Iowa s Ag Economic Outlook in the

Iowa s Ag Economic Outlook in the Current Global Context Steve Elmore Chief Economist September 17 th, 2018 Iowa Bankers Association Des Moines, IA

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Macroeconomic Forecast is for Solid Growth into 2019 Gross Domestic Product (GDP) Annual % Change 2015 2016 2017 2018 2019 World +2.9% +2.6% +3.3% +3.4% +3.3% N. America* +2.7% +1.5% +2.3% +2.8% +2.7% S. America -1.4% -2.9% +1.3% +1.7% +2.0% W. Europe +2.1% +1.8% +2.3% +2.0% +1.8% C. Europe +4.0% +2.8% +4.5% +3.9% +3.3% E. Europe +4.6% +3.2% +5.6% +4.2% +3.8% Asia Pacific +4.9% +4.8% +5.0% +5.0% +5.0% China +6.9% +6.7% +6.9% +6.7% +6.4% Japan +1.4% +1.0% +1.7% +1.2% +1.0% India +8.1% +7.1% +6.6% +7.3% +7.6% *North America includes Canada & Mexico Industrial Production (IP) Annual % Change 2015 2016 2017 2018 2019 World +1.1% +1.3% +3.3% +3.6% +3.4% N. America* -0.9% -1.7% +1.7% +3.5% +3.1% S. America -4.8% -4.6% +1.4% +2.2% +1.9% W. Europe +1.4% +1.6% +2.9% +2.7% +2.0% C. Europe +5.2% +2.9% +6.4% +4.6% +4.4% E. Europe +5.1% +3.0% +7.1% +4.8% +4.4% Asia Pacific +3.1% +4.1% +5.2% +4.8% +4.7% China +6.1% +6.2% +6.6% +6.2% +5.6% Japan -1.2% -0.2% +4.5% +2.9% +2.6% India +2.5% +5.2% +3.5% +5.7% +6.6% Data Source: IHS Global Economics 3

1948 1952 1956 1961 1965 1970 1974 1978 1983 1987 1992 1996 2001 2005 2009 2014 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 180 160 140 120 100 80 60 40 20 0 U.S. Economy Helping Drive Global Consumer Demand U.S. Employment Measures U.S. Fed Funds Rate Million Percent Total Civilian Workforce (left) Unemployment Rate (right) 11 20 10 18 9 16 14 8 12 7 10 6 8 5 6 4 4 3 2 2 0 Percent Fed Funds Rate 4

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Strong Economy Seen in Crude Oil Prices The market is posting higher prices on strong demand and some supply constraints Prices are up 45% over 3Q2017. We are even posting higher lows. 115 105 95 85 75 65 55 45 35 WTI Crude Oil Futures Prices ($/BBL) 25 5

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Most Meat in the U.S. Consumed Since the Atkins Diet Peak Many levels of the employment spectrum are benefitting from lower unemployment rates. Because of the better than expected economic picture, livestock producers continued to expand production. This production will continue to make it into the U.S. domestic market and growth is expected in 2018 & 2019. Domestic Meat Availability (Pounds per Person per Year) 222 220 218 216 214 212 210 208 206 204 202 200 198 196 6

Livestock & Dairy Market Domestic meat demand remains solid. Given the current trade concerns around the livestock sector, any feed price spikes or domestic demand disruptions could lead to a very serious financial situation for many livestock producers. LIVESTOCK USDA Est 09/2018 2017 2018 2019e Production bil bu Beef 26.25 27.16 27.78 Pork 25.60 26.69 27.89 Broiler 41.22 42.16 42.96 Turkey 5.98 5.93 5.99 Eggs (Bil Doz) 8.81 8.96 9.13 Milk 215.50 217.80 221.00 Price ($/Cwt - Eggs= /doz.) Beef 121.52 116.00 117.50 Pork 50.48 43.50 40.50 Broiler 93.50 97.00 96.00 Turkey 96.10 81.00 84.50 Market Facilitation Payment (MFP) Initial Payment Rate: Dairy @ $0.12/Cwt and Hogs @ $8.00/head Eggs (Bil Doz) 100.90 141.00 124.00 Milk 17.65 16.40 17.25 7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2018f 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 300 250 200 150 100 World Agricultural Inventories are at High Levels Mil MT Ending Stock Levels Wheat Corn 40% 35% 30% 25% Stocks-to-Use Ratio Corn Wheat Soybeans 50 0 Soybeans 20% 15% 10% Source: USDA 8

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2018f 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 60 50 40 30 U.S. Inventory Levels Show the Relative Strength in Corn 20 10 Mil MT Ending Stock Levels Corn Wheat 60% 50% 40% 30% 20% Stocks-to-Use Ratio Corn Wheat Soybeans 0 Soybeans 10% 0% Source: USDA 9

May Jun Jul Aug Sep Oct Nov FINAL May Jun Jul Aug Sep Oct Nov FINAL USDA Forecasted U.S. Corn & Soybean Yields by Month USDA s Monthly Corn Estimates USDA s Monthly Soybean Estimates 190 Bu/Acre 55.0 Bu/Acre 180 170 160 150 '18, 181.3 '17, 176.6 '16, 174.6 '14, 171.0 '15, 168.4 '13, 158.1 53.0 51.0 49.0 47.0 45.0 43.0 '18, 52.8 '16, 52.0 '17, 49.1 '15, 48.0 '14, 47.5 '13, 44.0 140 41.0 130 120 '12, 123.1 39.0 37.0 35.0 '12, 40.0 10

00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 U.S.D.A. Corn & Soybean Yields by Year Corn Soybeans 185 180 175 170 165 160 155 150 145 140 135 130 125 120 Bu/Acre 54 52 50 48 46 44 42 40 38 36 34 32 30 Bu/Acre Red Marker Indicates a New Record 11

Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 CBOT Commodity Prices Under Pressure Soybean CBOT New Crop Prices (Cents/Bu) Corn CBOT New Crop Prices (Cents/Bu) 1075 1075 430 430 1050 1025 1000 975 950 925 900 875 850 825 Nov'18 Nov'19 1050 1025 1000 975 950 925 900 875 850 825 420 410 400 390 380 370 360 350 340 Dec'18 Dec'19 420 410 400 390 380 370 360 350 340 800 800 330 330 Data Sources: CBOT 12

May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Soybean-to-Corn CBOT New Crop Price Ratio Leaning to Corn? Soybean-to-Corn Ratio 2.7 Soybean-to-Corn Ratio 2.7 SOYBEANS 2.6 2.6 The higher the ratio, soybeans are favored over corn planting economics. The converse is true. CORN 2.5 2.4 2.3 2.2 2.1 2.5 2.4 2.3 2.2 2.1 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2.0 2.0 13

Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 U.S. Dollar Index The DXY, USDX or DX is weighted to the developed world and is not the best proxy for the agricultural sector. Euro (EUR) Japanese yen (JPY) Pound sterling (GBP) Canadian dollar (CAD) Swedish krona (SEK) Swiss franc (CHF) Financial Crisis & QE took the Dollar Index down until 2014. Since that time, the dollar gained strength and it has been range bound vs. these select currencies as QE is rolling off and the interest rates are increasing. 130 120 110 100 90 80 70 The U.S. Dollar Index TM published by ICE 14

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Latin America Currency Exchange Rates Key for Ag Markets Brazil Real Per US$ Argentina Peso Per US$ Mexico Peso Per US$ 1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50 3.75 4.00 4.25 0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 8 10 12 14 16 18 20 22 15

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Currency Exchange Rates Key for Ag Markets Ukraine Hryvna Per US$ India Rupee Per US$ South Africa Rand Per US$ 0 5 10 15 20 25 30 35 35 40 45 50 55 60 65 70 75 6 8 10 12 14 16 18 16

47% 57%62% 21% 17% 24% 21% 22% 23% 22% 22% 40% 40% 41% 37% 46% 45% 46% 42% 48% 42% 38% 41% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 47% 38% 39% 39% 34% 31% 34% 35% 35% 35% 33% 31% 46% 58% 58% 54% 50% U.S. Export Market Share U.S. Export Market Share The U.S. has not been able to keep global market share from eroding due to increased global production. Improving agricultural infrastructure by competitors in the global marketplace and exchange rates have supported this trend. Note: Grains - Corn, wheat, rice, sorghum, barley, oats, rye, millet and mixed grains. Oilseeds - Soybeans, rapeseed, sunflower seed, peanuts and cottonseed. 70% 60% 50% 40% 30% 20% 35% 38% 36% 37% 35% 40% 37% 38% 36% 31% 37% 35% 36% 33% 39% 29% 28% 31% Grains Oilseeds 10% 17

U.S. Exports are Vital for Domestic Prices U.S. Exports as a Percent of Production The U.S. agricultural sector produces more than domestic consumption. The trade markets are vital to the current level of production and the participants in the marketplace. Some agricultural sectors depend more on the export marketplace. Their producer organizations may put increasing political emphasis on trade issues. Oats Barley Ethanol Soy Oil Beef Corn HFCS Chicken Milk Corn Oil Pork Peanuts Biodiesel Soy Meal Corn DDGs Wheat Soybeans Sorghum Rice Cotton 4% 4% 6% 10% 10% 14% 15% 16% 18% 19% 21% 23% 26% 26% 31% 46% 50% 55% 56% 74% 0% 20% 40% 60% 80% 18

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan - Jun 2017 Jan - Jun 2018 China s Agricultural Imports from the United States The value of U.S. agricultural exports to China is down 12% in the first 6 months of 2018 vs the same time period in 2017. Soybean value exported from the U.S. to China is down 25% ytd Between 2007-2017 soybeans accounted for an average of 59% of the total (with a high of 70% & low of 50%) 30 25 20 15 10 Billion $ Value of U.S. Exports to China For the first 6 months of 2018, U.S. soybeans account for 43% of the total value of U.S. ag exports to China. 5 0 Soybeans Cotton Other Program Crops Residual Source: USDA FAS GATS, accessed Aug. 30, 2018 19

Soybean Market In September, USDA projected a record crop in 2018. Exports forecast to slip for second year in a row from record 2016 level. Soybean crush projected to be record large on strong demand for soymeal for domestic use and exports, while soy oil gains are mostly driven by domestic use including biodiesel. Burdensome ending stock levels. SOYBEANS USDA Est 09/2018 2016/17 2017/18 2018/19e Area: Planted mil ac 83.4 90.1 89.6 Harvested 82.7 89.5 88.9 Yield bu/ac 52.0 49.1 52.8 Production mil bu 4,296 4,392 4,693 Crush 1,901 2,055 2,070 Seed 105 104 103 Residual 41 32 34 Exports 2,166 2,130 2,060 Ending Stocks 302 395 845 Soybean Price $/bu 9.47 9.35 8.60 Market Facilitation Payment (MFP) Initial Payment Rate @ $1.65 /bu Soybean Oil Price c/lb 32.48 30.00 30.00 Soybean Meal Price $/s.t. 316.88 345.00 310.00 20

13/14 08/09 12/13 09/10 11/12 14/15 15/16 07/08 10/11 16/17 17/18 18/19 92 138 141 151 169 191 197 205 215 302 2013 44.0 2014 47.5 2015 48.0 2017 49.1 2016 52.0 2018 52.8 54.0 395 454 610 632 681 810 845 950 845 U.S. Soybean Ending Stocks and Farm Price 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 Farm Price [Left Axis] $/Bu & Ending Stocks [Right Axis] Mil Bu (Sorted) 1,000 900 800 700 600 500 400 300 200 100 0 SCENARIOS for 2018: Ending Stocks Estimates (Mil Bu) - Driven By Yields 1,000 800 600 400 200 Yield Scenario Yield Achieved 21 21

Corn Market In September, USDA projected a slightly larger crop in 2018 than in 2017 Feed use is increasing. Ethanol and exports slightly up. Ending stocks are decreasing. Even with record yields (by 4.7 bu/ac). CORN USDA Est 09/2018 2016/17 2017/18 2018/19e Area: Planted mil ac 94.0 90.2 89.1 Harvested 86.7 82.7 81.8 Yield bu/ac 174.6 176.6 181.3 Production mil bu 15,148 14,604 14,827 Feed & Residual Use 5,470 5,450 5,575 Ethanol & Byproducts 5,432 5,600 5,650 Exports 2,294 2,425 2,400 Market Facilitation Payment (MFP) Initial Payment Rate @ $0.01/bu Ending Stocks 2,293 2,002 1,774 Average Farm Price $/bu 3.36 3.40 3.50 22

12/13 11/12 10/11 13/14 07/08 08/09 09/10 14/15 15/16 18/19 17/18 16/17 821 2015 168.4 2014 170.1 2016 174.6 2017 176.6 179.4 2018 181.3 183.0 989 1,128 1,232 1,248 1,624 1,318 1,673 1,708 1,731 1,737 1,774 1,502 1,583 1,698 2,027 1,774 1,845 2,293 U.S. Corn Ending Stocks and Farm Price ` 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 Farm Price [Left Axis] $/Bu & Ending Stocks [Right Axis] Mil Bu (Sorted) 2,500 2,000 1,500 1,000 500 0 SCENARIOS for 2018: Ending Stocks Estimates (Mil Bu) - Driven By Yields 2,000 1,750 1,500 1,250 1,000 750 500 Yield Scenario Yield Achieved 23 23

Wheat Market A larger expected spring wheat crop meant USDA projected an increase in 2018 wheat production Higher feed use and exports allow projected stocks to decline But those stocks remain very high by historical standards WHEAT USDA Est 09/2018 2016/17 2017/18 2018/19e Area: Planted mil ac 50.1 46.0 47.8 Harvested 43.9 37.6 39.6 Yield bu/ac 52.7 46.3 47.4 Production mil bu 2,309 1,741 1,877 Feed & Residual Use 161 48 120 Food & Other 1,010 1,028 1,032 Exports 1,051 901 1,025 Market Facilitation Payment (MFP) Initial Payment Rate @ $0.14/bu Ending Stocks 1,181 1,100 935 Average Farm Price $/bu 3.89 4.72 5.10 24

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e U.S. Average Value of Cropland 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 $/Acre Dollars/Acre 17.7% 2,530 2,300 2,06011.7% 10.0%9.1% 1,510 1,590 1,660 1,750 3.4% 5.3% 4.4% 5.4% 2,980 2,760 2,640 2,700-4.3% 2.3% 3,350 Percent Change (Bar) 4,100 4,130 4,090 4,090 4,130 3,810 Yearly % Change 12.4% 13.7% 10.4% 7.6% 0.7% -1.0% 0.0% 1.0% 30% 25% 20% 15% 10% 5% 0% -5% Percent Change $/Acre Source: USDA NASS Land Values 2018 Summary 25

U.S. Cropland Value by State 2018 Percent Change from 2017: +1.0% Other States 2018 U.S. Cropland Value $4,130/Acre Change from 2017 $40/Acre Source: USDA NASS Land Values 2018 Summary 26

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e U.S. Average Cash Rent 160 140 120 100 80 60 40 20 0 $/Acre Dollars/Acre 4.8% 71 72 73 77 78 80 78 1.4% 2.0% 2.0%1.9% 0.9% -2.5% 15.8% 136 141 Yearly 144 % 136 Change 136 138 125 12.6% 111 10.3% 99 102 8.8% 8.8% 86 Percent Change 3.0% $/Acre Percent Change (Bar) 3.7% 0.7% -5.6% 0.0% 1.5% 20% 15% 10% 5% 0% -5% -10% Source: USDA NASS Land Values 2018 Summary 27

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e U.S. Cropland Cash Rents Select States Dollars Per Acre Per Year 300 300 Dollars Per Acre Per Year 250 250 200 200 150 150 100 100 50 0 Iowa Illinois Nebraska Minnesota 50 0 Wisconsin Ohio Indiana Source: USDA NASS 28

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Volatility in the Corn and Soybean Prices In 2018: CBOT Nearby Weekly Corn and Soybean Corn had a range of $0.65/bu Soybeans had a range of $2.52/bu 620 580 540 Corn (Cents/Bu) Soybeans (Cents/Bu) 1550 1450 1350 Since mid-june 2018 : Corn had a range of $0.28/bu 500 460 420 1250 1150 1050 Soybeans had a range of $0.86/bu 380 340 950 850 300 750 29

Corn Yield Change: 2017 to September 2018: +2.7%

Soybean Yield Change: 2017 to September 2018: +7.5%

95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 U.S. Farmers Soybean Revenue Driven by Price & Productivity Index of Average U.S. Soybean Sector Market revenue is driven equally by commodity prices and by yield. We have just been through an era of record prices & then consecutive record yields. This revenue per acre is helping keep up land prices and tax revenue for local communities. What is next? 2.50 2.25 2.00 1.75 1.50 1.25 1.00 Index of Revenue/Acre, Farm Price and Yield (1995=1.00) Mkt Revenue Farm Price Yield 0.75 0.50 32

95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 U.S. Farmers Corn Revenue Driven by Productivity & then Price Index of Average U.S. Corn Sector Market revenue is driven by yield per acre and then by farm commodity price. We have just been through an era of record prices & then consecutive record yields. This revenue per acre is helping keep up land prices and tax revenue for local communities. What is next? 2.50 2.25 2.00 1.75 1.50 1.25 1.00 Index of Revenue/Acre, Farm Price and Yield (1995=1.00) Mkt Revenue Farm Price Yield 0.75 0.50 33

05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 2.80 2.85 3.36 3.14 2.91 2.88 2.86 3.36 3.34 4.44 4.90 5.00 4.95 4.77 A Look at the Future of Corn Prices? Source: FAPRI s: 2018 U.S. Baseline Outlook & 2018 August Baseline Update for U.S. Agricultural Markets 7.00 Corn Price Stochastics FAPRI at The University of Missouri https://www.fapri.missouri.edu/ They do the stochastics for scoring of government policy changes and the impact on the budget. 6.50 6.00 5.50 5.00 90th Percentile Farm Price 10th Percentile August Update It provides more information than their baseline of $3.62/bu vs. USDA s September 2018 estimate of $3.00 to $4.00 for 2018/19. 4.50 4.00 3.50 3.00 The stochastic results (500 observations) provide a guideline of future opportunities & risks. 2.50 2.00 34

Cap Rate Farmland Values in the Future Economic Environment? Values in Dollars/Acre @ 200 bu/ac Yield Corn Price ($ per Bushel) $2.00 $3.00 $4.00 $5.00 $6.00 3% 4,000 6,000 8,000 10,000 12,000 4% 3,000 4,500 6,000 7,500 9,000 5% 2,400 3,600 4,800 6,000 7,200 6% 2,000 3,000 4,000 5,000 6,000 7% 1,714 2,571 3,429 4,286 5,143 Adapted from work by the Omaha Branch of the Kansas City Federal Reserve by Jason Henderson. Land investment will be highly influence by: Commodity corn price Total Revenue per Bu (Crop Insurance & Policy) Interest rates Potential productivity 8% 1,500 2,250 3,000 3,750 4,500 NPV = [(30% of Expected Gross Revenue)/(Expected Capitalization Rate]) The first two were covered in the original work (with adjustment for the price ranges). What about productivity impact? 35

Cap Rate Cap Rate Farmland Values in the Future Economic Environment? Values in Dollars/Acre @ 200 bu/ac Yield Corn Price ($ per Bushel) $2.00 $3.00 $4.00 $5.00 $6.00 3% 4,000 6,000 8,000 10,000 12,000 4% 3,000 4,500 6,000 7,500 9,000 5% 2,400 3,600 4,800 6,000 7,200 6% 2,000 3,000 4,000 5,000 6,000 7% 1,714 2,571 3,429 4,286 5,143 8% 1,500 2,250 3,000 3,750 4,500 Values in Dollars/Acre @ 250 bu/ac Yield Corn Price ($ per Bushel) $2.00 $3.00 $4.00 $5.00 $6.00 3% 5,000 7,500 10,000 12,500 15,000 4% 3,750 5,625 7,500 9,375 11,250 5% 3,000 4,500 6,000 7,500 9,000 6% 2,500 3,750 5,000 6,250 7,500 7% 2,143 3,214 4,286 5,357 6,429 8% 1,875 2,813 3,750 4,688 5,625 NPV = [(30% of Expected Gross Revenue)/(Expected Capitalization Rate]) NPV = [(30% of Expected Gross Revenue)/(Expected Capitalization Rate]) What about productivity impact? 36

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 Outlook: The Question of Future Gov t Policy? U.S. farm bill debate is proceeding, but it is not even the most important policy-related risk factor for U.S. agriculture, let alone the world U.S. biofuels policy is in flux Renewable fuel standard remains, but waivers for small refiners make it less binding Biofuel and crop interests want 15% ethanol blends year-round Even if Administration makes policy choices, could be tied up in courts for years Trade issues NAFTA renegotiation: could mean little or a lot China negotiations Post-TPP U.S. trade relations with Japan and other member countries Future of WTO 400 200 0-200 -400-600 -800-1,000-1,200-1,400-1,600 Bil $ Bil $ Gov't Surplus/Deficit Net Farm Income U.S. Budget Surplus Gov't S/D (F) NFI (F) 140 120 100 80 60 40 20 0 37

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 U.S. Farm Sector Historical Perspective Real Estate & Farm Equity (Billion Dollars) Debt-to-Asset & Debt-to-Equity Ratios Non-Real Estate Debt Real Estate Debt Real Estate 3000 2500 30 28 26 Debt-to-Asset Debt-to-Equity 30 28 26 Farm Equity 2000 24 22 24 22 1500 20 20 1000 18 16 18 16 500 14 12 14 12 0 10 10 38

Farm Bill Biggest issues are SNAP, of course, and conservation (House gets rid of CSP, with some reallocated to EQIP and other programs; Senate only tinkers around the edges; House has more CRP acres at a lower rental rate) Senate does boost ARC a little (e.g., adding a trend adjustment factor to historical yields), but no big changes in ARC or PLC foreseen. The payment limitation debate could matter, although it seems likely that the compromise will be the status quo or something close to it. Wild card is whether someone will decide there should be guardrails put around trade policy and compensation programs. Timing: This Month, ELECTION, Lame Duck, or? 39

Assistance for Farmers Impacted by Unjustified Retaliation The Administration announced it would implement 3 programs to provide up to $12 billion to offset the impact of the unjustified retaliatory tariffs on U.S. agricultural goods 1) Market facilitation program FSA will make payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs. Payments will be based on 50% of actual production. [$4.696 Billion] Next determination: December 2018 2) Food Purchase and Distribution Program AMS will purchase surplus commodities, such as fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks and other nutrition programs [$1.238 Billion] 3) Trade Promotion Program FAS will administer program with the private sector to assist in developing new export markets [$200 Million] Commodity Initial Payment Rate Est. Initial Payment** (in 1,000s) Cotton $0.06 / lb. $276,900 Corn $0.01 / bu. $96,000 Dairy (milk) $0.12 / cwt. $127,400 Pork (hogs) $8.00 / head $290,300 Soybeans $1.65 / bu. $3,629,700 Sorghum $0.86 / bu. $156,800 Wheat $0.14 / bu. $119,200 Total $4,696,300 ** Initial payment rate on 50% of production MFP payments are capped per person or legal entity at a combined $125,000 for dairy production or hogs. For existing dairy operations, the production history is established using the highest annual milk production marketed during the full calendar years of 2011, 2012, and 2013. Dairy operations are also required to have been in operation on June 1, 2018 to be eligible for payments. Payment for hog operations will be based off the total number of head of live hogs owned on August 1, 2018. MFP payments are also capped per person or legal entity at a combined $125,000 for corn, cotton, sorghum, soybeans and wheat. 40

All the Best To You & Your Family Thank You! 41