OBTAINING OPERATING CAPITAL FOR 2016 GRAIN OPERATIONS: NEEDS, RISKS, REWARDS & THE BOTTOM LINE

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1 OBTAINING OPERATING CAPITAL FOR 2016 GRAIN OPERATIONS: NEEDS, RISKS, REWARDS & THE BOTTOM LINE JEFF RODIBAUGH FIRST FARMERS BANK & TRUST

2 POLL: 2016 CORN BELT SEED CONFERENCE 1. You believe there are significant profitability challenges in the entire Grain Complex and for Grain Farmers. 2. You believe those challenges started with the 2014 crop. 3. You believe that the situation became more serious with the 2015 crop. 4. You believe that there is a higher likelihood that corn will be $4.25/ bu than $3.25/bu at harvest of You believe that farmers must reduce costs in order to be profitable vs. the prices rising to the $ $4.75 New Normal range to obtain profit margin. 6. You expect there will remain profitability challenges until the 2018 crop year.

3 GRAIN FARMING PAST: GHOSTS OF YEARS PAST 2012 & 2013: Led to increased cost structure Higher: Equipment payments Land costs Inputs Family living & labor Rewarded undisciplined marketing Unrealistic profitability from crop insurance

4 GRAIN FARMING PAST: GHOSTS OF YEARS PAST 2014: Where did the money go? Grain value deteriorated Yields well above average Marginalizing or Eliminating ARC payment in Fall of 2015 Record yields led to a false sense of security

5 GRAIN FARMING PAST: GHOSTS OF YEARS PAST 2015: Paralyzed by weather and decreasing prices Best pricing opportunity was early spring with the Ukranian situation Rain-stressed yields were below average: created regional impact 2015 crop insurance payments will still yield losses of 15-20%

6 GRAIN FARMING PAST: THE ROLLERCOASTER $ p e r b u s h e l $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 U.S. National Average Cash Corn Prices By Marketing Year. Four Extraordinary Years The New Reality Source: USDA WASDE Report FAPRI Forecasts for Harvest Year Purdue Center for Commercial Agriculture

7 GRAIN FARMING PAST: GHOST-BUSTING Our Mission: Ultimately identifying the magnitude of the shortfall/loss Deal with the shortfall now in most cases Can every grain farmer survive the losses?

8 IDENTIFYING THE SURVIVORS Working Capital Total Equity Land and equipment value? Acres owned vs Acres rented Have they been making money or living off of Appreciation? When did the losses start? Is the borrower an Above Average Farmer? Is the borrower willing to make changes? Dinosaur vs Crocodile Character, Character, Character Will they tell you the entire story?

9 NEEDS: WHAT TO DO WITH LOSSES? What is a reasonable structure to term out Losses? 3-5 year may be too short with 2016 outlook Term out against real estate with or without Farm Service Agency Do we need an additional guarantor/co-signer? For customers with working capital, Is it best to preserve it? Asset reduction Sell non-earning assets? May need to ask other creditors to participate Is the customer: Making changes for solutions? Laying out the secondary sources of repayment? vs. Bank solving all their problems.

10 RISKS/REWARDS: 2016 CASH FLOW PROJECTIONS Use current cash prices, do not hope for price increases Average in current market positions Yield estimates start with 5 year average May need to further evaluate due to crop conditions in 2012 and What is a reasonable yield expectation? If the cash flow still does not work what yield and price are break even? Does the borrower have a chance to make money? Expenses to watch: (notice seed not on this list) Cash rent Equipment debt payments Real estate debt payments Overhead labor, family living Recognize Risks of Major Changes!

11 Crop prices RISE faster than costs adjust upward: Positive Margins Crop prices Fall faster than costs adjust downward: Negative Margins Purdue Center for Commercial Agriculture

12 What are the biggest cost issues facing crop agriculture this year? 2015 ESTIMATED INDIANA CORN PRODUCTION COSTS 1 2 Machinery & Family Living 19% Cash Rent 27% Insurance & Misc. 4% Fertilizer 18% Hauling 2% Interest 1% 3 Fuel 6% Seed 15% 4 Pesticides 5% Machinery Repairs 3% Purdue Center for Commercial Agriculture

13 CASH FLOW EXAMPLE: YIELD STRESS acres yield price total CASH FLOW - LOAN PROJECTION FOR: 2016 corn ,325 1,472 acres soybeans ,186 True 5 yr average: Yields: 170, 90, 180, 190, 90 wheat 0 Total January February March April May June July August September October November December CASH AVAILABLE $/Ac Corn , , ,662 Soybeans , , ,093 0 Government Pmt 25 36,800 36,800 0 Gross Farm Inc , , , ,462 0 Sale of Cap Items 0 Other Borrowings 0 Total Cash Avail , , , ,462 EXPENDITURES Labor 0 0 Repairs 13 18,645 9,323 9,323 Interest 14 20,202 20,202 Rent ,070 54,268 54,268 54,268 54,268 Feed 0 0 Seed and Plants ,787 83,490 53,297 Fertilizer & Lime , ,415 Drying Charge 15 22,770 22,770 Supplies 1 2,000 1,000 1,000 Medical 0 0 Gas, Oil and Fuel 22 32,384 16,698 15,686 Taxes(Not Income) 4 6,000 3,000 3,000 Insurance 14 20,000 4,521 8,349 7,130 Utilities 5 8, Other 4 6, License Plates 1 1,151 1,151 Chemicals 26 38,870 17,837 21,034 Total Cash Op Exp , ,908 75,497 72,132 80,792 10,489 1,167 1,167 1,167 9,516 62,564 91,527 21,369 Living Expenses 34 50,000 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 Income Taxes 5 6,946 6,946 Equipment Land debt payments 49 72,838 13,750 59,088 Residence 7 9, Eq Planter/Tractor 10 14,843 7,274 7, Combine&Draper, Scale, LP Tank 21 31,433 12,498 3,273 15,661 debt Grain bins 25 36,156 36,156 Total Expenditure , ,405 80,496 77, ,284 15,488 6,165 6,165 6,165 14,514 75, , ,611 Net Income/Exp (46) (68,182) (260,405) (80,496) (77,131) (103,284) (15,488) (6,165) (6,165) (6,165) (14,514) 110, , ,851 Payment - Us 501, , , ,851 Advances - Us (569,814) (260,405) (80,496) (77,131) (103,284) (15,488) (6,165) (6,165) (6,165) (14,514) Balance - Us (68,182) 192, , , , , , , , , , ,851 0 Livestock Collat CASH FLOW +/(-) (46) COVERAGE RATIO 63%

14 CASH FLOW EXAMPLE: TYPICAL YIELD acres yield price total CASH FLOW - LOAN PROJECTION FOR: 2016 corn ,156 1,472 acres soybeans ,186 NORMAL REALISTIC YIELDS wheat 0 $/Ac Total January February March April May June July August September October November December CASH AVAILABLE Corn , , ,578 Soybeans , , ,093 0 Government Pmt 25 36,800 36,800 0 Gross Farm Inc , , , ,378 0 Sale of Cap Items 0 Other Borrowings 0 Total Cash Avail , , , ,378 EXPENDITURES Labor 0 0 Repairs 13 18,645 9,323 9,323 Interest 14 20,202 20,202 Rent ,070 54,268 54,268 54,268 54,268 Feed 0 0 Seed and Plants ,787 83,490 53,297 Fertilizer & Lime , ,415 Drying Charge 15 22,770 22,770 Supplies 1 2,000 1,000 1,000 Medical 0 0 Gas, Oil and Fuel 22 32,384 16,698 15,686 Taxes(Not Income) 4 6,000 3,000 3,000 Insurance 14 20,000 4,521 8,349 7,130 Utilities 5 8, Other 4 6, License Plates 1 1,151 1,151 Chemicals 26 38,870 17,837 21,034 Total Cash Op Exp , ,908 75,497 72,132 80,792 10,489 1,167 1,167 1,167 9,516 62,564 91,527 21,369 Living Expenses 34 50,000 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 Income Taxes 5 6,946 6,946 Equipment Land debt payments 49 72,838 13,750 59,088 Residence 7 9, Eq Planter/Tractor 10 14,843 7,274 7, Combine&Draper, Scale, LP Tank 21 31,433 12,498 3,273 15,661 debt Grain bins 25 36,156 36,156 Total Expenditure , ,405 80,496 77, ,284 15,488 6,165 6,165 6,165 14,514 75, , ,611 Net Income/Exp 24 35,649 (260,405) (80,496) (77,131) (103,284) (15,488) (6,165) (6,165) (6,165) (14,514) 110, , ,767 Payment - Us 605, , , ,767 Advances - Us (569,814) (260,405) (80,496) (77,131) (103,284) (15,488) (6,165) (6,165) (6,165) (14,514) Balance - Us 0 260, , , , , , , , , , ,117 0 Livestock Collat CASH FLOW +/(-) COVERAGE RATIO 119%

15 RISKS/REWARDS: READJUSTMENTS ARE NEVER EASY Spring Expect more operations to not be approved for funding by traditional lenders due to credit concerns Will suppliers step in? Investor financing? Will bank regulators force tighter terms of restructuring? More banks will exit Grain Operating Lending? Landlords may not get paid by the aggressive tenant What will the fertility be on those farms? Will those headliners be enough to more quickly readjust cash rent prices for everyone? The low-cost producers will be the most protected

16 BOTTOM LINE: 2016 GRAIN OPERATIONS Will they make money? Would you loan the borrower your own money?

17 QUESTIONS?

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