Tag Archive for: Agricultural Banking

By Matthew Hartmann

The 2024 ABA Agricultural Bankers Conference took place at the newly renovated Baird Center in Milwaukee from November 12th to 15th. With the recent election and ongoing challenges in the agricultural industry, there was a great deal for attendees to discuss.

Members of the ABA’s congressional relations team, Blake Earley, Chris Fisher, and Kirsten Sutton joined ABA’s SVP of Agricultural & Rural Banking, Ed Elfmann, to discuss the impact of the recent election results on banking policy. They noted that the GOP’s control of both the House and Senate could benefit bank-friendly policies. The panel emphasized their role in making every banking priority as bipartisan as possible and discussed the need for strategic advocacy to ensure banking priorities are considered, regardless of which party holds power, as control could flip in two years. Regarding the new Farm Bill, Elfmann noted that there is a slim chance of a vote being included in the lame duck session. He suggested that another extension is more likely to give the Senate time to work on a five-year bill, as the House already has its version, and he doesn’t anticipate much change there. He also provided an update regarding the Access to Credit for our Rural Economy (ACRE) Act, explaining that it will likely be included in tax legislation outside of the lame duck sessions and that including it in tax reform is the best vehicle to move it forward. He mentioned that significant progress has been made, with more Democrats supporting the plan than ever before. However, with Sen. Jon Tester losing his seat in Montana, they might need a new supporter from the minority party in Congress. Elfmann stressed the importance of advocating to key Senate members to support this plan and making sure farmers understand how it will help them. ACRE would enable access to more affordable real estate credit for farmers, ranchers, and rural families by granting banks that serve rural communities the same tax-exempt status on certain earned interest as the farm credit system, allowing banks to offer lower interest rates to farm real estate borrowers and rural homeowners.

The pre-conference workshop, “Buckle Up. Turbulence Ahead.,” set the tone for the conference by highlighting some challenges producers will face in the coming year. Net farm income is projected to decline for the second consecutive year due to continued pressure on prices and higher interest rates. Equipment prices are softening, and in some areas of the country, real estate values have begun to plateau. Reviewing asset valuations with clients to prevent overleveraging and preserve working capital will be crucial. With average interest rates above 8% for the first time in nearly two decades, moving debt down the balance sheet to replenish working capital may be more challenging than it was between 2014 and 2019 when the yield curve was flat. Dr. Kevin Bernhardt’s (Professor, UW-Platteville School of Agriculture) presentation, “Impact of Rising Interest Rates,” was a valuable supplement, reiterating the impact of increased borrowing costs, decreased net farm income, and a slowdown in farmland value growth.

He noted that 35% of agricultural bankers report tightening credit conditions and a rise in Chapter 12 bankruptcies. Lenders anticipate ongoing cash flow challenges resulting in delayed capital expenditures and increased demand for refinancing, while emphasizing the need for greater efficiency and risk management. Bernhardt recommends strategic financial planning, including budgeting for capital expenditures with interest rate contingencies, stress-testing leverage multipliers, and cautious debt restructuring to avoid deadweight debt.

With challenges ahead, there was an emphasis on the importance of building strong business relationships and focusing on cash flow management to help clients navigate these times. In his presentation, “Better Communication, Stronger Relationships,” Vernon Roberts (Executive Coach, Extraordinary Communications) highlighted the importance of enhancing communication skills to build stronger relationships. He emphasized that strong relationships are built on the ability to ask thoughtful questions and answer challenging ones. He noted that empathetic communication and strategic questioning are crucial for fostering better relationships and effectively handling challenges. Scott Sartor’s (Founder/CEO, Croptell) “The Hero Ag Lender: Modern Cash Flow Education” and Anthony “Tony” Hotchkiss’s (Retired Ag Banking Executive) “Farm Financials: What Bankers Need Their Producers to Know” both stressed the importance of strong partnerships between bankers and producers, while underscoring the critical role of proper financial management. Sartor focused on leveraging technology and data to assist in the vital role that loan officers play in guiding farmers through financial challenges and supporting sustainable operations. Hotchkiss highlighted the importance of understanding farm financials, including key financial statements, cost of production, and the impact of capital expenditures, to ensure financial stability and growth.

In their presentation “Swift Signs in Agriculture,” Jessica Lehman (Managing Director, First Financial Bank) and Zach Allen (Senior Director, First Financial Bank) drew parallels between Taylor Swift song lyrics and stressed credit scenarios to highlight the importance of identifying red flags in character, financials, loan covenants, and agricultural cyclicality to manage troubled assets and limit bank risk. Jennifer Lurken (Partner, Gislason & Hunter, LLP) and Michael Dove’s (Gislason & Hunter, LLP) presentation, “Identifying and Protecting Against Hidden Liens and Lenders,” discussed understanding and managing various agricultural liens to protect financial interests and ensure priority in the event of debtor default or liquidation. Both presentations provided practical advice for agricultural bankers to mitigate risks and manage their portfolios effectively.

Organizational culture was also a key topic, highlighting its significance in shaping workplace environments and overall success. In “Building & Sustaining Strong Cultures in Banking,” Nate Franzen (President, Ag Banking, First Dakota National Bank), Lynn Paulson (SVP, Agribusiness Development, Bell Bank), and Alan Hoskins (President and National Sales Director, American Farm Mortgage and Financial Services) discussed the need for organizations to adapt to new challenges, understand cultural influences, address toxic elements, and maintain core values. Casey Merkwan’s (Community Market & Engagement Manager, Old National Bank) presentation, “Merging Bank Cultures for a Seamless Transition,” underscored the importance of understanding cultural differences, promoting transparency, and the role of leadership in ensuring effective communication and strong leadership during mergers.

This year’s keynote speakers brought a diverse array of experiences and insights, captivating the audience with their unique perspectives. In his 47th conference appearance, Dr. David Kohl, as

always, was able to keep the room engaged while discussing an agricultural industry outlook reminiscent of the 2013-2020 down cycle. Natalie Bartholomew, a seasoned banker and community president, is known for her advocacy for women in banking through her platform, The Girl Banker. John Wesley Boyd, Jr., a fourth-generation farmer and civil rights activist, founded the National Black Farmers Association. He shared his experiences working extensively with national and international leaders to fight the discrimination many black farmers have and continue to face. Craig Culver, co-founder of the Culver’s restaurant chain, shared his journey from a family-owned restaurant to a successful franchise with nearly 1000 locations. Retired Rear Admiral Scott Moore, with 30 years of experience as a SEAL leader, offered insights into leadership and tactical planning from his time leading elite military forces, which includes leading a mission later portrayed in the Tom Hanks film, Captain Phillips. Together, these speakers provided great knowledge and inspiration with their diverse leadership perspectives, and I strongly encourage readers to spend time learning more about each of their journeys.

I want to extend a sincere thank you to all our sponsors, exhibitors, and bankers from across North America (including our Canadian friends) who attended. I hope to see you all again next November at the 2025 ABA Agricultural Bankers Conference in St. Louis, MO. As always, it was wonderful to connect with our fellow Wisconsin bankers and I encourage all bankers interested in agriculture and agricultural banking to join us at the 2025 WBA Agricultural Bankers Conference, taking place on April 10-11, 2025 at the Kalahari Resort & Convention Center in Wisconsin Dells.

 

Hartmann is vice president – agricultural banking at BMO Bank, N.A. in Menomonee Falls. Hartmann also currently serves on the WBA Agricultural Bankers Section Board of Directors.

 

By Lance Lansing

As is done every year in September, planted and harvested acreage estimates for corn, cotton, and soybeans are reviewed based on all available data, including the latest certified acreage data from the Farm Service Agency. The USDA’s Supply/Demand Report on 9/12/2024, reported the outlook for harvest yields as “good” for our part of the country. USDA is estimating record yields in both corn and beans for southern Wisconsin and that will lead to even bigger increases in supply so we should expect to see lower prices for 2025. According to USDA data, production for corn increased by 39 million bushels to 15.186 billion. That is 30 million bushels above expectations. Record yields are projected at 183.6 bushels per acre vs. 183.1 bushels per acre predicted last month. Old Stocks are below expectations at 1.812 billion due to stronger exports and increased ethanol production. New stocks came in above expectations at 2.057 billion.

Bean production was trimmed by 3 million bushels to 4.586 billion which was 23 million below expectations. Record yields were left unchanged at 53.2 bushels per acre. Old stocks were cut 5 million bushels to 340 million in line with estimates. New crop stocks cut 10 million bushels to 550 million which is 34 million below expectation. Ending stocks were left unchanged at 828 million bushels.

As a result of the elevated yield expectations, working capital will probably be negative for most grain farmers in 2024. That could lead to increases in short-term operating loans. That could also mean a sharp decline in machinery purchases and capital improvements.

According to a recent survey done by Illinois FBFM, the cost of production for corn on owned ground hovered around $600/acre from 2015 to 2021 but has since jumped to $800/acre plus. When adding in cash rent that number increased to an all-time high of $1,182/acre in 2023. Projections are for only a slight reduction to input prices in 2025, leaving little room for the farmer to offset lower market prices. Improvements to input prices may come from anhydrous and nitrogen prices but Dap and Potash will likely remain steady. Diesel prices will be affected by who sits in office but has been trending lower. Cash rents should drop but landowners are going to be reluctant to follow through, especially those who owe money and are paying higher interest rates. The expected difference is only $25/acre.   Net income per acre hit a record high of $500/acre in 2022 and is estimated to be near zero or below for 2024 and 2025.

As bankers, we need to recognize that our grain producers are in a downward trend after 2-3 years of profitability. We can build value in our relationships by reminding our grain clients to get back to the basics. Make sure they know their cost of production. Encourage them to spend time on their financial statements and reporting. Control costs including inputs, land rents, capital purchases and family living. Debt per tillable acre has increased from $267 in 1992 to $809 today, and it is expected to continue to increase with the cost of land. Debt to asset ratios have dropped from 32% to 17% over the same time signifying that most of our landowners are 60 years old and older. This means that farm succession planning is more important than ever for our producers.

This is a time that our grain producers will need the support of their bankers. It will be our job to make sure they have the tools and knowledge needed to weather this downturn in profit. More communication will be needed to get through this to a more profitable time. We can bring value to the relationship with honest analysis, and hopefully the profitable times will return sooner rather than later.

Lansing is vice president – lending at Apple River State Bank in Darlington. Lansing also currently serves on the WBA Agricultural Bankers Section Board of Directors.