Ag Banking During the Pandemic

After an uncertain 2020 in which government assistance boosted farmers financially and many projects were put on hold, Wisconsin bankers saw an increase in borrowing by their agriculture customers this year. 

For some farmers, however, the focus may be more about reducing debt than borrowing to expand or modernize. Together, these factors have ag lenders balancing a mixture of optimism and caution as they head into spring. 

Plans for expansion and purchases stalled last year when the COVID-19 pandemic left farmers wondering how badly the economy would be impacted, said Chris Schneider, vice president – agricultural banking for  Investors Community Bank, Manitowoc, and vice chair of the WBA Agricultural Bankers Section. Then, when government aid became available, farmers were able to use that money for operations instead of tapping their banks for traditional lending.

Total farm loans – loans to finance agricultural production and other loans to farmers – by Wisconsin-based banks dropped almost 9% to $3.5 billion in 2020 from more than $3.8 billion in 2019, according to Federal Deposit Insurance Corp. data.

Part of the reduced lending in 2020 might also have reflected the overall reduction in dairy farms that has taken place over the last few years, said Jeff Gruetzmacher, senior vice president at Royal Bank, Lancaster, and current past chair of the WBA Agricultural Bankers Section. 

“Looking around Wisconsin, I think some of that had to do with still working out some of the people that were exiting from the dairy business,” Gruetzmacher said. 

Today, some farmers are starting to move forward on projects they planned for last year but held off because of the uneasiness caused by the pandemic. 

“There should be some improvement in lending this year,” Schneider said. 

Despite the pandemic, 2020 turned out to be a solid year for many Wisconsin farmers, bankers said. 

“We’re coming off probably one of the better years since 2014 in the dairy industry,” said Schneider, whose bank operates in about 60 counties. “Crop conditions were much better also. Most areas in Wisconsin had a very good yield in their crops, plus the fall harvest was a lot easier because it wasn’t wet.” 

Darla M. Sikora, senior vice president– agricultural banking for Citizens State Bank of Loyal and chair of the WBA Agricultural Bankers Section, said 2020 was a very good growing and harvesting year for crops, including forage crops and row crops like corn and soybeans, in her central and north central Wisconsin market. 

“Not only were the crops bountiful, but prices for these commodities improved later in the year as well and are continuing even stronger here into 2021,” Sikora said. 

Sikora said the year ended with a record low stock of soybeans and a near-record low of corn, which has helped drive up prices this year. 

Government support in 2020, especially Coronavirus Food Assistance Program payments, greatly alleviated the need to borrow operating funds from banks. But without that additional government assistance this year, more farmers “will once again have to rely on their lenders if they need money to operate,” Sikora said. 

“2021 may see a bigger need for operating money than was required from banks in 2020,” she said. “With milk prices at a ho-hum sort of level coupled with potential higher costs to operate, more farmers may need to access bank capital to help pay bills. I do not see any large demand for bank money to grow and expand operations.” 

Dairy farming expansion could be limited by product demand from processors, bankers said. 

“Probably the biggest factor to restricting any expansion moving forward is these processing plants don’t want any more milk,” Schneider said. “They want to stay with the status quo on what they’re getting from their producers.” 

Sikora said building material costs, such as lumber and steel, also may be a hindrance to some farmers who’d like to expand. 

“Building costs have ratcheted up considerably,” she said. 

Sikora added: “Right now, one of the biggest goals my customers have in the present economy is to reduce debt – not to take on more.” 

Gruetzmacher said he sees things lining up for a more prosperous year for farmers, such as product prices, land values, and a weaker dollar. That makes him optimistic about lending. 

“Last year a lot of farmers did better than what we expected. I would say coming into 2020 pre-COVID, we kind of had some worries about the year,” Gruetzmacher said. “But as the year went along, especially when we worked through a lot of the market disruptions and supply chain disruptions, things ended up looking rosier mid-year and at the end of the year. Now as we’re coming into 2021, milk prices don’t look all that bad. And of course, the grains look spectacular.” 

As prices languished prior to 2020, maintenance was deferred at some Wisconsin farms, Schneider said. 

“There’s a lot of catching up that’s going to have to happen in the good years,” he said.

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, Alex Paniagua