2012 In Review
From The President
Dave Owens, Chief Executive Officer
As we look back at 2012 and identify the significant events and issues that formed the basis for the results of Farm Credit’s operations for the year, a number of 2012 realities come to mind. Political gridlock, high commodity prices, high land values, market volatility, and overall uncertainty are just a few. But nothing was as significant to the Illinois farmer as the drought.
Weather is, of course, one of those ongoing risks in agricultural production. Conditions are never quite what we would like them to be, but a drought as serious as the one in 2012 was a shock to us all. Weather conditions, wet or dry, that negatively impact yields by 25% to 50% are serious; but to experience a 75% or more loss is unthinkable. The drought of 2012 was brutal and brought to light just how much risk there is in agriculture. Fortunately, many producers were covered by at least some level of crop insurance, according to University of Illinois statistics indicating 80% of farm operators in Illinois carry crop insurance. While that percentage has increased in recent years, it still leaves remaining crop producers – as well as livestock and dairy operators without coverage. Insurance proved to be a lifesaver for many, but it is only one tool to manage financial risk. Fortunately, most operations had good equity and working capital positions going into the drought. It is important to maintain those positions on a continuing basis since we never know when another disaster will strike.
When widespread adversity impacts the association’s service area, our board of directors and management team consider how the cooperative can assist our stockholders. Although Farm Credit cannot make it rain or restore a failed crop, there are positive measures we can take. In August of 2012 the Board of Directors approved a program to grant a deferral of principal and interest payments when cash flows were not adequate to service the loans. The board also authorized an interest rate holiday, or zero interest, for the months of September, October, and November on all existing operating loans up to $100,000. We understand these measures were appreciated and we are thankful the association had the financial strength to provide this measure of assistance. Our mission is to serve agriculture and provide exceptional value to the association owners at all times.
Farm Credit Services of Illinois continues to post exceptional financial performance. The drought, high farmland prices, and concern over increases in capital gain taxes all contributed to strong loan demand during 2012. The overall loan portfolio grew by 13.3% at year-end with a total of owned and managed loans of $3.5 billion. And we are happy to report credit quality did not suffer as a result of the exceptional growth; we finished the year with 99.3% acceptable credit quality. We have been conservative in our lending practices and this has positioned the association very well for any future adversity. The association's success is a direct reflection of the owners’ success and your willingness to fully utilize the cooperative’s services.
We are constantly reminded of how fortunate we are to be involved in Midwest agriculture. While there remains considerable stress, volatility, and uncertainty in much of the agricultural economy, your association is safe, sound, and standing strong. The consistent quality of our loan portfolio, our strong capital position, and the efficiency of our operations puts us in an enviable position. We are ever mindful that our strength and viability comes from you – our stockholders. Your board of directors, management team, and our professional staff are all dedicated to you and this exceptional cooperative. Together we are well positioned to manage our way through difficult times.