Federal Agricultural Mortgage Corporation (AGM) Earnings Call Transcript & Summary

Happy Friday from the nation's capital. My name is Patrick Kerrigan, Vice President of Business Development at Farmer Mac, and thank you for joining us today for our January refresh webinar. For those who are not familiar with Farmer Mac, we are a secondary market for agricultural real estate loans as well as other types of rural infrastructure loans. Farmer Mac does not originate loans. Rather, we partner with Ag and rural lenders nationwide to assist them, primarily supplementing the loan products that they offer their customers, farmers, ranchers and their rural communities. If you haven't connected with Farmer Mac in a wireless, I suggested to reach out to one of our hard working and knowledgeable relationship managers who can bring you up to speed on some recent Farmer Mac innovations and enhancements that we've put in place. Today, we are delighted to have Dr. Dave Kohl, President -- Professor Emeritus at Virginia Tech as our featured speaker. Dr. Kohl is an academic Hall of Famer in the college of Ag in the Virginia Tech, Blacksburg, Virginia. Dr. Kohl has a keen insight into the ag industry, gained through his extensive travel research and involvement in ag business. He has traveled with 10 million miles, maybe with 11 million by now, Dave. And 7,000 presentations and published more than 2,500 articles in his career. Dr. Kohl's wisdom and engagement with all levels of the industry provide a unique perspective into our future trends. Dr. Kohl's presentation is titled lending in the agricultural marketplace 2024 and beyond. The timing of the presentation is excellent as we continue to experience economic uncertainty and volatility and everyone, lenders, ag producers, ag managers are looking into their crystal ball for what the future will bring in 2024 and beyond. [Operator Instructions] Also, this presentation is being recorded and will be posted on Farmer Mac's website later today. Dr. Kohl, thank you for joining us today. Today, we have a big crowd, almost 800. We're a little bit a couple of seats short of 800 but everybody is eager to hear your presentation today and gain some knowledge from your insights. So over to you. Thank you.

Okay. Well, thank you, Patrick, and it's an honor always to be with you and Farmer Mac but also all the agricultural lenders that are on the webcast here today. Just to update you. I'm Dave Kohl from Virginia Tech. I've gone out on the road. In the past 2 weeks, I was over in Tucson, actually a snowstorm last week. We had an ag group from the United States and Canada there. I was at TEPAP, the ag executive group in Austin this week, and then also in Myrtle Beach with another group and a young farmer group in Raleigh, Durham, North Carolina. And in between I survived a bomb scare on the plane, first time has ever happened. A guy who had supposedly a gun and they decommissioned the plane. The dogs went through all of our luggage. I was worried if I had my little Debbie snack cake. They might take my luggage, but actually, I ended up having to sleep on the floor, different things. It's kind of a "train wreck" out there and in the travel industry right now. Hey, let's get right to the subject in lending in the agricultural marketplace 2024 and beyond. Patrick, you set me really up because one of the things, the agricultural groups that was the mood here in the past couple of weeks, they're cautiously optimistic but they are very, very interested in what could be impacting their bottom line and also their long-term plans out there. And I've developed this kind of this ag view watch list, and I think there's about 4 or 5 components that you need to really keep a close eye on. First of all, let's just start out with the export markets. $1 in $5 of net farm income comes from our export markets, but I know it's Don Adams, who's on here, you're up in the dairy industry. We were exporting about 20%, 22% of our milk, which is 1 in 6 days of milk that goes out in the United States of America into China but those markets are soft. And one of the things is you're seeing it in the port, there's no doubt about that. Global economics is impacting that. You're starting to see it in the beans, et cetera, et cetera. So keep a real close eye on the export markets, and particularly the supply and demand equation but also look at my next bullet called the global economic slowdown and really focus in on China because it's second largest economy in the world but also look at and examine Europe because that is $1 in $5 of global GDP. And so one of things that I am experiencing and seeing is this global economic slowdown. Take another element that's really starting to crop up is our Southern Hemisphere production. Of course, I've been on the program with Eric Snodgrass, Nutrien Management and of course, we're watching, particularly second crop coming out of South America. One of the things that we've got to realize now that the United States is a secondary supplier in the world because now what is going to happen, China but particularly Asia and many of the other countries, they're going to trade first with the Southern hemisphere. And I caught the Southern Hemisphere because it's just not South America, it's Australia and New Zealand. They're going to go there first. And then one of the things is that the supply is not there at a reasonable cost to them, then they'll come to North America. And I say North America because I think one of the things that we're going to see is the integration of Canada, United States and Mexico as a global economic block. The other thing that I think we need to really keep an eye on is the economic health of the protein industry as it's related to the crop industry. Because when you have a healthy protein industry, and I'm going all the way from poultry right across dairy to pork to beef, generally speaking, you will have those stronger prices. And so that's going to be very, very important. Of course, ethanol kind of comes in here as well. And then one of the things I have to say, Patrick, and I'll make a frank admission. I thought we'd be in a recession 2023, we weren't. And I'll come back to that. But let's kind of keep an eye on this U.S. economy because it's going to be a tight rope. And then as it relates to the U.S. economy, we have to look at and examine the value of the U.S. dollar because that impacts the cost of our product overseas. So this is on my watch list out here on one, not above the other, but again, kind of put it into a bundle. But here's what I told the groups in Austin, Tucson, Myrtle Beach, Raleigh, Durham. One of the things that's really interesting is we're in this global economic slowdown and one of the things that's really interesting is our prices are coming down, but our costs are staying up. So what it's doing is it's creating a razor thin margin. And all my producers were saying this. Okay -- we're okay for 2023, kind of coming in 2024, our margins are getting thinner, real interesting. I got a call this morning. I had a what to say, a business actually decline, I'm buying 2 farms this morning. They were just saying. It's just not out there and actually -- the landowners actually had increased the price of the land. They just said, "No, we're going to walk away too much stress." And one of the things that you've got, we're coming into this period where these costs are going to be sticky. They are going to come down. And then, of course, our prices are going to be down. It's going to squeeze the margins. The other aspect that I think we're going to have to really watch is volatility in the extremes. Now can I tell you a couple of things going to create volatility in the extreme, which is not the bulleted statement. One of the things is 1/2 of the world population is going to go through a major election this year. For example, Mexico is going through a major election. India, of course, Russia of course, we know what's going to happen there in those authoritarian economies. But what it does is it keeps uncertainty here, particularly in trade and keeps uncertainty in just all the economic status of these countries. And so you're going to have volatility in the extremes. And as I told the producers the past couple of weeks, volatility scares a lot of people. But if you position the business properly, you can capitalize on volatility. And can I just give you a couple of secret sauces that's having the working capital and having the cash because that gives you the flexibility. It's having this high business IQ knowing your cost of production, your breakevens and different things like this so that you can make an objective versus an emotional decision. And I know a lot of you use scoring systems, fine, you're building efficiencies out here. But my contention is a couple of things in our credits are really going to pick up steam. First of all, character but then second of all, it's going to be assessing this business and management IQ is going to be critical to be able to capitalize on this volatility rather than having volatility take you down. And I might sound like Dr. Doom or gloom and doom here, but I've told all the businesses that I was with, and we had a few lenders in the group as, wow, you built your best businesses during what I call the down part of the cycle. You know why? Because we focus back in Patrick's like basketball, we focus back into basics and fundamentals rather than getting too fancy out there. And so this is my view from the road and the point I'm trying to say, their margins, greater volatility, but the real good producer is going to be able to capitalize on that volatility. And the real good lenders are going to know how to assess their ability to capitalize on that volatility and the thinner margins. Now moving along, I pull off the Finden data, and I do that because, again, nothing against USDA data but this is about 3,000 farms in 22 states and it's all accrual adjusted type of information and we've got a 20-year look. Actually, we can look at it at 25 or 30 years. But the whole point is you got your top 20%, you got your bottom 20%, and then you've got your dotted line is the medium. I think one of the things that you really need to look at is when we move into positive parts of the cycle. Boy, that top 20% is positioned to garnish those profits. They did it during the super cycle, 2007, 2012. But the past 3 years in this mini-supercycle, which is a follow up super cycle, because of all the government students, you can see they really, really benefited from other management type of practices. Of course, you see the bottom 20% down there. They don't go out of business because they've been very fortunate that land values have increased on paper, which allows them options to refinance and restructure, but here's what I see from 2024 are going out to 2030, I see a widening gap of profitability and the real good ones, they're going to garner those profits. The other ones that are going to get really squeezed on the profits and so it's going to break us into a couple of camps during business development. I call you've got to have your business development had on for that top 20% or even the top 40% and they're going to move into selective growth and expansion. And it's kind of like my family this morning that decline on these farms, okay? They're kind of looking at the objectives, cost of productions, et cetera, et cetera, and so instead of just grow, grow, grow, it's going to be selective growth and expansion. I think one of the things that you've got to see and look at your football of what's happened in the past few days. You're seeing a generational transitions. The same thing is going to start happening in agriculture and it's going to start accelerating and one of the things that is agricultural lenders, you've got to start positioning yourself for this next generation that's going to take over the reins of that business in. So this next gen you're going to really start feeling them step up to the play. One of the things that we'll find in the top 20, top 40, oftentimes, they'll have a working capital to expenses above 50%. A matter of fact, top 20% will have a median of 44% versus the bottom 20% is 11%. We're going to get much more selective on cash rents and leases and one of the things that they're really going to do, it's called the flywheel effect, they're going to focus on earns and turns. That's one of the things that are creamery. We have really, really focused on, if you go back and look at a webcast a year ago, I was very, very concerned about our agreement. This year, we had record, record, and I say record, record profits because we focused on the basics. And we focused on earns and turns, capital turnover and what we could do to improve margin management. So keep our business development had on this group. And this group right here they'll want a relationship lender, keep that in the back of your mind. You just can't flip the switch there. In other words, you've got to be kind of with them a long way, and I'll give you a few of those techniques a little bit later. Now here's the other one. You know that average and below average, they're going to probably need a refinance and a restructure. And so what you're going to have to do is do selective refinancing and particularly those folks that have any working capital burn rate, in other words, that your loss is divided into working capital less than a year. You're going to probably have to refinance them to working capital liquidity. But then they've got to have that plan for workout that will selectively keep that working capital that you have replenished to them. And generally speaking, these people will have a DTA ratio, debt-to-asset ratio under 40%. So I want to give you a different twist on this one right here because it's just not going to be grow, grow, grow. It's going to get much more selective out there, et cetera, et cetera. And so you can still refinance some of the folks, but they've got to have a plan. They've got to execute that plan so that they just don't burn through that working capital too quickly. And by the way, that working capital can give them that bridge to be able -- time to be able to kind of make some adjustments out here. And again, our lender did that with us, and it worked very, very effectively. Now here's my quote that the quarter century that I think is -- I think it's very, very important. Young farmers kind of picked up on this down at Raleigh, Durham yesterday. The opportunity for business personal prosperity is not going to be about size. And one of the things is we're starting to see the consolidation of agriculture but when you get more zeros and commas on that balance sheet and the income statement, you can either make a lot of money or you could lose a lot of money if you don't have all those COGS in that flywheel. It's not going to be about the enterprise or the next big thing. I know a lot of you are looking -- your customers are looking at carbon credits. We used to look at hemp, et cetera, just be very, very careful that it fits your situation. One of the things that I think about managing a business but also managing a customer's loan and loan portfolio. It's going to be about being boring. It's going to be about being a little bit better in many components of the business. It was real interesting at TEPAP over in Austin, Texas on Tuesday. We actually had an individual, who was in our first TEPAP 34 years ago. And of course, I've known him over the years. And he came back and he actually has brought some of this younger generation employees back. And he basically said the thing that he really implemented was he was trying to be a little bit better than production. Operational efficiency but I got to add a word and you folks need to add a word is you got to have operational efficiency but still be effective. Let's just go right to Boeing right now. Boeing, the bean-counters, took over at Boeing and basically, yes, they were efficient on the bottom line. But what is happening is, are they effective when the door flies out the plane, et cetera, et cetera? And what we're starting to move in to nothing against anybody with an accounting background or anything like this, you've got that nice balance between efficiency and being effective. And again, we're starting to see some of the stress factors in other industries out there. Here's a big one that marketing and risk management. Marketing, one of the things that you'll find is they are able to execute and monitor but on risk management. And this goes all the way from your own structuring, Farmer Mac plays a role in here, but also your insurance products, et cetera, et cetera. also knowing those finances and monitoring. And remember, you can't look at finances once a year for tax reasons. And folks, I'm just going to telling you, and you're not going to like it. Accrual adjusted information gives you much more accuracy and if you've heard me before, it identifies problems 2 years before they occur, but business development opportunities 2 years before they occur because, again, you look at those adjustments of receivables, inventory, et cetera, et cetera, it makes you ask those questions, also human resource management. And one of the things is if you heard me, I was up at Hamilton Collage to honor our coach, and I spent a little bit of time in rental car, I went over to the Salmon River where Patrick fishes all the time. But I went around my home town. I looked at the farms that worked there, the ones that were there. I came to one conclusion. The farmers that weren't there, they were independent and did want to deal with people. The farmers that are there and growing, they're interdependent, and they're pretty good with people, not they're hiring a lot of labor, but they work with the lender, work with a supplier, work with the community. Human resource management is going to be one of those wild cards in the lending equation. It's going to be very important. But you do these 5% better still focus on your values and focus on your goals. Now let's move on and go to global economics. And you've heard me speak before, on global economics and one of the things that's real interesting, I'm going to build a premise of why we've got to look at global and examined global economics because let's just go to one of my bullets down here. We have much higher oil prices, diesel fuel prices and nat gas prices, it wasn't for China. China basically is in economic slowdown and they consume 10% to 15% of the oil in the world. And that, combined with some of our production coming on board is keeping our fuel and energy prices down, but China, the second largest economy in the world, and it was our biggest ag trading partner. She's going through 4 structural changes that are not going to change overnight. And I want you to keep that in the back of your mind if you're in the pork industry, if you're in the dairy industry or if you're in cotton, et cetera, et cetera. First of all, they have a demographic issue. They had a 35-year one-child policy. And what's happening is they don't have enough young people. They've before [indiscernible] grandparents, 2 parents, 1 child and the markers they are looking out at the year 2050, where they're about 1.3 billion, 1.4 billion people they could be under 1 billion people because of that. And here's the other thing, the young people that often came to U.S., Canadian, European and Australian universities to get an education and technology. Well, guess what, they went back to China, and they have no jobs, right? Because the government is cracking down on technology. So what you have is a number of young people without jobs. The other thing was China's economy was supposed to open up this year because last May in 2023, they removed the 3-year lockdown because of COVID. They had saved $2.4 trillion but here's what happened. The housing market collapsed, their real estate collapsed and people are prepaying the mortgages, but here's the other thing, we're seeing global slowdown of exports out of China. So over 14.4% from the previous year. But to the U.S., it's 40%, to Europe, it's 44%. So Chinese citizens are saying, "Boy, this economy is slowing down." And so they are not spending. The other element, and this is what I call my gray rhino and I'll come back to our gray rhino little bit later. The biggest problem we got in the world right today is too much debt. I don't care if it's China, United States, et cetera. And so it's a big ball and chain. And here's one of the things I want to give you a perspective. In 2000-2010 we had the great commodity super cycle, and of course, they're growing infrastructure, their economy was growing at 10%, 11% during that decade. Our corn or beans, a lot of our commodity prices were extremely high. 2010 to 2020, that shrunk down to 6.2%. And think about it. I let you think about this. What we do, we moved into those 6 or 7 years where we were kind of life lost out there in a desert. Sam Miller from BMO used to say or I call it the great grinder years. It was basically because China was slowing down. It's estimated to be 2% to 4% from about 2024 to 2030. And of course, we've got a couple of years in there that really shows and see Moody's actually downgraded them from A1 stable to A1 negative and boy, I'll tell you what. This is the thing you're going to have to look at. If you're financing the pork, the milk, the beans, the cotton, other type of industry, this is going to be a ball and chain. And this is where I see the softness in the exports, particularly from the demand side. Now let's move over to India. There are speakers going around that says India is going to replace China as the world's largest economy. Now India has surpassed China in demographics. India has surpassed great Britain, it's the fifth largest economy in the world. India will surpass Germany by 2029 or the end of the decade as the third largest economy in the world. However, India has got a challenge. 55% of its population are subsistence farmers, only 23% of the workforce is female, where you look at Western nations, even China, it's 50% to 60%. But here's the others thing, I want you to watch on China -- excuse me, on India. Their leader is going to be reelected. I think he's got about a 77% approval rate but what they do, they heavily subsidize their agricultural industry. And so one of the things is they are curtailing exports of rice, sugar, onions, wheat, et cetera, et cetera. And so one of the things that you really want to watch for is kind of India moving forward because that will ripple through the whole marketplace out there. Now let's go over to Europe. They had negative Q3 growth, it looks like Q4 could be. As I spoke before, China -- or excuse me, in Europe has got caught in the China, Russia trap. China cheap energy -- excuse me, Russia cheap energy, China export markets and what is going on, that's been taken away. And this is why the European economy is going to really, really struggle. Of course, some of our stimulus dollars kept their economies going over there. But as I've said in previous webcast, Putin's whole overall strategy as to [ where ] the Western nations down, particularly on Ukraine. And by the way, past 4, 7 hours, everybody have been asking me, well, how come Ukraine with the supply being knocked out has an impact while Russia picked up production, the rest of the world just picked up production. And that is a sobering type of situation as we kind of think. The rest of the world is out there to be able to produce more. Of course, watch your weather -- winter weather in Europe, if it was cold, we'll see higher energy costs. But the big one I want you to watch for is the greenlash that's occurred. What's happening is and we had this at the American Bankers Conference, Ag Conference down in Oak City. What we're doing is we're moving from infatuation stage of green energy into the disillusionment stage and what happens there is we're getting some greenlash. For example, you know what the Europeans are saying, "Wow, we've got all these green energy movement." But then on the other side, Russia -- or excuse me, China and India putting in coal-fired plants, what's the objective. We had some Canadian producers in from the Prairie provinces in both of the deals. One guy operates 8,000-acre farm. He had to pay a carbon tax of $500,000. It's been instituted by the government and he says, boy, the Prairie province is up there. There's a greenlash movement. And that's going to hit here in the United States. And so again, think about the stages technology, whether it's AI or whether it's green energy, she'll go through the infatuation stage, then the disillusionment stage and then it comes in to what they call reenchantment stage after they think about all the unintended consequences, Europe is right there. We're going to hit this a little bit later. Now let's go to South America. My good friend, Eric Snodgrass. Last year, we were counting up, we did about 40 programs together. He does weather, I do the economics. And Eric makes a very good point. Brazil is putting agricultural land production in new production and equal to the half of the size of the state of Illinois. Now think about the blizzard we had this week in Iowa and Illinois. Half of that state is additional production. And as Eric said, they can do this for the next 10 to 15 years, and that's what makes us a secondary supplier when I look at beans, corn and even to the protein industry. Now compound that with China's strategy of the silk and belt road initiative started in 2013 by their current leader there. They've invested $1.3 trillion in about 70 countries around the world, just like Brazil. And one of the things that's happening is they wanted another source of food, fiber and fuel for that Asian region. And so seed got 2 elements that are starting to kick in. And you know it was interesting. Patrick knows I get down early and work out. One of the big things I saw this year, a lot of ag producers are down in the gym, right? That's a good sign. But one of the things that was interesting I was listening to some other conversations when I was working out, and we had some folks from Minnesota said, "Yes, you know we had to try Europe here but we yield it out." And you know what's going on. Number one, you've got seed technology kicking in. Then number two, you got soil and water practices kind of kicking in. But by the way, they are kicking in the Southern Hemisphere, whether it's South America or Australia, New Zealand, et cetera, et cetera. So again, we're going to get more intense competition. This is why you've got to watch weather and you've got to watch supply reports out of this area of the world. Another element is going to kind of rock and sock as you're not hearing anything about it is all the countries, the BRICS countries and some others are getting together to develop a new digital currency to compete against the U.S. dollar. And we're going to have to watch it. They're going to have difficulty getting this through but the more the United States doesn't have their act together as far as fiscal responsibility and monetary responsibility. We leave it wide open for this alternative currency that will be with the new development bank and the Asian infrastructure bank. Now they're going to have difficulty getting consensus and also Russia is going to be the new leader. That's going to be kind of interesting. But when you bring in the Egypt, Saudi Arabia, Iran, et cetera, et cetera, and it really will focus on commodities, whether it's oil, you're growing across your agriculture commodities. That's one of the things kind of keep out there on your radar screen for 2024. Now global indebtedness, this is your gray rhino and look at the United States, 14% of our companies are Zombie companies. One of the things is we've got a lot of debt with the emerging nations out here. It's interesting. This $305 trillion -- almost $350 trillion of debt out here. This is a ball and chain particularly with the rising interest rates worldwide. Now before I go into the headwinds of the U.S. economy, you got some questions, put them in there. And one of the things is we'll get to them here later on in the webcast. By the way, I'd like to have at least 10, 15 questions in there. And one of the things is we'll kind of hit those. And that just kind of energizes me out there when I get the questions. Now what are some of the headwinds to the U.S. economy, student debt $349 a month increase, and it really hits the millennials and you know what the millennials are doing now, they can't buy a home. So they're doing what they call doom spending. And you know what's doom spending? Well, we're going to Europe or why we're going to the national championship, "Well, guess we'll go to the Rosebel. Listen to this, I had 6 hours with a bunch of Michigan people and many of them are millennials. They spend anywhere from $4,000 to $14,000 for those 2 games. And a few of them were on Southwest Airlines. They never made the game and because there was slight delays because of the weather. But we're seeing doom spending. Of course, we had the labor strikes, the budget in passes. This breaks confidence of the U.S. consumer. I've got to change this bullet here. We got the rapid acceleration. Now it's $34 trillion. 2020, it was $20 trillion. And you've heard me speak before with the rise of interest rates, the interest on the national debt. One was bigger in the military budgets. Now it's bigger in Medicare and it's bigger in social security. It's not sustainable folks. And everybody says, "Well, this is great". Do you have any suggestions, while we had a suggestion a number of years ago, it was bipartisan, Democrat, Republican, Republican, Democrat, $3 of budget cuts for every dollar in tax increase but we didn't do it. You will have to have an economic heart attack before we will do anything in this area. Now everybody says, well, how come you missed the recession? Here's the tailwinds, the stock market, she's up, creates a wealth effect. Every time stock increases the dollar in value or [indiscernible] we'll spend anywhere from $0.04 to $0.09. It's an election year. Let's be candid. Also, we've seen some of this inflation decline and we've got the whole aspect of the decline in interest rates. And the big one is strong unemployment. When we look at those unemployment figures, oftentimes, people have got 2 or 3 jobs. In point where I am out on the road, I'm talking to a number of people in this area. But here's a bullet that's not on there and you might want to write it down. It's called demographics, called my generation, baby boomers. We're right into the expand and experience part of our retirement and we'll boggle on grandkids. And so one of the things that's really interesting, if you look at the European travel or you look at the national championship, I had a family, husband and wife, brought the 2 sons and also brought some grandchildren. They spent $24,000 on the national championship game with the hotels, et cetera, et cetera, et cetera. See they're in that spending period now, be on that spending period for another 3 to 4 years before health -- our issues start hitting up. So this is a tailwind that nobody talks about on here. And you watch, I mentioned this. It will show up in Wall Street Journal probably in a couple of days because people will start identified because Patrick, they do monitor these webcasts. And so again, I would have to tell you that these elements are tailwinds to the economy. Now if we were to have a steep recession. One of the things is it would require $100 a barrel for 2 or 3 months. It would require unemployment to be 5% to 6%. It will also -- our housing starts, which are $1.5 million, they'd have to go under $1 million, and we'd have to have interest rates in double digits. And then we'd have to have the gray rhino versus a black swan. That black swan comes out of nowhere, gray rhino its right in front of us. We don't do anything about it. I'm going to be right smart on that one. But our gray rhino, I think, is our national debt. And so that's my take on the economy, and I'm glad to see some of the questions coming in. I'll get those a little bit later. Now all the lead economic indicators are flash and red, flash and red, flash and red. And if you're out there in a blizzard going through the town, you got a red light flashing. You look both ways and then you go through. But A couple of things I want you to focus on. The yield curve inverted May of 2022, it usually takes 19-24 months before the recession to kick in. See we're right in that window. University of Michigan consumer sentiment has been under 75 since 2022. It was 69 last month. The consumer is -- they're confident in the short run but not in the long run and our housing starts. If you look at it, take the median price of a home 20% down with the interest rates the way they are, it takes 44% of the income, and this is where it takes 2 or 3 jobs. And again, this kind of inflates. I noticed the question kind of came in. It inflates some of the unemployment -- lower unemployment because we've got a number of aspects going on there. Now as far as the interest rates, of course, as I look forward, I think we've seen a majority of the interest rate increases. In Tucson last week, I was 25% probability of a 0.25% increase in the remainder of 2024. I moved it up to 50% as I moved back to Raleigh, Durham because the inflation reports came out. Yesterday, the inflation reports came out. And one of the things is they basically -- our headline inflation is under 4%, but our core inflation still in the 3% handle and it's very, very difficult to get it back toward 2% because about 33% of that component is made up of housing. And so we're going to have some difficulty on that metric right there. However, the report came out this morning, producer price inflation was lower than we're expecting. And so what we're getting folks is a lot of noise and monthly numbers. And so you got to watch a couple of monthly changes. If we can get back towards 2%, they might start decreasing interest rate. And I'm going to have to tell you one of the things to watch, this Fed was late on increasing interest rates because remember, it was going to be temporary and transitional, they're going to be very cautious on lowering interest rates because they're fighting goes to Paul Volcker, Federal Reserve Chairman but way back in the '80s, lowered rates -- or excuse me, increased rates, lower inflation, then guess what? The lowered rates and inflation popped up. They just don't want to do that, particularly one in election year, 2 people are lacking more and more confidence. You should sit around with a bunch of Michigan fans and some of them are investment bankers, they found hours to professors. So I did a whole seminar in Austin Airport but just casual people. I had 25, 30 people listening to me there that evening, but the consensus of a lot of folks are losing confidence in our fiscal and our monetary policy. That was the gist of it. So we've got to watch those aspects for interest rate declines but in the long-term folks, it's interesting. The Fed would like the Fed funds rate between 2.25%, 3.25% puts prime, 5.25% to 6.25%, 0-bound interest rates. It's interesting. I went through Dillon, South Carolina twice, one on all night trip and then just the other night coming back going to Raleigh. Why I mentioned Dylan, that was where Ben Bernanke was from. He went to high school. I actually had a couple of people who went to high school with him. Said he was bright guy play basketball, Patrick. And one of the things that's real interesting is this, he had the concept of 0 bound. That was the Fed. We're probably not going to go back there but think about what 0 bound did, it inflated our stock market, paper [indiscernible] inflated our land market, inflated our housing market. Not only did it here, but it did it around the world. And so we're fighting with 2 gray rhinos, paper inflation but then on the other element, we've got this massive amounts of debt. So these are some of the things that we're going to have to be looking at. Now 82% of the foreign balance sheet is in farm land. And I'm just going to look at squaring the camera here, we most likely will not have another 80s crisis, 80s crisis like we had in agriculture, unless we see the collapse of farm land base. And what's going to be one of the forces that's going to kind of move these land base, keep them stable. To some extent, is going to be demographics because the baby boomers and the millennial owners right behind them. One of the things is they're still buying farmland because they -- the alternative investments are too risky at the cryptocurrency stock market. However, CDEs have been quite attractive. And so I really feel demographics are having a big influence on the values on our farm and our ranch land, of course, is around development areas. You have those aspects and water and mineral rights out there. Here's what I see coming. I see a 2013, 2019 scenario. And if you looked at that period about 2016, 2017, we had farmland values coming down in certain regional areas of the country. And that's what I see coming forward. And as we move forward, you could land base come off 10% to 20% in certain regions. They would take 50% to really create a tremendous crisis out there but I don't see that right here as we're speaking today early 2024. Now one of the things is, let's talk about the tools for the 20s. Again, I want to leave plenty of time unless she is going to ask me these questions when I call her over. First of all, I think this business IQ can be a tremendous tool for you to size up the C of credit called the premium or the management puts some objectivity in here. It's 15 questions. You've got to ask your customer for crucial conversations. And what's real interesting is these gives you this objectivity and here is the other element, whether it's a person that's growing the business or you're doing a restructure, you ask them to fill it out and it's 3 areas to continue, 3 areas to improve, and guess what, they put it down, they put it in writing. It keeps you out of lender liability, makes them think through alternatives. In Myrtle Beach, the other day, I had a family that has gone through this IQ and done the whole thing. They said it's been one of the best tools that's really helped them. And they were struggling. Now they're making record profits and what happened was it required them to kind of really ask serious questions as each one of them filled it out separately. And so hopefully, that can be a tool for your renewal season. It could be a tool in '24 if you have a workout. It's definitely a tool if you've got some of this younger generation coming in and you're working in transition management, which is going to accelerate, so that is going to be a tool for the time. By the way, here's what I found. And I've been using this tool, working in specific cases. I find that if the score is under [indiscernible] 30, that's his number, you're going to have a low to moderate, very low rate of success in adversity. In other words, what will happen is you'll come [indiscernible] right back to the table 2 to 3 years later. So what you got to do is just say, how long is it going to take me before we run out of equity because basically, they're not committed to the basic practices that are required for a turnaround. Now when you start getting up around 31, 39, which you get 40 plus, you have got a pretty reasonable chance to kind of help this business turn around. In other words, it has to come from within and what will happen is you will find some of the -- by going through this analysis, you'll find those weak areas, and then you can monitor and focus. So this is a new deal folks that I've kind of put up here for you. Hopefully, you'll be able to use it as kind of a guide of, hey, do we have a chance when we go to a loan committee [indiscernible] 30 score, you're going to -- it's going to be [indiscernible] the higher the score, the more chance of turning around. The other thing is, I can't stress the point it's a country household, a business or an individual, working capital is going to be real critical, and I make it analogous to defensive football, the defensive lines, cash flow and profits. The linebackers is working capital, and you've got to look at that quality of linebackers and working capital [indiscernible] it's your equity and your collateral [indiscernible] this 3-year mini super cycle many up above average and top 20% have built working capital. The key is going to be to preserve that working capital. And the key is going to be to do selective growth so you don't burn through all that working capital. So you've still got another level of defense. Think about defensive football and you're going to be defensive football coordinator. And here's the whole thing. If you go back, are you building a bridge, are you building a peer. And this is critical. And I will take this slide, put it right in front of them with that business IQ. And I'll tell you, if they've got a score that's down 25, 20, et cetera, et cetera, you know what you're doing, you're going to have them with refinance #2 and refinance #3. And you think about it as you go out on that peer, the water is going deeper and you're going to bury them and you can bury them real fast if we see adversity occur in the land base. And so this all ties right in together, and I hope you can use this as a powerful tool for the remainder of your renewal season. Now this is a big one that I featured down at Oak City at the National Conference. And I think the borrower and the lender or bankers have got to work side by side. And for example, I think as far as responsibility to provide up-to-date balance sheets, quality projected cash flow just not annually, probably quarterly. Sensitivity test on price cost and interest rates, articulate the goals, fill out the business IQ and use it for managing the business. But if they do that, it's your responsibility to monitor the financials, provide some of the feedback on the financials, provide the benchmarking and b, possibly [indiscernible] advisory team. And they're probably going to ask you to fill out this business IQ as well, and you're going to be reluctant. You know what? Because you think you might give them a lower score than they do. I found and this is just being Mr. Practical, 95% of the time, they will score themselves lower than you will as a lender. And then you've got to demonstrate the [indiscernible] lending. Serve it in a good time, courageous and tough times, consistent, but you've got to be able to calculate the numbers, critically think about the numbers, and then you've got to be able to communicate them, written wise, verbally wise and nonverbally-wise. And so I really feel it provides value-added and these financial statements, it helps them manage their business better, and folks were gotten lazy here in recent years, and I'm an advocate of credit scoring [indiscernible] but one of the things is, oftentimes, we let all these credit scoring systems, incentive programs, et cetera, et cetera, we quickly score, but we've got in a down cycle that we're moving into or a challenged cycle. We've got to develop relationships and you've got to demonstrate relationships. And so I think there's a nice balance of doing the risk rating systems and all this. But one of the things is provide them, be back as well. And again, this makes them better. So don't get me wrong -- your scoring systems are a great tool, but let's think about this as well. Well, finally, here's my perspective from [indiscernible] And by the way, I'm just going to give a big shout-out. A lot of people told me that conference exceeded our expectations and it did for me. And I happen to go down to the Memorial, my goodness, everyone needs to go through that, went to the [indiscernible]. We had basketball games and the whole thing. Here are some of the comments. I like borrowing and marketing and risk management. In other words, we had agriculture producers at the National Agricultural Bankers conference and one of the things that they found was it was so beneficial to have producers there, and a couple of them said, I'm not a home-run hitter when it comes to market and risk management. I really like to focus on base hits. I thought this was interesting. You lose a community bank, you kill the rural community. I think we're going to really have to start thinking about that as we see the consolidation of banking. This one comes from [indiscernible] a shout-out, he says, "Don't be without a chair" and at the point he's trying to and I've used this with ag producers. In other words, when you're buying land out there, don't be the one without the chair. In other words, where you have to sell the land, you don't have the liquidity. It's kind of like played musical chairs and then you're kind of left out there. I think that's a very, very good concept, particularly on the growing of the land. One of the things [indiscernible] data that found was the top half of the producers burn through approximately 50% of the working capital from 2013 to 2019, bottom half. They went through it all, and they had to have a couple of refinances, keep it back your mind. Stay in your lane. It sounds like the [indiscernible] but one of the things is we've had some ag banks and have some problems, how they get into the problems. They got into industries that they didn't understand. And this is going to be your regulator diversification of concentration, et cetera, and focusing. By the way, at our current rate, we have used that concept, we've had to eliminate and simplify some of our businesses because we were out of our lane. The top 20% of ag producers and operating expense ratio under 80%, while the bottom 20% was 85%, 5% better. I've heard this from one of the participants at the conference in Omaha, Nebraska, the often states. I don't want to hear about low prices, and it's supposed to be high cost. I don't know how that flipped back. And again, low prices and high cost. What are you going to do in your business to change? So change at the high cost out there? In other words, they've got to be proactive. Hire-to-retire banking culture. And if you don't have a hire to retire, hire to retain. The banks are getting real innovative as far as that's concerned. [indiscernible] AI is just around the corner. And remember, there's no culture in society without success in agriculture. And finally, it goes back to [indiscernible] Nebraska, a good friend. I'm good friends of the family, do 7 hours out there. He has basic principles. Can I trust you? Do you know what the heck you're talking about? And do you care about me as a person? That's called relationship lending. One of the things Frank Oz demonstrated, successes measured in dollars, significances making a difference in people's lives. I'm bringing in Alisha, and she's going to flip off the questions, and I'm going to give a quick response. So go for it Alisha. This is Alisha. Alisha is going to be headed for Africa on her leadership trip here. She'll be going in a couple of weeks for a few weeks to Kenya and she was going to Israel, but they kind of decided that not to be a good place to go on the ag leadership trip.

We've got quite a few questions. Thank you all for the questions. First one is from Jon. How do we help aging farmers who have no succession plan and are deeply in debt...

Boy, I tell you what, the other day, 65-year-old. He was 55. I asked a basic question, do you have [indiscernible] and one of the things that you really have to do is kind of [indiscernible] I used to use a drop debt exercise, pull their name out, you're dead, now what we're going to do. But can I tell you another thing, have to soften that while you've won the lottery, now what you're going to do. Sometimes you got to do some of the shocking and the lender plays a big part. By the way, the lender played a big part in our [indiscernible] transition because they kind of said, "Hey, you folks are going to have to kind of transition here" and one of the things is it really accelerated the process. And can I tell you [indiscernible] Jon, it was real interesting. Many of the farmers commented in their write-ups that it took them 2 to 3 years. It took us 2 to 3 years to do it. You're not going to do it overnight, but you can get it going, and you can get that team together, definitely, many of your customers out here, they have to have somebody that facilitates it because they will not stay on the plan. Great question, Jon.

All right. Next question is from Phil. What impact will the recently discovered overstatement and employment by the Bureau of Labor on the Fed's position on interest rates.

Yes. I think that's one of the things why the Fed is going to be, Phil, even more cautious at dropping the interest rates, and there's a lot of noise in this labor data on out there. And so again, I think we're going to be real cautious and are really going to be cautious here, particularly in the election year.

All right. Yes. And I think some other attendees may have commented on that question down in the chat also. So take a look at that. Question from Clark. If the Fed begins cutting rates in March as some project, what are the odds that this [indiscernible] us right back into an [indiscernible] market with inflation.

Let's put it this way. There's so much noise in the data right now. That could happen very quickly. And I don't see them doing it in March 2024, unless we have some major crisis, Clark, that you and I don't know here. But one of the things is that could happen. But some of our inflation was supply chain issues. Now take a time out. All we got to do is I have problems in Panama, Suez, Red Sea, South China Sea, that could create some of those issues. So some of these global aspects could come back in here and so I don't see it as in March as much as I do later in the year, and they're going to watch it, they are going to watch it real closely because they've got egg on their face.

All right. Next question is from Lydia. You get an insight on the rural housing market versus the national trends?

Yes. The rural housing market, of course, we had that big boom and people were working remote and the other thing is we have a number of lifestyle farms out there. A matter of fact, [indiscernible] we had 3 or 4 in our deal down Raleigh, Durham, North Carolina. One of the things that I really find is we have -- it's going to -- what you're going to have to watch for is the ability to remote work or if it's a baby boomer coming in, there's going to be about a 5-, 10-year period. They want to live in the country and do that. So it's going to be demographics and the ability to work remote. And then I'll tell you another thing. It's being discussed all across the country, can we move to an affordable area to live. Matter of fact, we're seeing tremendous migration out of California, Illinois, New York into some of our southern states. So that's one of the things that we're going to look at.