Uncertainty and Volatility in Global and Domestic MarketsRobert B. EngelPresident & Chief Executive Officer
December 6, 2010
2
Bulls vs. Bears
Strong growth inemerging economies(China, India, Brazil)
Weaker growth inmature economies
(U.S., Europe, Japan)
3
Global Demographics
Neutral to negative Negative
Positive
4
China Growth
City of Shenzhen, China
U.S. GDP
U.S. GDP Growth – 2005 to Present
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
GDP growth has been positive but ane-mic since 3Q09
Source: U.S. Bureau of Economic Analysis
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Consumer Headwinds
Unemployment
Weakness in labor income
Weakness in consumer balance sheets Equity values Home prices
Households are stillde-leveraging
7
Business/Investment Headwinds
Unused capacity Manufacturing Employment
Slow demand
Increased productivity
Limited credit availability for small businesses
8
Government Headwinds
Tax receipts are down well below pre-recession levels
State and local governments must cut spending and/or reduce tax rates
State & local spending is 2X federal spending
9
Headwinds – Politics at Play
Legislative and regulatory uncertainty
Full consequences of major new legislation are still unknown Health care reform Financial regulatory reform
10
Fundamental Issues – Competitiveness
Serious challenges to U.S. economy from countries that previously supported our standard of living
U.S. competitiveness bolstered our economy High-paying jobs Wealth for shareholders Drove a higher standard of living
11
Fundamental Issues – Consumer Response
U.S. consumers responded by borrowing to maintain a standard of living they felt entitled to
Borrowing went from 80% of income to 160%
You can’t borrow your way to prosperity!
12
Fundamental Issues – Policy Response
Fed lowered rates 7 years ago to keep growth going
Too many houses vs. efficient plants, factories & infrastructure
Policy response doesn’t address the underlying issue of competitiveness
Debt shifted from private sector to public sector
Little impact from stimulus
Supply of money vs. velocity of money
Health care and the growing entitlement burden
13
Fundamental Issues – Banking System
Excess capacity
Banks took on more leverage and risk to drive share price
Current policies don’t address this problem
Low interest rates are subsidizing bank earnings and encouraging an oversized system
14
Fundamental Issues – A Diminished Fed
Fed no longer viewed as a powerful institution
Role is to maintain employment and moderate inflation 9.6% unemployment and
signs of deflation
Decreased ability to influence investor confidence
15
Fundamental Issues – Leadership
Leaders have not been willing to address the deficit and demonstrate financial discipline
Politically motivated decisions
Delaying the day of reckoning
16
Implications for CoBank and Farm Credit
Elevated political risks & continued debates about GSE status
Access to funding remains robust
Building organizational capacity to deal with volatility and uncertainty
Earnings build capital and fund patronage
Both CoBank and the FCS remain financially strong
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American Agribusiness:A Sustainable Competitive Advantage
Global population will reach 9 billion people by 2050
Limited land available for increased production
U.S. remains the world leader in terms of food quality, efficiency,safety and nutritional value
Demand for high-quality agricultural products will continue to increase
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American Agribusiness:A Sustainable Competitive Advantage
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