Click to edit Master title style. Credit Analysis. Assessing the Risk Profile of a. Pork Production Company

Transcription

1 Credit Analysis Assessing the Risk Profile of a Pork Production Company By: Lee Fuchs FCS Financial 2009 Pork Management Conference May 2009 * * 1

2 ACB Farm Credit System Structure Farm Credit System Insurance Corporation CoBank, Congressional Agriculture Committees Farm Credit Administration (Regulator) Federal Farm Credit Banks Funding Corporation AgFirst, (Funding Corporation) The Farm Credit Council AgriBank, FCB of U.S. AgBank, FCB FCB Texas FCB Cooperatives and Other Eligible Borrowers Associations Farmers, Ranchers, Rural Infrastructure businesses, Rural Homeowners and Other Eligible Borrowers * * 2

3 Other, 4% Click Poultry to and eggs, edit 3% Master text styles General Farm Primarily crop, 4% Energy and Water/Waste disposal, 6% Rural Home Loans, Farm Landlords, Parttime farmer, 6% Food Products, 6% Farm Credit System Portfolio Tree Fruits, nuts, Grapes, 7% Communication, 3% International Loans, 2% Bio Fuel Products (includes ethanol), 2% Other Livestock, 1% Livestock (cattle/hogs), 12% Cash Grains (Corn, Wheat, Soybeans), 12% Forestry, Agricultural Services, Fishing, 10% Farm Supply Marketing, 5% Field Crops (Cotton, Sugar, Beets, Potatoes, Vegatables), 7% Dairy Farms, 7% * * 3

4 December 2008 Nursery & Greenhouse, 1.10% Eggs, 0.91% Click to Rural edit Energy, Master 1% text styles Rural Home, 1% Food Processing, 2% Vineyards, 2% Turkey, 2% Forest Products, 2% Timber, 2% Rural Telecomm, 3% Dairy, 3% Others, 3% FCS Financial Portfolio Ethanol & Biodiesel, 3% Meat Packing, 0.51% Grain Processing, 1.44% Beverage, 0.59% Fruit & Tree Nuts, 0.40% Cash & Other Crops, 27% Farm Supply & Svc., 3% Broiler, 5% Beef Cattle, 19% Landlord, 7% Swine, 9% * * 4

5 (by Commitment) Risk Ratings RR S & P Lending Limit 1 AAA, AA $30MM 2 AAA, AA $30MM 3 AAA, AA $30MM 4 AA, A, BBB+ $30MM 5 A, BBB+ $25MM 6 BBB-, BB+ $20MM 7 BB+, BB- $18MM 8 BB-, B $15MM 9 B, CCC $10MM * * 5

6 Click Industry to edit Master Intrinsic title Riskstyle Industry Score Corn 23 Soybean 21 Dairy 27 Hogs 31 Turkeys 31 Broilers 30 Sugar 31 Cow/Calf 24 Cattle Feedlot 36 Eggs 33 Timber & Forest 32 Ethanol 37 Score Ranges 0-18 Low Risk Moderate Risk High Risk * * 6

7 Click 1. to Financial edit Performance Master text styles Intrinsic Risk Categories Historical Risk Elements 2. Financial Structure 3. Stability/Longevity Predictive Risk Elements 4. Structure/Diversity 5. Product/Service 6. Competitive Factor 7. Political/Regulatory/Tax 8. Economic Vulnerability 9. Environmental/Natural 10. Covariance/External Factors Lending Risk Elements 11. Collateral 12. Term/Type * * 7

8 Underwriting Guidelines Swine Total Equity/Total Assets > 50% Current Assets-Current Liabilities > 1.30 Cashflow > 115% Loan/Appraised Value < 65% * * 8

9 Underwriting Guidelines Swine - Contract Total Equity/Total Assets > 25% Current Assets-Current Liabilities > 1.00 Cashflow > 115% Loan/Appraised Value < 80% * * 9

10 Click to Credit Analysis Master title Format style Character Third Capital level Fourth Capacity level Collateral Conditions * * 10

11 Click Subjective to edit Master Credit title Analysis style Click Marketing to edit Price Master Risktext styles Second Production level Risk Third level Input Cost Risk Fifth Environmental level Risk * * 11

12 Marketing Price Risk Mitigators Click Marketing to edit Agreements Master text styles Second Hedging level Policies Third Quality level Genetics Fourth Location level of Finishing Operations Fifth Management s level Marketing Skill Counter-Party Risk Strong Liquidity Position * * 12

13 Click Production to edit Master Risk Mitigators title style Click Nutrition to edit Programs Master text styles Second Specialized level Management and Labor Third Bio Security level and Herd Health Fourth Quality level Genetics Fifth Quality level Facilities and Location Pig Flow Methods Strong Liquidity Position * * 13

14 Click Input to edit Cost Master Risk Mitigators title style Click Feed to Purchase edit Master Agreements text styles Second Dedicated level Feed Mills Third Hedging level Policies Fourth Facility level Location Fifth Available levellabor Force Fixed Interest Rates Strong Liquidity Position * * 14

15 Environmental Risk Mitigators Click Site Selection to edit Master text styles Second Local Acceptance level Third Quality level Facilities and Location Fourth Legal Resources level Fifth Contract level Production Compliance with Regulation Strong Liquidity Position * * 15

16 Click to Cost edit of Master Production/CWT title style Measure Good Good Good Feed Costs < $32 < $36 < $24 Non Feed < $9 < $10 < $8 Fixed Costs < $11 < $12 < $10 Total < $52 < $58 < $42 * * 16

17 Burn Rate Cash Operating Expenses $0.46/lbs Debt Service $0.05/lbs Maintenance Cap Ex $0.03/lbs Total Cash Uses $0.54/lbs Cash Receipts $0.40/lbs Burn Rate $0.14/lbs 20,000 sows farrow to finish $1,400,000/month * * 17

18 Click to Production edit Master Measures title style Measure Good Very Good Good P/Litter > 11 >12 >10 P/S/Y > 23 >25 >21 Nursery F.E. <1.70 <1.60 <1.75 Nursery ADG >0.80 >0.90 >0.90 Nursery D.L. <6% <4% <5% Finish F.E. <3.00 <2.75 <3.00 Finish ADG >1.55 >1.75 >1.55 Finish D.L. <7% <5% <5% W-F F.E. <2.65 <2.55 N/A W-F ADG >1.50 >1.70 N/A W-F D.L. <8% <6% N/A * * 18

19 Click Key to edit Factors Master for Success title style Good Liquidity Financing from Creditors Investing from Owners Cash Flow from Operations Mitigate Volatility Contracts with Key Parties Production Levels Hedging Low Cost Producer?? Balance Sheet Leverage?? * * 19

20 % Returns at Varying Leverage Levels Click to edit Master title style Third 12 level 10 % Returns 8 Fifth 6 level 4 2 Weighted Avg. Cost of Debt ROE Maximizing Returns ROA Good Leverage (increasing) * * 20

21 Click to Industry edit Master Observations title style Click to edit Master text styles Outlook for Producers Fourth Outlook level for Lenders * * 21

22 Contact Information Lee Fuchs FCS Financial Capital Markets Group Three City Place Drive Suite 870 St. Louis, MO Phone: (314) Fax: (314) * * 22