Annual Report 2018 - Page 6

MANAGEMENT’S DISCUSSION AND ANALYSIS FCS Financial, ACA The following commentary reviews the consolidated financial condition and consolidated results of operations of FCS Financial, ACA (the Association) and its subsidiaries, FCS Financial, FLCA and FCS Financial, PCA and provides additional specific information. The accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements also contain important information about our financial condition and results of operations. The Farm Credit System (System) is a nationwide system of cooperatively owned banks and associations established by Congress to meet the credit needs of American agriculture. As of January 1, 2019, the System consisted of three Farm Credit Banks, one Agricultural Credit Bank, and 69 customer-owned cooperative lending institutions (associations). The System serves all 50 states, Washington D.C., and Puerto Rico. This network of financial cooperatives is owned and governed by the rural customers the System serves. AgriBank, FCB (AgriBank), a System Farm Credit Bank, and its District associations are collectively referred to as the AgriBank Farm Credit District (AgriBank District or the District). We are an association in the District. The Farm Credit Administration (FCA) is authorized by Congress to regulate the System. The Farm Credit System Insurance Corporation (FCSIC) ensures the timely payment of principal and interest on Systemwide debt obligations and the retirement of protected borrower capital at par or stated value. Due to the nature of our financial relationship with AgriBank, the financial condition and results of operations of AgriBank materially impact our members’ investment. To request free copies of AgriBank financial reports, contact us at: FCS Financial, ACA 1934 East Miller Street Jefferson City, MO 65101 (573) 635-7956 www.myfcsfinancial.com jeffersoncitymo@myfcsfinancial.com AgriBank, FCB 30 East 7 th Street, Suite 1600 St. Paul, MN 55101 (651) 282-8800 www.agribank.com financialreporting@agribank.com Our Annual Report is available on our website no later than 75 days after the end of the calendar year and members are provided a copy of such report no later than 90 days after the end of the calendar year. The Quarterly Reports are available on our website no later than 40 days after the end of each calendar quarter. To request free copies of our Annual or Quarterly Reports, contact us as stated above. FORWARD-LOOKING INFORMATION This Annual Report includes forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Words such as "anticipate", “believe", "estimate", "may", “expect”, “intend”, “outlook”, and similar expressions are used to identify such forward-looking statements. These statements reflect our current views with respect to future events. However, actual results may differ materially from our expectations due to a number of risks and uncertainties which may be beyond our control. These risks and uncertainties include, but are not limited to:        political, legal, regulatory, financial markets, international, and economic conditions and developments in the United States (U.S.) and abroad economic fluctuations in the agricultural and farm-related business sectors unfavorable weather, disease, and other adverse climatic or biological conditions that periodically occur and impact agricultural productivity and income changes in U.S. government support of the agricultural industry and the System as a government-sponsored enterprise, as well as investor and rating agency actions relating to events involving the U.S. government, other government-sponsored enterprises, and other financial institutions actions taken by the Federal Reserve System in implementing monetary policy credit, interest rate, and liquidity risks inherent in our lending activities changes in our assumptions for determining the allowance for loan losses and fair value measurements AGRICULTURAL AND ECONOMIC CONDITIONS The 2018 crop season came to a close with mixed results across our territory. Growers have reported a wide range of crop production results, with overall yields across the state expected to generally be below historical average levels. Additionally, the harvest process for many producers experienced delays due to wet weather conditions. Much of the Corn Belt experienced above trend-line yields, resulting in strong overall U.S. crop production and an adequate world market grain supply. As such, grain prices have continued to experience downward pressure. The combination of fewer bushels and lower prices for Missouri row crop producers will result in tightened operating margins for crop operations in 2018. Cattle prices demonstrated resiliency through 2018, ending the year generally unchanged from the start of the year. Live cattle prices on the Chicago Mercantile Exchange experienced stronger fourth quarter prices as compared to mid-year price levels. As well, the feeder cattle market demonstrated volatility during the year although ending 2018 at prices similar to early in the year. Pasture and hay levels were very short early in the year, resulting in higher costs impacting operating margins for our cow/calf producers. The generally lower grain prices benefit livestock producers by lowering production costs. Much of Missouri’s swine and poultry production has contract arrangements associated with these operations, partially mitigating a lower price environment for products of the overall protein complex. Overall, increased domestic meat production and supply will continue to challenge profitability for U.S. livestock producers. Farmland prices have remained relatively stable over the past year across our territory. Demand for crop land tracts has generally moderated over the past couple of years with the declining grain prices. During the same time, the availability of crop land tracts for sale has also moderated. These two factors together have kept overall crop land prices near equilibrium. 3