those are the most recent years.

    The futures market tells us the prime rate is

    anticipated to remain relatively low. From the

    perspective of an agricultural/farm business

    owner, there appears to be a reduced need to

    be concerned with short term interest rate shifts

    within the next 24 calendar months. However,

    the FOMC guidance of late 2014 appears

    to allow increases in rates that should warrant

    some degree of consideration. This is especially

    true If you are in the position of having floating

    rate debt used for the purchase of a longer lived

    asset and you do not anticipate paying off that

    debt in the near term.

    In the intermediate term of three to five years,

    it appears there will be an increased need for

    concern with movement in floating rates. These

    rates may still be low by historical standards, but

    they may move significantly on a relative basis

    and overtake many of the current intermediate

    and possibly even longer term fixed rates being

    offered by Farm Credit today.

    It may be an appropriate time, over the next

    three to five years, to consider fixing interest

    rates on all, or a portion, of your debt being

    used to finance longer lived assets such as land

    and equipment. It will cost you more in the short

    term but potentially will save you much more in

    the long term.

    Contact your local Farm Credit office for more

    information on interest rates and the loan

    products available to help keep your farming

    operation running smoothly.

  • 3

    Drought Discussion Meetings helD

    Area producers flocked to twelve Drought

    Discussion meetings held throughout July

    by Farm Credit Services of Illinois. Cory

    Mitchell, Farm Credits director of related

    services stated, It is good to see the active

    participation by policyholders and their

    eagerness to learn about handling crop

    insurance claims as a result of the 2012

    drought. Crop insurance payments made to

    producers are expected to far exceed any other

    claim year in crop insurance history; nearly all

    policies are expected to file a claim this year.

    Already, 2012 is being compared with 1988,

    1983, 1954, and 1930s crop disasters.

    Farm Credit crop insurance staff led these

    discussions and presented attendees with

    information on what to expect, what to do,

    and what not to do to ensure producers

    receive the full benefit of their 2012 crop

    insurance coverage. Highlights included:

    1. Turn in your harvest claim. If you think you will have a loss, call your local Farm

    Credit office.

    2. Do not destroy the crop; do not bale, chop, or graze it without getting a

    company adjuster to appraise the crop

    first. Call your Farm Credit office before

    you take any destructive action with

    your crop.

    3. An adjuster must measure any leftover 2011 grain if you plan to store new

    2012 grain in the same bin. Call your

    local Farm Credit office to arrange for a

    measurement before harvest.

    4. Keep good harvest records for each line of corn and soybeans on

    your policy. Load records, combine

    monitor information, scale records, bin

    measurements, and settlement sheets

    will all be very important in working your

    possible claim. Identify each unit or farm

    name on each piece of information.

    5. Before claims over $200,000 per crop/ per county can be paid, RMA requires a

    three year APH review to be completed

    by the company. If your claim potentially

    exceeds that, you may do this before

    harvest and speed up the final payment

    of your claim. Call your local Farm Credit

    office if you want to do this early.

    6. For tax purposes, producers need to determine if claim proceeds will be paid

    in 2012 or in 2013? Call your local

    Farm Credit office to further discuss

    your options.

    7. Call your local Farm Credit office immediately if you suspect Aflatoxin in

    your corn. Samples must be taken by a

    company adjuster BEFORE the grain goes

    into the bin or other storage facility.

    If the rains come, there is still hope for the

    soybean crop, however; in most areas, the corn

    is either done or done for. Everyone will agree

    choosing to protect your 2012 crop with crop

    insurance will be one of the best decisions

    you have made this year. Your crop insurance

    specialist at Farm Credit can answer any

    ongoing questions you have.

    Crop Insurance News & UpdatesBy Gary Kopp, Crop Insurance Training Coordinator

    Crop Insurance News