From the Fields: Adding Another "C" to Ag Banking Terminology
By Darla Sikora, Sr. VP-Agricultural Banking-Citizens State Bank of Loyal
As Ag Bankers in the State of Wisconsin, it’s a pretty safe bet that most of us have a fair number of dairy loans in our portfolio, along with crop, and perhaps some cattle loans. With the third consecutive year of challenging commodity prices behind us and the high likelihood that we are heading into year four of more of the same, we’ve got our work cut out for us on many levels. Besides the usual responsibility of making credit decisions, balancing risk and reward to both the bank and borrower, it seems “counseling” has taken center stage in many situations.
Often we have heard of the 6 “C’s” of Ag Credit, including Capacity to Repay, Capital, Collateral, Credit History, Conditions, and Character. At the recent ABA National Ag Bankers Conference in Milwaukee, Dr. David Kohl talked of the 3 “C’s” of Ag Lenders: Calculate, Critique the Calculations, and Communicate. Dr. Kohl’s phrase, “feelings are for lovers, not for lenders,” serves as a reminder to us that numbers really do matter and correctly analyzing, critiquing, and understanding both farm and personal balance sheets, as well as income/expense and profit/loss reports, is of utmost importance in making correct credit decisions.
These days it may be time to add yet another “C” to the ag banking terminology, with that being Counseling. In my neck of the woods, there has been a considerable uptick in the numbers and depth of on-farm Team Meetings. In many cases, these meetings involve the farmer(s), farm family, accountants, attorneys, financial planners, perhaps the nutritionist, agronomist, and veterinarian, and of course, the lender. These meetings are a good thing because they mean the producer is willing to communicate. Strategies for the future consistent with productivity, profitability, and oftentimes, farm transfer are discussed. At the same time, these meetings are often high-stress, due to financial challenges and the intensity of emotions involving family farm businesses. Regardless, lenders play an important role in team meetings and it’s a great way to stay abreast of the situations and circumstances our customers are facing.
With the loan renewal season quickly approaching, it’s more important than ever that, as part of our “customer counseling,” we work to communicate and to help our borrowers really understand and get a good handle on their own financials. A better understanding of their balance sheets, net worth, and both past and projected cash flows and trends can help the borrower to be better prepared to make correct decisions going forward. The hope is that a more thorough understanding of the numbers can remove some of the emotion and stress of farm business decision-making.
A customer once said lenders hold the “purse strings” on agricultural enterprises. Although we spend a great deal of time calculating, critiquing, communicating, and counseling, we don’t want to lose sight of how fortunate we are to have occupations directly connected to America’s agricultural industry. Like Orion Samuelson, the well-known WGN Farm Broadcaster does, we too might end each day with this prayer: “Thank you, God, for America’s farmers and ranchers: the people who put the food on my table, clothes on my back, a roof over my head and energy in my tank.” With farmers and ranchers making up less than 2% of the country’s population, and with this number shrinking by the day, as ag bankers it is both an honor and a privilege to work with the most important minority in the world.