2021 Is Looking up for Farmers, Ag Bankers

Wisconsin farms generally have fared well through the first half of 2021, as higher prices for products, increased exports to China, and pandemic payments have provided a financial boost.

Although a dearth of precipitation during spring and much of early summer has caused some nervousness in the southern half of the state, recent and expected rain could lessen those concerns.

As always, Wisconsin bankers said, it’s important to stay well-connected to their ag clients to monitor the ebb and flow of farming – even when things are mostly looking up.

“Overall the farm economy is what I would call steady and improved,” said Amber Keller, senior vice president and director of ag banking for Town Bank in Clinton. “It’s improved from the standpoint that we have a lot of opportunity to lock in a profit this year, even into ’22.”

The state is coming off a year in which many farms saw strong earnings because of a good growing season and government stimulus money intended to aid businesses and farms during the Covid-19 pandemic. The previous five years were a struggle for many farmers.

“It seems like right now for the most part we’re in a demand market,” said Bradley J. Guse, senior vice president/agribusiness banking for BMO Harris Bank in Marshfield. “By that I mean the agriculture products are in demand for various reasons. Part of it is that China has imported a lot of things as they rebuild their hog industry. That is starting to take more and more product, whether it be corn or soybeans."

China also is buying products from dairy farmers, particularly whey protein to feed piglets.

"As that industry rebuilds that pipeline has had to get refilled, so that’s created some excess demand," Guse said.

Pork output in China declined 21% in 2019 after an outbreak of African swine fever hit the country and its breeding stock declined. The downturn lingered into 2020.

As China builds back with a new model, “It appears some of this is going to be pretty sustainable, not just filling the pipeline,” Guse said.

Dairy farms also could benefit from a growing appetite for “cheese tea” in China and elsewhere, Guse said.

According to The Dairy Alliance, cheese tea, also called milk cap tea or cheese mousse tea, is a cold tea topped with a foamy layer of milk, sweet or salty cream cheese, and whipping cream sprinkled with sea salt. The tea itself typically is green or black tea.

Cheese tea was first seen in Taiwan 11 years ago, with market vendors combining powdered cheese, milk, and salt with whipping cream to form a foam to top cold tea, The Dairy Alliance said in an article on its website. In 2012, the trend made its way to China, which swapped the powder for real cream cheese and fresh milk, the dairy organization reported.

Nicholas Felder, vice president of commercial/ag banking for MidWestOne Bank in Lancaster, said farm exports to China have increased, especially since the U.S. elections. In addition, government aid has been helping Wisconsin farmers.

“The federal stimulus funding from last year into the spring, and then higher commodity prices the last half of last year and first half so far this year, has really strengthened some balance sheets,” Felder said.

Keller said low interest rates and stronger land values also are factors in a healthier outlook for farms right now.

“Those low interest rates really keep things stable out there, and the outlook is stable for a while yet, until we know which way our economy is tracking in terms of inflationary concerns,” Keller said.

Keller said land values have been rising.

“That buoys the farmers’ balance sheet so when he goes to his banker to borrow money, he has borrowing power,” she said.

The dry weather in much of spring and June in the southern half of the state has made some farmers wary, but it’s not considered a major hindrance to a good growing season yet, ag bankers said. Rainfall over the weekend and storms expected this week could mitigate that concern.

“As a whole it’s dry but the crops still look pretty good,” Guse said.  "I always feel like the biggest crops we have in Wisconsin usually happen when we have a dry spring because it drives the roots deep, and then if we get some timely rains later on to get the crop going, we get some really good-sized crops.”

A map from the National Drought Mitigation Center showed that as of June 22, more than half of Wisconsin – largely the southern half of the state – was considered to be in a moderate drought. The worst-hit areas were in the extreme southeast and the lower southwest. The precipitation last week and early this week (week of June 27) is expected to reduce short-term dryness, but additional soaking rains are needed to alleviate the drought, the federal weather agency said.

A drought would be particularly concerning to farmers who might not be able to grow their own feed crops, and then would have to buy them at a time when prices are up, Felder said.

“Soybean meal has gone from $290 a ton to $430 a ton. Corn is up from a little over $3 a year ago to $6.50 today,” he said. “You’re seeing the user – the consumer of crops – have a little more furrowed brow because they aren’t sure of what’s next. If they don’t get a crop and they have to buy to replace a short crop, they’re going to be paying significantly higher prices than they would have a year ago.”

The timing of the rainfall is important, ag bankers said.

“Corn is typically pollinating in July and soybeans are typically seeding pods in August – the little bean is filling the pod,” Keller said. “It needs rain during August to fill those pods so that there is a bean of a size that is saleable. So we do need timely rain in July and August to make this crop.”

The dryness this spring and early summer did result in some “hay hoarding” – sellers hanging on to reserves until the weather picture becomes clearer.

“Farmers will harvest typically four crops of hay in a summer. Corn and soybeans, you harvest once a year, where with hay, we’re taking four cuttings off of that field,” Keller said. “And if we don’t get rain, we don’t get much in a cutting. And if we don’t get much hay in one or two cuttings, now our hay is half of what it was in any other year.”

If a drought is serious and farmers are stressed, bankers have a lot in their tool box to help them get through it. But farmers need to take steps on their own, such as buying crop insurance and marketing their products well, to make sure they succeed.

“Proactive wins,” Guse said. “If were sitting to wait for a loan to go bad before we try to collect it, we’re probably too late.”

Said Keller: “We really look at all remedies that make sense. But at the end of the day, the client still needs to be operating a viable enterprise and using a viable business model where we can say, yes, this operation is going to be successful long-term and they just hit some bumps in the road here.”

Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at paul.gores57@gmail.com

By, Ally Bates