At a recent ag lending event, a line from a seasoned lender got stuck in my head, "For generations, 'tough times on the farm' meant that the poorer producers were knocked out of business. Now, it’s the poorer managers that get knocked out of business."
In other words, a farmer can no longer produce their way through times like these. They need to manage their way through. This means a change in mindset, for farmers and lenders, from what we have always done, and using the information that is often available at our fingertips.
Shortly after that event, I had a meeting with a struggling farm client at which I was presented a veritable mountain of information – literally pages upon pages of numbers, averages, and ratios – that was impressive but absolutely meaningless to the person handing it to me. Why did they bring all this stuff, if they didn’t even know what it was? Why did they think I wanted it? What did they expect me to do with it? I received the paperwork, then we spent the rest of the time talking about the cows, the weather, and the markets. Multiple times, I heard “it’s got to get better.”
THIS is what that seasoned lender was talking about. We had fallen back into old habits, and never even looked at the stack of paper on my desk. The financial information was just another commodity that had been produced. That’s a problem.
In the past, our discussions with (and about) our farmers focused on things like milk production, crop plans, and land values. That’s the fun part of the job, talking about operations and plans. We collected this information to help our banks make decisions. That hasn’t changed, but there must be more to it. It’s not enough to simply produce and collect information. How do they use this information to manage their operations and businesses? How do we use it to make prudent lending decisions?
The farmer cannot simply put his head down, “grind it out,” and focus on producing milk, corn, or information - they must be able to understand, analyze, and use information to make decisions for the health and future of their business. They also must be prepared to answer tough questions and willing to make tough decisions if necessary - not just wait for good weather and better prices.
Likewise, we cannot simply collect information and expect to get through the tough times. We must be able to understand, analyze, and use it to make decisions for the health of our clients and our banks. We must also be willing to ask tough questions and have tough conversations if necessary, not just wait for things to get better.
The success of our farmers and our banks depends on everyone having a change in mindset, and viewing all the financial information as a tool, not a commodity.
Matt Towns is senior vice president of agricultural banking at DMB Community Bank in DeForest and serves on the WBA Agricultural Bankers Section Board.