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

Good afternoon, good morning, good day, and welcome to another Farmer Mac refresh webinar. Excited to have everybody. My name is Jackson Takach. I'm the Chief Economist over at Farmer Mac. And excited to sort of introduce our speaker today. We're really excited to have Dr. Kohl come back to us. This is now a semiannual kind of tradition that we have going on here, Dr. Kohl. And it's just a wonderful pleasure I have to introduce you today and sort of set the stage for you. I don't think I need to belabor some of the levels of uncertainty that we see, not just in the agricultural economy, certainly, the agricultural economy there is more volatility today, more price swings, price profits, all those things starting to compress. But in the general economy, the global economy, there's just a great deal of uncertainty and cyclical nature of things happening. I look at the vein diagram of global economics, macroeconomics in the United States, agricultural economics and we are kind of in the middle of a lot of things changing simultaneously and interconnectedly. And it's those times when you got a lot going on that you really look to leaders and thought leaders and some of your trusted, most trusted sources of information and insights, and that's who we've got today. So I want to thank everybody for joining, coming on, taking a little time out of your day. We have got just a brilliant speaker on for you, Dr. David Kohl, almost needs no introduction, but I'll give you a brief on Dr. Kohl before turning the stage over to you. You are a former professor, a hall of fame, if you will, from Virginia Tech down in Blacksburg. I mean, the statistics of Dr. Kohl's travel over the years are just like sort of mind boggling. How many miles, 10 million miles. You've traveled. 7,000 presentations one, I don't know how many people in those presentations, but tens of thousands of people have heard you speak over the years. Thousands of articles written, including a piece for Farmer Mac every other month or so. I mean you've just got so much wisdom right here on the line for you all attending today. And not just that, Dr. Kohl, in addition to being a great researcher and a teacher and all these things, he puts his money where his mouth is, works in agribusiness, invests in the dairy and a consulting shop, and he has just a wealth of knowledge that connects lenders, farmers, ranchers, business folks. And I couldn't be more proud to introduce our speaker for today. Dr. Kohl, please take us through the current conditions, give us that midyear report card. We have muted our lines for the day. So if you do want to ask a question, please come on the chat or you can unmute yourself and ask, but I recommend let's just keep the quality of our recording break. We're going to record that and put it out on our website, www.farmermac.com later today. Keep this lines on mute, unless you want to come off and ask a question, use that chat feature. And Dr. Kohl, I'm going to turn it over to you to just catch us all up what's going on in the world today.

Well, Jackson, it's great to be back. I also enjoy working with Farmer Mac, I have since the inception of Farmer Mac. And it's great to be with everyone and we've had a great turnout, over 500 people have signed up for the webcast here today. And my whole goal, as Jackson says, we're in these stages of economic cycles. And what I'd like to do is give you kind of an update of what I am seeing. And then talk about what's ahead and some of the tools that we can kind of use to navigate these economic white waters, whether it's agriculture or the general economy. And I'm coming off from the perspective, I was just doing an ag banking school in Nebraska, and we had folks bankers from 6 different states. So I'm really kind of getting a good pulse of the economy there. But I've been traveling coast-to-coast here recently doing seminars. And so hopefully, I come with that type of perspective. I will have to tell you the older I get, the more travel, the less I know. If you think you know it all, boy, the world will humble you really quick. Let's jump right into it and get the pulse of the agriculture and the rural economy. One of the things people will say, does this cycle kind of rhyme with any other cycle that you're seeing. A lot of people look back to 2013 to 2020. Sam Miller calls, it was were kind of like we are like lost in the profit desert. I call it, they're grinder years. It's different this time because one of the things that's happening is back in that time, prices came down, but we didn't have the inflated cost and of course, interest rates were 0 bound. Right now, we've got a convergence of the events that's accelerating economic change. You've got lower prices, higher cost and you have higher interest rates. And so we've got margin compression on steroids. And I'll give you some data that will really show you that. And one of the things that I would just tell you, of course, a lot of our operating money is on variable rates. So we're feeling the impact of higher rates. But then on the longer-term rates, we're going to have some of the resets that were established during COVID with low interest rates that are going to be reset probably at twice the amount. So we have that facing us. Boy, we're definitely seeing some shrinking working capital and cash positions. I was talking to a banker yesterday, he said, "The customer yielded out on corn and beans higher than they ever had." However, what happened was they lost $100,000. I talked to another one in the upper Midwest, and what happened was they had corn in the ban, beans in the ban, but let's just take the corn, the corn was in there with a market value price of $5 and $6. Of course, now we're seeing a couple of dollars lower. And so we're seeing an erosion of working capital positions and folks, you will not get that on a tax record, that is why accrual analysis, and I know you're all going to cringe at me. It's going to be very, very important to you really kind to get a picture of how much positions are deteriorating. And that's one of the things we really hammered home. Freddie Barnard, my good colleague from Purdue University, we really stressed that in the school. Over on the protein sector, whether it's dairy, poultry and pork, we're experiencing margin compression because of our export markets are kind of all up in the air whether it's sanctions, whether it's trade, et cetera, et cetera. And so we've got volatility, but we have margin compression there on the export of 1 and 6 days of milk outside the United States. What's going on in China, Mexico or Canada, major trading partners is very important. Now the beef industry right now, they're kind of in the stronger part of the cycle. But that could flip very, very quickly. And I think you've got to be very cognizant of that because over on the dairy sector, what we are experiencing, the dairy beef and of course, we've seen the amount of head there go from $0.5 million. Some people say it's $4 million or $4.5 million going to $6 million because that's been the profit center for a lot of our larger type and smaller type of dairies out there. Land values, I'm going to kind of come back to that in a minute. But you talk about land values. 1980s, all you got to do is go to [ Oman or Amman ] country. And one of the things that's happened there, land values are down 40% to 50%. So again, what happened was you had a lot of hot money creating a bubble, and now that paper wealth is disappearing. So that's the pulse I'm feeling on the economy. Now what's happening is what is going on, I want to give some of the data that really backs it up. And one of the things that I follow very closely is the FINBIN data; 22 states, over 3,000 farms. And you can go back to 2003 and kind of see the cycle here, you've got your top 20%, your bottom 20% and your median. Now you can go to Illinois or Kansas, all the good record systems that are out there. And I like these record systems because that really gives you a pulse of what's happening with the above-average managers. But what you can see is a classic post commodity super cycle trend. You go back to 2012, '13, top 20% steep dive. Median, you saw a modest dive. But what's a little different this time is that bottom 20% of our producers in those databases are really getting exposed. And if you're doing once a year of monitoring, you're going to be in for some big surprises this fall and this winter because the deterioration is really occurring in the earnings part of our financial and credit aspect. And now here comes the big one. As we kind of look at the big one. One of the things that we're seeing is, it's called the $500,000 of revenue, okay? One of the things that I can tell you is you get up to around $500,000 worth of revenue as Yogi Berra says, when you have a fork in the road, what do you do, you take it. I was flying over Yankee Stadium going on upto Omaha the other day, and I kind of thought about this. But what you're seeing is the top 20%, they're going down the third baseline. The bottom 20% is going down the first baseline. And what you can see is as those farms and branches get bigger, you can see the flywheel effect. And what's the flywheel effect and we felt that in our creamery, one of the things is when you got all those [ cogs ] going in your business and you're doing just all the little things, one of the things is, it will spin a profit, and that's what you're seeing. And the bigger you are, with the more zeros and the more commas, the higher profits will be. However, if you're missing some of those cogs, and a lot of times, it's not macro, it's a lot of little micro things that's happening in the business. You will see the profits kind of spin out of control to the negative side. And you can see [ 920 to 360 ]. And I want you to be cognizant of that. And all of you folks out here that are doing once-a-year monitoring, one of the things you're going to find is you're going to be into some big surprises. And this graph right here is probably one of the most important graphs that I can give you. Here's the other thing. People up to $250,000, $500,000 in revenue, you can kind of use our farm income, side income to kind of navigate you through. You know what it's going to require for the larger businesses, it's going to call what [ Denny Everson ] called the 6C, the cranium, the management aspect. And so what you're going to see is -- and I just wrote a new article, Jackson, for Farmer Mac for August, kind of the new culture in finance and credit, and it's going to be the management aspect into all my lenders and bankers and all producers that are listening to it, management and the premium placed on management. It's going to put you into that fork in a room. It's going to be your choice or it's going to -- you're going to have to assess whether that producer has that economic -- or that management horsepower to take them in those 2 directions. Very important slide. I hope you keep that in the back of your mind. Now you get these -- the FINBIN Database 2013 to 2023 and it sets me up for what I'm going to be talking about a little bit later. And again, we got top 20, top 10 average, below average, just take the coverage ratios. Here's what you're going to start experiencing, folks. And this is '23 data, and it's going to accelerate for 2024. We're seeing even with the top 20%, the coverage ratios are down 200%. But even if you look at your medium, from high 200%, now we're down to 125%, but it looks you're low 20%. Your low 20% is in negative range. You know what that means, it's going to be refinanced steady. And so look at your operating expense revenue ratio, same thing is occurring. So what I'm trying to give you right in the update, if you look at the '23 data and it'll accelerate for '24, we're seeing fast deterioration in the various margins out here, which is going to require a new culture in credit and finance. And so again, this is the data backing up some of the premises that I'm seeing out there. Now let's go to the most important assets you've got on the balance sheet and it's farm real estate values. 82% of the balance sheet and particularly as a producer pushes you to be more of a collateral lender, watching farm land values is going to be extremely important. And here's what I kind of foresee for probably the period 2024 through 2028. We're going to be headed back to what I've got highlighted there in the blue and the yellow. We're going to go back to land value or appreciation increases more in that type of era. And what's very important there is, oftentimes, we'll use that paper wealth to kind of bail out some of the earnings or replenish the working capital. But one of the things is this real estate market -- and I'm taking it nationwide, you're going to have deviations up and down like [ Amman ] country and you can also go to Iowa and everybody has got the highest and the latest on the land values. But I really see we're coming back into a period rate there. And here's the whole thing. Your landlords are going to be expecting a high rate of return and the problem is, it's going to put a lot of our renters into a pinch and they're going to have to make some tough decisions. Another thing that's really influencing land values right now. We're going to the second core of owners of lands. Grandpa and grandma are passing away. Now it's going to the uncle that are more distant from the farm in the ranch. And then if they pass away, it's going to the children. We're going to have a lot of transition issues and challenges as it relates to farm real estate values. But again, this is what I see on farm real estate values. So that's the pulse of the ag economy. What's the pulse of the global and the domestic economy? And I just did a quick hitter here for you. One of our big trading partners and, of course, one of the most important economies in the world, China. It has basically 4 issues: One is demographic. The 35 year of 1 child policy is catching up to them, their population by 2050 will be under 1 billion people. The next thing is if you isolate the people over 65 years of age, it is now the fifth largest economy in the world. So demographics. And by the way, I'm just going to have to say this, demographics in many of our countries in the world are going to be driving economic cycles out there into the future. We're not reproducing enough. That is the bottom line. Also, they have an asset value decline. Housing, which is 80% of the household wealth in China, they're down as much as 30% to 35%. Stock market, 6% or 8% of the people will own 50% to 60% of the stock, their stock market is down 30% to 40%. My big question is, will this asset value decline spread to the rest of the world? I don't have the answer. But boy, if it did, it would have an impact particularly in the United States, whether it's houses, whether it's stock or whether it's farm land. Of course, sanctions, tariffs and trade, ever one ask and, of course, Alicia, who's in here in the office with me, her daughter is in Taiwan for another experience. She was there last year. And one of the things everybody says, "Will China invade Taiwan?" I'll go back to Richard Nixon, and I think he has a very accurate assessment. As long as we maintain trade with China, and they don't get too close to Russia, they're not going to invade Taiwan. But if we see it pulling back, that gives them the excuse. India, why India? They just reelected their leader, unprecedented, third term. Big in rice, wheat, sugar, onions, et cetera, et cetera. Their leader is very farm protection oriented, and this influences the balances of imports, exports around the world. We've got to watch that very, very closely. When we go to Europe, of course, you have heard me say, Europe got over enamored with cheap energy from Russia. The worst change that and then export markets to China. What's keeping Europe going right now. I want you to think, about 5% of the world population in Europe, but 1/3 of the tourism see what's happening in Spain. They're throwing water on tourists and discouraging tourists. My contention is 2 years from now, will they be doing that if we were in a major, major recession. The other thing I'm noticing out of Europe is there are elections. And of course, there are elections and just kind of the green wave movement. In other words, resistance to the fossil fuels to green energy, and you're feeling it kind of here in the United States. So we've got to watch that momentum going in Europe. When I go to Mexico and Canada. Mexico, new leader, first female leader of Mexico, but it's the same policy as the existing leader. That's important because that's our major trading partner. And let's be blunt with you. A lot of sanctions are being circumvented because our pork, our product goes to Mexico, then it goes to China. This is why these sanctions, I kind of chocolate at them. They're going to find a way around them. Electric cars, yes, we put the tariffs on, then they go to Mexico, then they hit into the United States. Canada, basically is a slow economy right now. Why I bring that in? China, Mexico and Canada tends to be our top 3 trading partners. When it comes to the Southern Hemisphere, one of the things that's happening is our silicon belt reinitiate out of China since 2013, it's now paying them dividends, for example. China and the Asian region is importing product out of the Southern Hemisphere, Brazil and Argentina. The one thing that you're going to have to watch, particularly this fall, and particularly October is this other alternative currency to challenge the U.S. dollar, let's be blunt. We have been able to do a lot of things here in the United States because we can print the money. We've got the dominant currency. And one of the things is this might be something that challenges us. And for the general economy, 1 in 10 dollar is derived by export markets. But when you come to the ag economy, we're very, very export oriented. And so it would hit our agriculture industry upfront and let's be blunt with you. They don't have to go through the Panama canal anymore. They've been building the infrastructure, and we've been asleep at the switch. And again, China silicon belt road initiative is basically for that Asian region. So that's going to be a challenge out here as we move forward. Now on the U.S. economy snapshot. I was talking to Jackson before this deal. You travel on any airport right now. I mean everybody is traveling. I think it's probably the end of the stimulus money or the buildup of credit card debt. But our consumer that is really facing problem is Alice. Who is Alice? Asset Limited Income Constrained, fully Employed often times 2 or 3 jobs. Where are we seeing it? In Starbucks sales. Where are we seeing it? In McDonald's sales. They're down. Even at our creamery, one of the things we're noticing sales are down. Of course, we're dialed in, our profits are up, but sales are down. We can feel this consumer out here kind of pulling back. The other element is mental health of America is being challenged today because, again, we can see this government debt buildup of $1 trillion every 100 days. And again, that is not sustainable. And of course, our credit card debt is up $1.3 trillion, and you look at all of our lead and lag indicators, if we follow Dave's GPS with Farmer Mac, kind to give you an update. But all these indicators for the past 24 months have been showing recession. It has not occurred, and I can tell you, I've been right on these webcasts predicting a recession last year that never occurred. But a lot of the reason for that is our monetary, fiscal policy and of course, the stimulus that has kept us going. But what's happened is our government debt at this rate and our deficits are not sustainable. And of course, you see delinquency, our credit card debt, auto loan is very, very high. And one of the things that you can find is a lot of government money is driving AI, green energy. And my big question is, and you folks know this, we've got people going into nursing homes in the Midwest promising to make people millionaires overnight, in other words, our elderly systems or citizens because of green energy. The only thing is think about the unintended consequence and here's my premise, green energy has got to be profitable without government subsidy until it passes that [ sniff ] test. Again, we got to kind of watch out that extremely closely. So again, that's my U.S. economy kind of outlook. Now that all said and done, I teach at the LSU Graduate School of Banking. And of course, we have a number of Mexican bankers and I told them in the school, I think we need a North American strategy, not a U.S. strategy because, wow, we're 29% of the world economy. Canada, Mexico or United States, 5% of the population. And one of the things is we kind to have the natural resource from Canada, demographics from Mexico, but the only point I'm getting across is, we've got a lot of artificial things kind of keeping our economy going. Now let's get right to it. And this morning, of course, you saw the inflation report, knowing now that we're going to lower the rates in September, blah-blah-blah, the Federal Reserve is struggling up on their credibility. They were too late. Remember when inflation was transitory, and they don't want to make a mistake on the downside. They don't want to get into the Paul Volcker trap. He was the Federal Reserve Chairman in 1980s, lowered rates -- lowered interest rates, inflation bounce back. There's also a discussion of whether the core inflation instead of being 2%, that's the ideal goal of 2.5%. And of course, you saw what happened this morning. We're still in the 3 handle in that area. I really feel the unemployment gives us a false -- kind of not a false reading, but kind of a false psychological reading because when you dig in, it's a lot of government jobs, also it's a lot of part-time jobs, full-time jobs are actually declining. And of course, you're starting to feel the retail and the consumer sales declines. And again, we might be influenced on interest rates on what's going on in Europe and other areas of the world as they increase and decrease interest rates. My premise is, if we're going to see a rate, it'll probably be onetime, maybe after elections, they're going to have to be really careful on the sensitive election cycle because they could lose credibility very, very quickly. So to my ag producers, and I know I got a few of you on because you said you were going to be on -- one of the things is these interest rates are going to be elevated on out there. Now for long-term interest rates, as I told the banking school, as you're explaining to your customer, the Fed would like to have their longer-term rates somewhere between 2.25% and 3.25%. Prime is always about 300 basis points above the Fed. So that's 5.25% and 6.25%. And that means business and individual interest rates are going to be 1% to 4%. And I would say now with the ag economy going, it could be 1% to 5% above Prime because one of the things we're going to start doing is pricing in what I call the economic risk. And so this kind of says we could see some double-digit interest rates out here for our customers. And it's, of course, dependent on the size of the loan, the risk and the market perception out here, interest rates are going to continue. Our interest rate strategy at your lending institution is going to be very, very critical, not only for your institution but also for your customer. And again, we're probably going to be pricing in some of the expectations of that downturn. So I would go even 1% to 5% above Prime for some of our, what we would call, riskier types of customers. So that's my premise as we go out here and look from 2025, '26 out here to 2030. So let's kind of bring it back in, and I was asked this question. What's headed your way as far as lenders are concerned? And one of the things that I would just tell you is the shack is here. In other words, we're seeing some of those operating losses and one of the things is the coverage ratios are deteriorating quite fast, but you're going to see them deteriorate more than on a fast rate on your nearly average and below average producers. Here's the other thing, the sustainability of higher living costs. We've seen living cost. I just got the Nebraska records, $116,000. Some of the FINBIN data is suggesting $80,000 or $90,000. Is that going to be sustainable and how many people are actually living out of the family. And oftentimes, when we see financial struggles, about 40% of it can be -- we're refining a standard of living. And again, I don't want to begrudge any ag producer standard of living out here, but does the farm really generate the profits to be able to do that? And one of the things that you've noticed is the low 20%, they are now negative ratio. Negative ratio of -- it's under 100%. And so that means refinance is coming at you, and you'll have this progression. It's earnings first, liquidity second, equity third. Now, the thing is we're seeing the depletion of working capital because of the valuation of inventories, the operating losses; and some of the CapEx decisions that have been made in the past couple of years. One of the things that we're seeing is ag producers are really tapping the brakes on machine or in equipment. And we're also seeing devaluation of equipment, particularly in the southern part of the United States, talking with some of my lenders down in that area. And that traditionally will happen there first. And remember, usually you will see machinery and equipment decline before any of the other assets. Now here's going to be the question. Lenders are going to be replenishing working capital through a refi. If you do that, you better have a plan and monitor working capital positions out here. And that will require a burn rate, which I'll hit here. And then how does it impact the long-term obligations because we're refinancing at rates about double what they were 2 or 3 years ago. So it has an impact on cost of production when we do that refi and keep that your back of your mind, we had great discussion at this week's school about that whole thing. So the next thing is monitoring, monitoring, monitoring. It costs money. I know it costs time, but I'll go back to the old FRAM oil filter commercial that [ needing you ] to tell my age. In other words, you either pay now or you pay later. And I'm just going to tell you, you are going to have to be careful on them, once a year looking at the financials because on these bigger businesses, you can see -- with the commas and the zeros in here, you can see a rapid deterioration. You're going to have to keep your eye on accounts payable. And are they all being reported. That is a surprise. It is going to require due diligence out here. Of course, we're seeing a buildup of credit card debt. We were growing around the room, [ 20,000, 80,000 to 100,000 ]. And one of the things is the number of declines will accelerate with the larger customers. And we're starting to see producers seeking new lenders. And so you have to be very, very careful there. And be careful of split lines of credit. Any time you start to see more than 7 sources of credit, that's usually a red flag because oftentimes, they're robbing Peter to pay Paul. So monitoring is we're going to have to pick up that intensity, and I know what you're saying, that's costing us time and money. But one of the things is if done properly, it can build relationships. So that is the positive there. What's headed your way, surprises? We're seeing lot more frauds in the activities on out here. And for example, grain has disappeared from the bin, $2 million of inventory, where did the grain go, livestock, just all sorts of type of activities. Unpaid bills and they're left off the payables and be careful of that one, capital expenditures with deferred payments and deferred maintenance. Here's another one. Non-collective accounts receivable. Yes, we did the custom work, we haven't been paid for it. Okay. We sell the grain and the livestock. We haven't been paid for it. The other thing you'll start seeing is volumes from friends and relatives. Be careful, be careful, be careful there. They are commitment. And as I mentioned, machinery and equipment values in some areas of the country have declined by 50%. But one of the things Alicia and I were talking about, of course, we're in drought back here on the East Coast, too much rain in the Midwest and others. And boy, one of the things is it brings depression, mental depression. And of course, we'll see the divorce rate, disengagement, disillusionment and when I talk about disengagement all of a sudden, [indiscernible] And one of the things is this is the time for intensity. And I've seen it in many of the other cycles. I've seen it in our own business. One of the things is you have to hit that culture where you're reengaged. One of the things is you have to follow discipline and it's boring as can be. In other words, you don't become the TV farmer or different things like this. It's a lot of blocking and tackling and just good old fundamentals. And so again, we are seeing some of these. So these are some of the things that are going to be headed your way. Hate to say it, and you'd probably say, well, he's Dr. Doom here today. But I'm trying to be doctor realistic. Now I'm a big believer that agricultural lending is art and science. Think about this, of our participants this week, about 80% had less than 1.5 years' experience and many of them were second career shifts. They were in the 40s, 50s, a couple of them were in their 60 years of age. But one of the things that I told them was, ag lending to be successful is a balance between the science and the art. The science is your ratio analysis, trend sensitivity, liquidity and cover. Our is to be able to connect dots and size up honestly. Are they a sound manager? What's their history, what's their commitment? Can they adapt? Can they communicate and can you tell the story? And one of the things is, this is work and believe me, credit scoring systems, I go back to my Cornell days in grad school, I was involved, and that was part of my doctoral dissertation was credit score and I'm not down on it, but oftentimes, we check our brains at the door and we run into issues and we run into problems. The key is going to be to connect, connect, connect.

By the way, I'm reading a few of the questions here over the site. Will these PowerPoints be available? Jackson? I think they will be available. And one of the things is they're going to kind of be on out there. Now I want to keep on going, and I'll incorporate a couple of your questions as we go. I told my class in the past 3 days. I said, you know, oftentimes, you'll hear me joke and they say, "Well, you got to be the 5 Cs of lending, collateral, collateral, collateral, collateral, collateral." Yes, you do. You know why? If you got a customer that does know their cost of production, monitors their financials once a year for taxes, shoots from the hip in marketing and risk management, has family with living cost issues. And if you have to develop their financial statements, you better keep that debt-to-asset ratio than 25% because they just don't have the management horsepower. I have been very, very blunt. Then on the other side, and I'm going to have a few of these. I'm doing a lot of young and Farm & Ranch conference in the younger generation, they will know their cost of production. They'll know their breakeven. They will develop their cash flow, and they will monitor those. They have a marketing and risk management plan and now have a family living budget separate than the business budget. They'll invoke a team of advisers, and they use them and the team of advisers are a bunch of yes people. And that is one of the things. They will challenge them out there. And if they have those, hey, you can leverage off more and you're going to have a few of them go down. But one of the things that I'm telling you is that is my spectrum. Take this with PowerPoint, laminate it, put it right on your desk. And the next time a customer says, "Why do you need more land as collateral? Why do you need this as security?" Well, if they've got those characteristics, you're going to have to do it. They have these characteristics over here. One of the things is it's not going to guarantee success, and particularly the cycle that we're coming into, we're going to have to shift this culture and shift it fairly fast, we have been in the past few years and during the commodity super cycle and during the low interest rates. It's made us passive managers on the financials. And so we're going to have to step up the game and somebody in that business is going to have to be on that. So that's your collateral lending. That is what I call the 6C. What's 6C? It's called the cranium. It's the ability to have that business type of vacuum our here. Now I'm a big believer of the bridge and a pier concept, and boy, laminate this one, put it on your desk because you're going to get a lot of refinance request. And the big question you got to say is, are we building this business a bridge or are we taking them out to the end of the pier where the water is deeper, fewer options and they drown in their debt. And one of the things is that can be probably one of the most powerful visuals I could give on a PowerPoint. As a matter of fact, the people at the school indicated, boy, that was powerful. And it's going to be with the refinancing request. And if it's a multiple one, the second or the third, remember, they're probably not doing their corrective action that is needed. And believe me, being at the creamery and the dairy, in different things, we face financial stress. And I will have to tell you, we became better because we had a lender that worked with us through that. And one of the things is we got our flywheel in order, and that we're spinning out profits rather than spinning up loss. So it takes a 2-edge street. The problem is, sometimes the borrower come in, "Hey, lender fixed my problem." Sometimes you're taking them out at the end of the peer. So hopefully, those 2 slides right there will be extremely powerful. I know they received -- a lot of the folks at the banking school really like them. Now here is the progression and you've got to kind of play defense. Your defensive line in football is your, as analogous to footballs, your cash flow and your profits. That's deteriorate. Make no bones about even amongst our better managers. Our line of backers, our backup is working capital. That's going to get eaten into in '24 and '25. Our pre-safeties and our safeties is our equity and our collateral. In that last cycle with low interest rates, those land values kept going up, so our equity and collateral actually increased. I don't know if it's going to happen this time. And so think about those 3 progressions. We're right between a weak defensive line and some of our line backers are getting hurt. In other words, our working capital is decreasing. And so that's where I kind of see us right now. Now I think one of the most powerful tools I can give you today to size up whether they have it or not, is this business IQ. And here's the whole thing. And we had a couple of young lenders actually hand this out, and actually, how do they go? They said some producers filled it out and really enjoy, others just ignored it. That's going to tell you whether they've got it or not. They are not willing to do this. One of the things is you've got to move up the collateral requirements. I'm not saying, kick them out of the portfolio, but you're going to have to move them up the collateral because they just don't have that incentive to get better. But it's just 15 basic questions. And these questions can lead to good crucial conversations. You have them fill it out, and if it's multiple partners, say, I've got 3 or 4 partners, they all fill it out separately. And one of those things is you as a lender are going to be required probably to do it as well. And I know you're going to worry, but 90% of the time, I find that producers are tougher on themselves than the lender is on them. And once they fill it up, you have got 3 ways to improve, you have got 3 ways to continue, somebody is talking, shut it up -- 3 areas to continue, 3 areas to improve, okay? Thank you for shutting it up. I appreciate that. And again, this is kind of your improvement type of plan. Now the question is, what is a good score? I call it my staff Cory 30. His number is 30. Generally speaking, when people are down below 30, 25 range that their success rate in handling adversity is kind of lower; get up into the 30 to 40 range, much higher. Here's what you're going to find out in a lot of family businesses. Mom and dad are probably going to score out and grandpa and grandma down in the lower -- the younger generation kind of thinking about new things, they are going to be higher, and that's where you're going to have a clash. That's where you're going to have a clash. And so what I find is filling this out is one of the tools that you can kind of take back. Now the next thing is you're going to have to look at the burn rate on working capital. Now I want to go defensive here, and say, we've got $2 million in current assets, $1 million in current liabilities, so $1 million in working capital. If the projected loss is, and by the way this is not schedule F losses, get over it, it's accrual losses. One of the things is you will find them oftentimes much higher, it would take about 2 years to burn through it. So if you do a refi and put them in a positive position, they don't correct it. You're going to be right back in 2 years into that negative position. And then, of course, I like to look at the burn rate on core equity, the land equity. And for example, here, you're going to have to have your advance rates, et cetera, et cetera. In this particular case, they were losing $0.5 million a year, and he was 49. She was 45. By the time they were 55 and she was 50, if they kept the existing losses, they basically would have burned through all their equity. Burn rates are going to be very, very important for you. So that's another tool in your toolbox here at midyear, I think it's going to be very, very important. Now I want to hit this last one right here because I worked on a lot of problem loans in the 1980s as a neutral person. And by the way, when I go in there, I'm going to be neutral, I'm going to be objective. And one of the things is, oftentimes, I get in the room and I get so frustrated with borrowers because they go right down to what are you going to do to restructure the debt? Folks, you've got to use this troubleshooting matrix before you restructure debt, you've got to look at these others. What are they going to do to increase income? Reduce cost. Is non-farm revenue going to be an option? Remember, once you go beyond $500,000 in sales unless they've got huge jobs paying them a lot, that is not going to be an option. The utilization of capital assets. Sometimes it requires that we reduce our capital assets, but then there's going to be deferred taxes. Yet don't get caught in the trap that you're going to solve all their problems. Have them go through other options before you do that. Now as I kind of go on, I think we're coming into a cycle, whether it's a credit cycle or financial cycle of cultural change, the borrower is going to provide up-to-date financials. They're going to have to provide a projected cash flow, maybe do some sensitivity analysis on price, cost and interest rates. I think one of the things that is really; important is at the producer will be able to articulate their goals. Are they willing to fill out this business IQ and can they kind of use this to manage the business? Now on the other side, if they do it, the banker is going to have to monitor the financials, provide some of the feedback, some of the feedback they're not going to like, provide financial benchmark, how do you kind of compare, you got these databases out here that are very useful. Be part of their advisory team. And if you fill out that business IQ, but I think you got to demonstrate the 6 Cs of blending and banking. Conservative in the good times, courageous in tough times, consistent. But you got to have a team out there that can calculate the numbers, critically think about the numbers and then communicate them. I think that goes both ways. So I think we're in a kind of a paradigm shift on the culture of finance, and a culture of credit. And by the way, I will have a Farmer Mac article on this in August. So that's what's kind of coming to you. So, here are some of the top questions. I got a lot of questions over in here. Is this an economic cycle similar to the 1980s? yes, and no. One of the things that we have from the 1980s we have today, we didn't have. We got crop insurance and livestock insurance, and that is very, very helpful. And again, we would have to see the decline in the land values to have a 1980s. I will have to tell you, we've got bigger numbers, more concentration in portfolio. So when things go right, they go really right. When they go bad, they go down and go down very, very quickly. What are 5 strategies to turn around the business that we use in the 1980s out here? The customer has to take ownership of numbers. Number two, lower family living cost. You know what we had to do and we actually did it in our creamery. We actually had to simplify our business, found out what made us money, what didn't make us money. And one of the things is, oftentimes, people say, we got to grow, grow, grow or add more diversified type of products. Sometimes you got to keep it simple. But can I tell you one of the things is a positive relationship lending because everybody will go at the lowest interest rates in the good times and even in tough times, you want somebody you can trust, somebody that knows your business and knows the agricultural industry. What are some of the mistakes lenders make in a downturn? You don't get on it quick enough. And because a lot of you are extremely busy. And so I'm going to kind of defend you on out there. And you know what the other thing is, we don't trust it, Verify. And we just assume all the numbers are accurate, et cetera, et cetera. And I'm just going to be another one. Remember, when you do an accrual analysis, you'll spot problems 2 years ahead of the problem and you also spot business development opportunities. And I know a lot of you are kind of throwing things at the camera or whatever out here, but we make accrual analysis too difficult. It's basically asking questions. What are some of the positives of economic down cycle. One of the things is it's a great time for both lender and borrower to sharpen their skill sets and actually come out better. I think it's a great opportunity for young and beginning farmers because sometimes they will have that business acumen that makes them better. So don't forget those type of individuals. But again, communication is extremely important, both for the borrower and the lender. Now Jackson, I got a ton of questions. I'm just going to kind of read through them real quickly. Yes, I think the PowerPoints will be available out there. One of the things is, lots of customers are looking at diversifying in the livestock from [ real ] crop. Any thoughts on this? All I got to tell you is do they have the resources? Do they have the management skill set? Diversification oftentimes, we will look at it. But oftentimes, we don't push the economics. And I'm not putting it down, but you got to remember, livestock is going to be going through a cycle as well. And so you've got to ask critical questions and look at both the positives and also the negatives. There was a land value thing here. Okay, I was wondering how ag real estate can keep appreciating and deteriorate grain margin? I'm just going to tell you, it's demographics. Basically, that's baby boomers, we scare the stock market and bitcoin, now we're buying real estate locally as an investment, be very candid. And the other thing is we're buying real estate for the next gen -- the next generation. That's what's keeping your land up and it's a loved property. It's a property we've waited around, loved to buy and everybody else would love to buy. That is the reason, and it's not about economics and it's not about earnings. It's going to be interesting just to see how we will start tapping our brakes, particularly in the economic downturn and for next generation, are they going to kind of stick it out? Did you see many producers sign up for the FSAs, extraordinary measure programs and inflation Reduction Act? I can't give you data on that. I have seen it, but I can't give you accurate data on that. I guess that's all the questions out there, Jackson. And it is now 55 after the hour, and we like to keep these events under hour. And so Jackson, I'm going to turn it back over to you.

Well, Dr. Kohl, I think you've given us a lot to think about, both from the current conditions and how this might impact us as well as how to interpret these things as we're all dealing with farm financials and borrowers across the table. So thank you so much for all the insights per usual, just a lot to think about. I'll make a couple of announcements, and I'll turn everybody loose for the rest of their day. Number one, look for a survey from Farmer Mac at the conclusion of our session today. So tell us how we did, tell us how we're doing. And we know Dr. Kohl adds a lot of value. We'd like to hear that. So please take that survey. You can provide a lot of feedback, and we can continue to provide this great programming to you just because you can take that survey and give us that feedback. Number two, Dave mentioned it, Dr. Kohl, Dave's GPS, that's posted up on Farmer Mac's website. It's a wonderful tool utility. We get great insights, regular articles that come through that as well as all those macroeconomic indicators, red light, green light, right there for you posted to Farmer Mac's website. Go check it out. It is right there next to Farmer Mac's feed. So our economic analysis site as well, which has gone digital. So while you read your Dr. Kohl's analysis, you can pop over and read some of the analysis from the Farmer Mac team as well, myself and Blaine. The last thing, we got roadshows coming up. So watch out for some announcements on that. If you're a customer of Farmer Mac or want to learn more about some of the benefits that Farmer Mac can offer. You and your customers out there will watch out for [indiscernible]. We're coming to a town near you. We can travel all our great team of relationship managers, go all across the -- maybe not as many stops as Dr. Kohl you're going to make. But they are a wealth of knowledge, stop ICM, learn a lot about Farmer Mac, and we love to see you out there when we hit the road. Thanks again for attending. It was a great session. We hope you enjoyed it. It will be available up on the website, www.farmermac.com, at the conclusion of our session. And Dr. Kohl, thank you again, can't thank you enough for joining us and providing the insights.

Jackson, thank you so much. And hey, don't let them forget that we got the National Ag Bankers Conference in Milwaukee, and we're going to have a pre-conference session cosponsored by Farmer Mac and FINPACK, right?

It's a great session. We do it every year. I can't imagine not doing it. So Dr. Kohl, thank you for being the anchor of that the FINPACK Farmer Mac Dr. Kohl's session. Ever get there early to Milwaukee, it is going to be a great session. Thank you.