© 2006 Wells Fargo Bank, N.A. All rights reserved.

Reviewing 2006 – Planning for 2007

Paul BaesslerVice President-Senior Team Leader Ag Banking

Wally ThomasVice President-Ag Business Banking Manager

December 2006

2

Topics

Current Status Farm Bill Grains Livestock

Financials Outlook for Interest Rates

Crop Insurance 2006 Harvest Prices 2007 Established Prices

Year-End Planning

Final Thoughts

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You know you are a TRUE Minnesotan if...

...you consider it a sport to gather your food by drilling through 18 inches of ice and sit there all day hoping that the food will swim by

...your local Dairy Queen is closed November through March ...your town has an equal number of churches and bars ...you know several people who have hit a deer more than once ...you often switch from “Heat” to “A/C” in the same day ...you can drive 70 mph through 24” of snow during a blizzard, without

flinching ...a brat is something you eat ...your neighbor throws a party to celebrate his new pole barn ...you actually understand these jokes and tell them to your friends

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House & Senate Agriculture Committee Leadership

HouseCongressman Collin Peterson (D-MN) will be the new chairmanCongressman Bob Goodlatte (R-VA) will be the ranking member

At least seven new members with approximately, seventy-five percent ofthe new committee members that have never been through a farm bill debate.

Note: Peterson has endorsed the idea of extending the current Farm Bill for up to 2 years.

SenateSenator Tom Harkin (D-IA) will serve as chairman Senator Saxby Chambliss (R-GA) will be the ranking memberSenators-elect Bob Casey (D-PA), Amy Klobuchar (D-MN), and Sherrod Brown (D-OH) are new members of the committee.

The Republican leadership will make their appointments in December. “The Midwest is going to care more about ethanol & biomass than other parts of the country; we

also want to keep strong price supports for Midwest crops & help our beef, dairy & pork producers”. – Amy Klobuchar (D-MN) 11/2006

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Farm Policy Amid High Prices: Which Direction Will We Take?

Extend the 2002 Farm Bill

Free market regime for Corn, Soybeans & Wheat Biofuels boom keep market price levels above levels to trigger countercyclical and loan deficiency payments Frees up funding for other areas of the farm bill; conservation, rural development Not advocated by the AFBF

Raise (Rebalance) Target Prices

Per-acre payments equalized Reflect cost of production Minimize the impact on planting decisions

Improve the Farm Safety Net

Financial stress from multi-year drought Crop insurance would need to be the centerpiece

Summary from the Center for Agricultural and Rural Development (CARD) Fall 2006 Iowa Ag Review, Bruce A. Babcock, author

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U.S. Corn Yields

119.3119.8

84.6

116.3118.5

108.6

131.4

100.7

138.6

113.5

127.1126.7

134.4133.8136.9138.2

129.3

142.2

147.9151.2

160.4

70

80

90

100

110

120

130

140

150

160

86 88 90 92 94 96 98 0 2 4 6

Bushels

/Acre

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Wells Fargo Economics Corn Price Forecast

Expected Price Range (next 12 months) CBOT Futures $2.37 to $3.85 a bushel NASS Cash $1.45 to $2.35 a bushel

Higher Prices Any negative supply shock to oil Possible weather setbacks in the 2007 crop

Lower Prices Massive acreage gains Exports and feeding usage depressed by

higher prices

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U.S. Soybean Yields

33.333.9

27.0

32.3

34.134.2

37.6

32.6

41.4

35.3

37.6

38.938.938.1

39.6

38.0

33.9

42.243.043.0

36.6

25.0

27.0

29.0

31.0

33.0

35.0

37.0

39.0

41.0

43.0

86 88 90 92 94 96 98 0 2 4 6

Bu

./acr

e

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Wells Fargo Economics Soybean Price Forecast

Expected Price Range (next 12 months) CBOT Futures $5.45 to $7.85 a bushel NASS Cash $5.20 to $7.46 a bushel

Higher Prices Loss of acreage to Corn A relatively weak dollar continues to support exports

Lower Prices Relatively high global stocks to usage at 25% Possible Brazilian production growth

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PORK PACKERS' ESTIMATED MARGIN

5.00

10.00

15.00

20.00

25.00

30.00

35.00

J F M A M J J A S O N D

$/hd.

Average '95-'04

2005

2006

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For 2007: Production up 1% to 2%. Prices mid to higher $40 this fall and winter.

High $40s next spring and summer. No expansion expected now. 2007 and 2008 major adjustment period. Hog prices finally higher by 2009.

Estimated Hog Costs and Price ($/cwt.):

49.8850.39

46.5646.28

$25

$30

$35

$40

$45

$50

$55

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

4 5 6 7

$/c

wt

HogPrice

Costs

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Wells Fargo Economics Hog Price Forecast

Expected Price Range (next 12 months) CME Futures $52.00 to $72.00 per cwt.

Higher Prices Weak dollar supporting exports & constraining imports Limited farrowing intentions

Lower Prices Price competition from poultry & beef Static per capita consumption

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Wells Fargo Economics Cattle Price Forecast

Expected Price Range (next 12 months) CME Futures Feeders $105.00 to $123.00/CWT CME Futures Fed $82.00 to $94.00/CWT

Higher Prices Continuous net export improvement Tight per capital NAFTA supply of both feeder cattle & Beef Cows Stronger NAFTA economic expansion

Lower Prices Heavy cattle weights Higher cattle on feed numbers

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Livestock Producers consider this...

US population continues to eat more meat (201# per capita; 12# more than average 1990-99)

Protein consumption increases as standard of living grows

Europeans per capita consumption is almost double North Americans

Meats have sustainable demand

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Risk Protection for Milk 2007 Information courtesy of www.kdmtrading.com

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Livestock Producers have other concerns...

Arizona Proposition 204 Passed 11/07/2006, places legal requirements on Swine & Veal operations

regarding confinement space, compliance required by 2012

Iowa Environmental Health Perspectives 2 year National Institute of Health financed study by UI & UNC

─ Recommends: Environmental Impact Statements Public meeting prior to permit approval Local Control for permitting Emission Standard compliance Manure Storage Basin bonding for future clean-up costs No-confinement zones Endorsed American Public Health Association’s call for a moratorium on new

confinements

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Prime Rate 10-year Historydata provided by Reuters

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5 year Constant Maturity Treasury Trenddata provided by Reuters

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10 year Constant Maturity Treasury Trend data provided by Reuters

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Commercial Ag Loan Rates: Chicago FED District: Quarterly

5%

6%

7%

8%

9%

10%

11%

12%

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6

Inte

rest

Rat

e

Operating

Real Estate

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Crop Insurance Summary

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2007 Established Prices and a New Product

Corn - $3.30

(2006 $2.00; reflects a 65% increase in price) Soybeans - $6.50

(2006 $5.15; reflects a 26% increase in price)

These are established price elections for APH based crops. They could beincreased to a higher price prior to sales closing date March 15, 2007. RA/CRCprice elections will be determined in February 2007.

AGR-Lite – whole farm revenue protection plan, protects against low revenue from natural disasters and market fluctuations

5-year historical averages from IRS Sch. F revenue for base for guaranteed revenue Coverage for multiple ag commodities Establishes revenue as the common denominator Premiums reduced if combined with MPCI Coverage levels from 65% up to 80%

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Selling 2007 & beyond while keeping your sanity...

Divide and Conquer Sell your average crop potential – 10% increments Scale up when conditions warrant – or as growing crop progresses Protect yourself with Call Options – drought, ethanol, fund influence

Consider your Opportunities Cash Flow and peace of mind Hedge to Arrive Contracts – get all the costs & ability to roll Over The Counter Hedges especially for DEC 07 and beyond Futures positions – provide plan to your Banker; defend margin calls

Buy Crop Insurance and use it fully MPCI – Revenue Assurance (RA) & Crop Revenue Coverage (CRC) Subsidized crop loss coverage and forward marketing ability

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Some final thoughts from Dr. Mike Swanson, Wells Fargo Ag Economist...

Know your crop production costs by heart Variable costs Fixed costs – including opportunity costs

Don’t fool yourself on historical performance Look at your individual farm units Think hard

Sell or rent those units that don’t perform Sell at 15% capital gain Rent to someone too eager or “even better”

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Year-End Planning--To-Do Before Year-End

Meet with your accountant and banker, as well as your FBM Instructor Be sure your accounting is current and your inventory is counted Control expenses and income to speed up or slow down deductions and income Decide whether to distribute or retain earnings this year Consider making last-minute equipment purchases to exercise

expensing/depreciation bonuses Set up your retirement plan — or make contributions to your existing plan Reassess your health insurance coverage to deal with probable increased

premiums next year Decide whether to pay bonuses Evaluate whether to change your business type next year Make charitable contributions

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Wells Fargo Equipment Term Loan Program

Financing Available for: Combines Grain Carts Tractors Trucks Tillage Equipment Planters

Sub-Prime Fixed Interest Rates up to 5 years

Offers End January 15th 2007

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Wells Fargo Bank Grain Inventory Loan

This funding could help you take advantage of: Carry in the Market Retire your 2006 operating loan Pre-paying 2007 operating expenses for tax planning

Funding Available through January 15th 2007 7.75% Fixed Interest Rate for up to 7 months Bonus Rate Available with Wells Fargo Commodity Products Account Grain must be contracted for sale either flat priced or HTA

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Wells Fargo Commodity Solutions

Volatile commodity markets and price swings impact producers and consumers alike – they divert time and resources away from focusing on your primary business goals

Protect and predict revenue streams Help shield yourself from unexpected price increases and earning surprises

Invest in commodity markets while protecting invested principal

Currently offering solutions for Grains, Milk, Fuel As a premier lending institution (only Aaa rated bank since 1995), you will be protected by

Wells Fargo’s financial strength

This product is used in conjunction with your marketing plan. Call a Wells Fargo Ag Banker today to discuss is this product is one for you.

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Wells Fargo Bank Ag Lenders

Austin - Dwight Jorgensen 507.434.9442Dodge Center – Wally Thomas 507.374.8703Faribault - Art Madsen 507.332.6350Owatonna - Mike Bahl 507.455.7518 Rochester - Paul Baessler 507.285.2816

We appreciate the opportunity to support today’s Seminar and look forward to helping you reach your Next Stage of financial success.

Enjoy your Lunch