I’m pleased to report Frontier Farm Credit had a very good year in 2011!
Accrual loan volume increased approximately 7%, credit quality improved to over 97%, crop acres insured increased by 28%, business services (tax, accounting, business planning) customers increased by 14% and net income by over 31%. A very good year overall!

Income is positive and we are financially strong
Net income from patronage-sourced income totaled nearly $23 million in 2011, permanent capital is at 14.97%, and our net worth increased to over $261 million. Increased net income came from increased volume and related services income and not at customer expense, as we again were able to lower our average loan rates by more than 1/4 percent on average with many customers taking advantage of historically low fixed rates for real estate, machinery and equipment.

Patronage at a new high in 2011
Positive Association results yielded increased customer patronage. Our board of directors approved $6 million which is approximately 25% of 2011 patronage-based earnings to be paid in patronage the first quarter of 2012. Since beginning the patronage program in 2005, our Association has returned $31,650,000 of net earnings to our customers.

Changes for 2012 – U.S. AgBank mergers into CoBank, which is now our funding Bank
Effective 1/1/2012 our wholesale funding source, U.S. AgBank, merged into CoBank. We are fortunate to have had a long standing relationship with CoBank for funding and loan participations and are very positive about the changes that will enable us to enhance service to customers.

Frontier Farm Credit joins AgDirect, LLP
Effective 1/1/2012 Frontier Farm Credit joined AgDirect, LLP, a national farm equipment financing option available through Farm Credit. AgDirect is an extremely convenient and competitive machinery financing option available at local dealers. Several of the dealers in our territory are already offering AgDirect. If you are in the market for machinery or equipment ask your dealer if they offer AgDirect. If not, encourage them to do so and contact your local office to have our staff introduce the AgDirect option to the dealer.

Enhancing value to customers – Vision 2015
Our industry is dynamic and that demands a lender that keeps pace. Marketplace Advisory Council feedback has accentuated the “need for speed” in loan decisions, and we have teams focused on changing processes to meet that expectation for all lines of our business. Vision 2015 has set a goal of $1.5 billion in accrual volume ($1.335 billion today), increasing crop insurance acres to 680,000 (243,000 today), and business services customers to 900 (607 today).

Leadership Focus
We began Frontier Forward as an initiative in October of 2010 to be implemented in three phases. The first to establish regional leadership focus, the second to improve processes for customer service, and the third to provide strategic focus for all lines of business. Effective January 1, 2012, we have implemented phase three to align strategic leadership for all lines of business. Clarke Jackman will be the strategic leader for all related services leaders, and Jim Aylward will be the strategic leader for all regional lending team leaders. They will be working with local teams to provide customer solutions that meet or exceed customer expectations.

We appreciate and thank you for the opportunity to earn your business! Have a great 2012!

The spring prices used to calculate your policy guarantees were $6.01 on corn and $13.49 on soybeans. With these prices in mind, it has not taken a huge bushel loss to exceed the $100,000 mark. This threshold, set by the USDA Risk Management Agency (RMA), requires all insurance companies to complete an Actual Productiion History (APH) Audit of the three previous years’ production. This is performed by crop and by county and includes any harvest price payments that may be made. Frontier Farm Credit has helped a number of producers the last couple years by scanning and storing their records for future use, such as an audit, and for off-site protection of the records. Frontier Farm Credit’s Crop Insurance Team has the knowledge, technology, mapping and on-farm services to deliver timely, exceptional service.

The projected price on 2012 wheat was set at $8.62 per bushel. This gives the wheat producer an opportunity to buy the guaranteed dollars needed to cover the input costs.

Also, be sure to report all of your 2011 wheat production to maintain your APH and unit structure. Wheat production must be reported by November 14, 2011, for production to count for your 2012 wheat.

Keep in mind all losses must be reported in a timely manner by crop and county. Let your Crop Insurance Specialist know if you have a loss or suspect a loss by calling our cell numbers or our toll-free crop insurance line, (888) 598-8329. This line is available 24 hours a day, seven days a week.

We look forward to visiting with you about your risk management needs and hope you have a safe harvest.

Frontier Farm Credit appreciates your business.

Your Crop Insurance Team
Phone Toll Free 24/7
1-888-598-8329

Frontier Farm Credit is an Equal Opportunity Employer

Deferral of Crop Insurance Farmers interested in deferring crop insurance proceeds must have a normal business practice of typically deferring the sale of crops to the following year. The IRS guideline on normal business practice is that 50% or more of the crop sales must normally be deferred into the following year. Each crop is examined on an individual basis. It is important to note that if you are eligible to defer your crop insurance proceeds, all of those proceeds from that eligible deferred crop must be deferred. There are specific guidelines on what type of insurance is eligible for deferral. Farmers are not eligible to defer crop insurance proceeds related to the revenue portion of crop protection insurance. If you received insurance proceeds related to both, only the portion associated with the weather related event is eligible for deferral.

Note there are very specific rules for crop insurance that can throw your farm out of compliance including: Name or federal ID number changes, changes in entity structure or ownership and marketing grain in a different name than your crop insurance is under. Consult your Frontier Tax Specialist and Crop Insurance agent for details.

Drought Sale of Livestock
There are three tax rules in place that guard against tax problems caused by a forced sale of livestock. The first provision allows cash basis farmers a one-year deferral of income if the taxpayer operates in an area that has been declared eligible for federal assistance. This one-year elective deferral is available only if the farmer establishes that, under his usual business practices, the livestock sale would not have occurred but for the weather conditions that resulted in the area being designated as eligible for federal assistance. Secondly, the tax code allows for the postponement of any capital gain from the sale of breeding stock when the producer intends to replace the livestock at a later date. The replacement period may be as long as four years if the taxpayer resides in an area declared eligible for federal assistance. If the taxpayer resides in an area that is not eligible for federal assistance, the replacement period is two years. Thirdly, if it’s not feasible for a taxpayer to reinvest the proceeds from the forced sale of livestock due to drought, they can buy other property used for farming purposes and still qualify for non-recognition of income under the involuntary conversion rules. However, the replacement property can’t be real property (examples of real property include land, buildings, driveways, etc.).

Tax law and business planning can be complicated. We at Frontier Farm Credit specialize in rules that apply to agricultural farm and ranch taxation. Contact a local office to work with a Business Services Specialist.

Business Services
an Individualized approach to Business Planning.

Grain Facilities: Frontier Farm Credit’s pricing special combined with simple collateral requirements and 100% financing worked great this year on grain facilities. A couple of situations even allowed the younger generation to put a bin or bulk seed system on land they did not own without encumbering that land.

Buildings – Large and Small: Frontier Farm Credit leased a wide array of buildings this year. Customers have enjoyed the simple collateral structure of these leases. Customers were able to finance 100% of the project without mortgaging the property. Additionally, a 1% rate discount was offered to customers who did not need to write the building off in 2011. They still were able to accelerate the write-off and had a much cheaper rate.

Chemical or Fertilizer Applicators: With the price of these machines well into six-figures, our strong residual helped meet the cash flow of the customers so they have less out-ofpocket costs each year.

Pickups: Through the FleetPartner program, Frontier Farm Credit helped our customers receive almost a twenty-percent discount on the purchase price of a pickup. Although customers ultimately want to own this pickup, this discount along with lease rates under four percent allows them to own the vehicle with less cost.

When it comes to government spending and support for farm programs, it is simply a case of “too many ticks and not enough dog”. The pain of working our way out of the national debt will be felt in every segment of our society and across all economic industries. As always, uncertainty in the economic and political environment will add volatility to the agricultural industry for producers. Risk management is a skill that producers will be required to utilize while employing the tools that are available.

At the time of this writing, the equities markets seem to be straddling the fence between the belief that a recovery must be on its way versus the realization that there are numerous issues that must be addressed before any real progress can be made with this economy. Commodity markets will continue to be influenced by the value of the dollar as well as macro supply and demand forces. Bond prices and interest rates are being shaped by a Federal Reserve policy that includes extending the duration of its investment portfolio in an attempt to “twist” the yield curve to bring longer-term rates down. There appear to be few additional tactics that the Fed can use in their commitment to provide low rates and liquidity for the markets.

At Frontier Farm Credit we offer a team of experts in the areas of financing, insurance, record keeping and tax preparation. Farm Credit is your full financial service provider in these turbulent and uncertain times.

Frontier Farm Credit is part of the $180 billion Farm Credit System. The system formed in 1916 and today is the oldest and most successful GSE (Government Sponsored Enterprise). Started with government seed money, all government funds have long since been repaid and the Farm Credit System today is a totally private cooperative funded through the national money markets and governed by a customer-elected board of directors.

This year we celebrate the 95th anniversary of the founding of the Farm Credit System that began when President Woodrow Wilson signed the Federal Farm Loan Act on July 17th, 1916. The seeds of the Farm Credit System were planted by President Theodore Roosevelt in 1908, when he appointed a Country Life Commission to address the problems facing a predominantly rural population.

The commission’s report documented a lack of adequate agricultural credit, where a farmer could readily secure loans on fair terms. After extensive analysis of other nations’ rural credit systems Congress landed on a cooperative credit delivery method based largely on Germany’s Landschafts, which had operated since 1769 and appeared to be the most successful of the various European cooperative ag-credit systems. The first real estate loan in the country actually occurred on April 10th, 1917, in Kansas. Another first for our great state of Kansas! You will find a Kansas Historical Marker just outside Larned, Kansas, denoting the loan on 280 acres of collateral owned by farmerstockman A.L. Stockwell.

Just think about the dramatic changes that have occurred since then! In 1916 farmers made up 31% of the US population of approximately 92 million. Today farmers are less than 1% of the approximately 309 million in US populations. With 922 million acres of farmland (only 5% more than cultivated or grazed in 1916), US farmers today feed over three times the US population and still export a significant amount of food to the rest of the world.

Agriculture has undergone a truly revolutionary and amazing increase in technology and farming practices over the last 95 years to be able to produce the quantity and quality of the safest food supply anywhere in the world. A number of countries are implementing modern US production methods to meet the demands of their population for more and better food. Today agriculture is positioned to meet the challenge put forth by the Federal Accounting Office report calling for an overall 70% increase (nearly 100% in developing countries) in food production needed to feed the estimated 9 billion world population by 2050.

Our customer surveys and Marketplace Advisory Councils tell us our customers need more than just money. They want to do business with someone they can trust who knows and understands their farm, ranch, or agribusiness operation. They seek a provider that is dependable, consistent, competent, that offers competitive, quality products and services. Customers appreciate professionals who care not just about how the business is doing, but also about their family and want to help them succeed in meeting their dreams and aspirations.

The Farm Credit System and Frontier Farm Credit as a part of that System has been here 95 years to meet that challenge and opportunity to serve. When we formed Frontier Farm Credit on January 1st, 2001, we made a promise to be there for our customers Side-by-Side. Season-by-Season. Thank you for your business and the trust you place in our Association and please celebrate with us the 95 years of service provided to rural America by the Farm Credit System.

The first provision allows cash basis farmers a one-year deferral of income if the taxpayer operates in an area that has been declared eligible for federal assistance. This provision could be helpful to a taxpayer that sells a livestock crop in 2011 that would normally be marketed in 2012. This one-year elective deferral is available only if the farmer establishes that, under his usual business practices, the livestock sale would not have occurred but for the weather conditions that resulted in the area being designated as eligible for federal assistance.

Secondly, the tax code allows for the postponement of any capital gain from the sale of breeding stock when the producer intends to replace the livestock at a later date. The replacement period may be as long as four years if the taxpayer resides in an area declared eligible for federal assistance. If the taxpayer resides in an area that is not eligible for federal assistance, the replacement period is two years.

Thirdly, if it’s not feasible for a taxpayer to reinvest the proceeds from the forced sale of livestock due to drought, they can buy other property used for farming purposes and still qualify for nonrecognition of income under the involuntary conversion rules. However, the replacement property can’t be real property (examples of real property include land, buildings, driveways, etc).

Hopefully, you will never need to use these provisions. However, in the unfortunate event that you do need to utilize them, we can help you plan to choose which provision or provisions will provide the maximum benefit for you.

If you have any questions regarding the forced sale of livestock due to drought, please contact your Tax Accounting Specialist.

There are specific guidelines on what type of insurance is eligible for deferral. Farmers are not eligible to defer crop insurance proceeds related to the revenue portion of crop protection insurance. If you received insurance proceeds related to a Revenue Protection (RP) policy, you may not be eligible to defer. Farmers may still continue to defer crop insurance proceeds related to qualifying weather related events like droughts, floods, wind, hail, or frost. Farmers must incur a physical loss of yield from a weather related event in order to defer the income. If you received insurance proceeds related to both, only the portion associated with the weather related event is eligible for deferral.

If you have any questions regarding the deferral of your insurance proceeds, please contact your Tax Accounting Specialist.

“With the exceptionally hot and dry summer we have been experiencing, the presence in aflatoxin in corn is becoming a bigger concern,” said Eric Wiles, Crop Insurance Specialist with Frontier Farm Credit. “It is important to call your crop insurance agent if any presence is suspected.”

For production that will be stored on the farm or in commercial storage, the appropriate samples must be obtained by the adjuster (or a trained disinterested third party approved by the crop insurance company) prior to the production entering storage, because aflatoxin has the potential to increase in stored production. Other substances or conditions may also have the potential to increase in storage. If appropriate samples are not obtained prior to storage, such production will not be adjusted for quality due to a substance or condition injurious to human or animal health.

Checklist for an aflatoxin adjustment:

• Check fields
• If aflatoxin is suspected, contact your insurance agent to turn in claim (do not store until tested)
• Tell adjuster of aflatoxin concerns
• The adjuster will pull samples from field and send to an approved laboratory for third party testing
• If the level of the aflatoxin in the production is at a high enough level to qualify the production for quality adjustment, the production to count will be adjusted for quality.

The RMA discount factors for Aflatoxin are:
20.1—50.0 ppb = .100 Reduction to Yield
50.1—100.0 ppb = .200 Reduction to Yield
100.1—200.0 ppb = .300 Reduction to Yield
200.1—300.0 ppb = .400 Reduction to Yield
300.1 ppb & above = .500 or 0 factor. Reduction to Yield

A Frontier Farm Credit crop insurance specialist can be reached 24-hours-a-day, seven-days-a-week by calling (888) 598-8329.

With a world population projected to grow to 9 billion in the next 30 years, the industry of agriculture needs to improve productivity and efficiency to be able to feed the expanding population. There is nowhere else on earth that has the combination of resources and infrastructure to accomplish that growth than here in the United States. I can think of no more noble cause than to feed and provide for the world.

To continue to be relevant and the dominant provider of financial services to agriculture, the Farm Credit System and Frontier Farm Credit specifically need to be better, faster, and more agile. When we launched “Frontier Forward” in the fall of 2010 we asked — indeed challenged — our employees to re-design and reinvigorate our company to serve customers better.

Our ability to serve rests also in the financial strength of your cooperative. Growth to date has been good. In April, we disbursed $4.75 million in patronage to customers. In addition to the financial return via patronage to customers, the association is making additional investments. We are investing in people through critical hirings to provide expertise to customers. We are also investing in facilities to house additional experts in the Hiawatha and Manhattan regional locations.

We view 2011 and beyond as exciting, volatile, and full of opportunity for those positioned for success. We appreciate and value your business and thank you for the opportunity to earn your business each and every day.

We are Frontier Farm Credit: “Side by Side – Season by Season.”