Tag Archive for: Agriculture

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From The Fields: Grain Harvest 2024

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.

 

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From The Fields: Have a Plan

By Jenny Jereczek, Security Financial Bank, Durand

“If you fail to plan, you plan to fail.” A saying I am sure we are all familiar with and one that has come to mind frequently over the last few years. Planning is crucial to success. Think about the days we don’t plan, what happens? Often time is wasted as we spend time trying to decide what to do or we are easily distracted from the task at hand as we are not sure of our direction or purpose. An important part of the planning process is being intentional by defining the when and how. This will help to drive the action steps within the plan.

As the ag industry continues to experience volatile commodity prices and tight margins, it will be important for producers to have a plan. Each producer is likely to have a different plan with a different purpose whether it be marketing their grain, succession planning, transitioning from an enterprise, or maybe an exit strategy. No matter what the plan is, we as bankers have a role to play in the plan. We have the ability and tools to help the producer understand the financial implications of the plan and help them make decisions that will ensure success. By being a part of the planning process, we strengthen the relationship between the bank and our clients which serves to cement our position as trusted advisors.

Having a plan will help take the guess work out of emotional decisions, will help the team stay focused while increasing productivity and will drive execution. And probably one of the greatest benefits of having a plan is to reduce the stress load as having action plans clearly defined can help minimize uncertainty and prevent feelings of being overwhelmed.

Simple steps for creating a plan:

  • Define your goal in writing
  • Divide the goal into milestones
  • Identify the resources needed
  • Prioritize and assign tasks
  • Review and refine

Jenny Jereczek is market president and director of ag and commercial banking with Security Financial Bank in Durand. Jereczek currently serves on the WBA Ag Section Board of Directors.

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From the Fields: A Legacy of Agricultural Excellence

By Nicholas Felder

As agricultural lenders in Wisconsin, we all play a crucial role in supporting the backbone of our state’s economy. Agriculture is not just a primary contributor; it is a way of life, deeply rooted in tradition yet constantly evolving to keep up with opportunities and threats.

As we all know Wisconsin’s agricultural sector is diverse, ranging from dairy farming to crop production to cattle and poultry and beyond. The state of Wisconsin is heralded for its dairy industry, leading the nation in cheese production and near the top in milk production. Additionally, Wisconsin farmers grow a variety of crops including corn, soybeans, cranberries, vegetables like potatoes and green beans, contributing significantly to the state’s economy.

However, like many agricultural regions across the country, farmers in Wisconsin have encountered numerous challenges in recent years. Fluctuating commodity prices, adverse weather conditions, increasing input and equipment costs, and regulatory pressures have strained cash flows for many operations. These challenges, compounded by global market dynamics and shift in consumer preferences, underscores the need for adaptive financial strategies and robust support from agricultural lenders.

As we navigate through 2024, uncertainty over the political landscape will be a point of discussion and possible contention around many dinner tables as we steam ahead into the fall Presidential election. This also includes discussion around the expired farm bill. The farm bill, typically renewed every five years to provide some stability and support to farmers across the country, is a cornerstone of U.S. agricultural policy. However, the expiration of the 2018 farm bill has left the agricultural community in limbo as we await congressional collaboration to pass a new bill or extend existing provisions.

This farm bill has, and will likely again, include provisions of: Income Support Programs, Conservation and Environmental Programs, Rural Development and Infrastructure; and Trade and Export Promotion. All of these provide support and opportunities for Wisconsin producers and rural economies to grow food, fiber, and fuel at affordable prices which are used locally, nationally, or exported for distribution worldwide.

In its absence, agricultural lenders here in Wisconsin should proactively engage with clients to assess risk exposure and explore strategies to mitigate market volatility. This should lead to conversations about cash flow management and repayment capabilities. We should be informed and ready to utilize the buffet of lending and treasury management options to put our producers in the best position to succeed as possible. We also need to stay informed of developments in the farm bill process and guide producers to resources as well as advocate for policies that support the long-term viability of agriculture in Wisconsin. Please engage with the WBA, local policymakers, and community leaders including engaged customers to voice concerns and influence policy outcomes.

Your role in navigating uncertainty is pivotal in supporting the resilience and prosperity of our farming communities. By staying informed, proactive, and adaptive in your approach to your clients can assist in mitigating risk, allow for capturing of opportunities, and foster sustainable growth amidst a historically challenging environment. As always, while the path forward may be uncertain, your commitment to serving the needs of Wisconsin producers and communities remains steadfast. Together, we can weather the storm and continue to uphold the legacy of agricultural excellence in our state.

Felder is vice president – commercial and agricultural banking at MidWestOne Bank in Lancaster. Felder also serves as Vice Chair on the 2024–2025 WBA Agricultural Bankers Section Board of Directors.

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From the Fields: A Look Back at the 2024 WBA Ag Bankers Conference

By Craig Rogan, Nicolet National Bank

As I reflect on the WBA Agricultural Bankers Conference held on April 11-12th with my fellow 108 bankers that attended, I am reminded of the expertise exhibited in Agriculture at this conference. It was refreshing to see some younger faces at this year’s conference as well.

My personal favorite speaker Eric Snodgrass did not disappoint with his knowledge of weather, although he reminded us that his prediction at the 2023 conference was inaccurate in the Midwest and specifically Wisconsin. Eric doesn’t believe the Midwest will be as dry as some are predicting. He stated he believes it will be dryer around harvest time in the Midwest and depending on when that occurs, will determine if it has an effect on yield.

Doug Johnson with Moody’s Analytics enlightened us on what’s swimming under the waves. He discussed staying size relevant as technology such as AI continue to make way into the Ag sector. He discussed the pros and cons of AI. An increased use of AI could produce an increase in job losses and privacy violations to name a couple of specific examples. The positives of AI could also allow for a progression in medical advancements and faster data analysis. Doug touched on Lab food and how farmers are more efficient at producing a sustainable supply of food compared to food grown in a lab. Doug is a strong advocate for Agriculture and shared “Since I can’t bring the City to the Farm, I’ll bring the Farm to the City.”

Mike North of Ever.Ag discussed the result of higher interest rates and the added cost of holding inventories. In regards to exports, Mexico has been able to keep up with a strong US dollar which has helped as the Chinese Yuan value declines.

Peggy Coffeen of Uplevel Dairy spoke with Pauly Paul of Complete Management Consulting LLC and gave us a glimpse into her Bi-weekly Agricultural podcast. Pauly went over several examples of farms that were in search of guidance to improve profitability on their farm. He discussed operation changes that were made to allow for profitability through reduction in labor, lower feed cost, increase production and expense modification.

Ed Elfmann of ABA spoke about the ACRE Act and how that impacts banks cost and could lower interest rates ½%. The approval of ACRE Act levels the playing field with Farm Credit by not being taxed on income derived from interest earned on real estate loans. He discussed the upcoming farm bill as it came due in Sept. of 23 with an extension to Sept. 24.  Farm debt continues to increase as well as the age of farmers which currently is 58.1 years old. He touched on the bird flu with milk production dropping 10 to 20% with cows affected by the bird flu. This drop in production has been approximately a 14-day cycle.

Lorenzo Cruz and Tyler Foti of WBA gave us a Wisconsin Legislature update and how the new district maps will affect Republican and Democratic representation in the house.

Thank you to our 16 exhibitors that help make this conference possible.

  • Ag Resource Management
  • Bankers’ Bank
  • Ever.ag
  • Farmer Mac
  • FHN Financial
  • FIPCO
  • Growers Edge
  • Hanson Auction Group
  • Michael Best & Friedrich LLP
  • Peoples Company
  • ProAg Bank
  • Purple Wave Auction
  • Steffes Group Inc.
  • USDA Farm Service Agency
  • USDA Rural Development
  • Wisconsin Farm Center

Rogan is vice president – agricultural banking officer at Nicolet National Bank in Stevens Point. Rogan also serves as the 2023–2024 Chair of the WBA Agricultural Bankers Section Board of Directors.

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Farm Bill Advocacy

During both Wisconsin Bankers Association (WBA) Washington, D.C. trips this past spring, the Farm Bill was discussed as part of our policy agenda with our congressional delegation, including, notably Rep. Van Orden’s office since he is on the House Agriculture Committee. At the time, we shared that we were in support of the Farm Bill passing as most of the provisions are favorable; however, we did share concerns regarding potential language that would broaden Farm Credit’s authority. The legislation was not introduced until May 21 and at that time, WBA repeated its ongoing concerns with Farm Credit related provisions in the bill to Rep. Van Orden’s office ahead of its vote in the House Agriculture Committee. Very late Friday night, the bill (H.R. 8467) passed out of committee on a 33-21 bipartisan vote so it will now move to the House floor for consideration. It is anticipated that the House may not take up the floor vote until this Fall.

The Farm Bill as passed out of Committee contains largely positive provisions that WBA and the industry would support for the ag and banking sectors. However, it also includes provisions that WBA and the industry objected to around a broadening of Farm Credit’s powers and its compliance with current CFPB Section 1071 requirements. For example, the Farm Bill would move enforcement of Section 1071 from CFPB to the Farm Credit Administration and appears to only require collection of 3 data points – race, sex or ethnicity, provisions not extended to the rest of the banking industry. WBA will continue its advocacy against these provisions, including during our in-district meetings in August with the delegation, and encourages bankers to do the same with your respective member of the House. Again, it is anticipated that the House may not take up the bill for a floor vote until the Fall, and then it will move to the Senate where at least some of these expanded Farm Credit-related provisions are not expected to be supported. WBA will continue to keep the membership updated as actions occur on this important must-pass legislation.

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2023 Agricultural Banking Scholarship Awarded to Two UW Students

The Wisconsin Bankers Foundation, the non-profit arm of the Wisconsin Bankers Association, has awarded Chad Achenbach and Taylor Lindsay with the 2023 Agricultural Banking Scholarship. Demonstrating the Foundation’s commitment to cultivating the next generation of agricultural bankers in Wisconsin, the Agricultural Banking Scholarship is offered annually in the fall. Two $1,500 scholarships are awarded to students attending an accredited public or private, non-profit college, university, or technical college who demonstrate in their application a strong understanding of the importance of financial literacy and are actively pursuing a career in agricultural finance.

Pictured (left to right) are: Cassandra Krause, executive director, Wisconsin Bankers Foundation; Chad Achenbach, 2023 WBF Agricultural Banking Scholarship recipient; and Cody Kirschbaum, vice president – ag relationship manager, Peoples State Bank.

Chad Achenbach is a declared double major in agribusiness and animal science expected to graduate from UW–Platteville in May 2025. Active throughout the agricultural community, Achenbach grew up on a hobby farm in Eastman, Wis. and was involved with 4-H and FFA through high school. In 2020, Achenbach became an inaugural member of Wisconsin Department of Agriculture, Trade and Consumer Protection’s (DATCP) Wisconsin Agriculture Youth Council, where he gained insight on state agricultural policy development and tools available to support Wisconsin farmers. At UW–Platteville, Achenbach is involved in Alpha Gamma Rho (Beta Gamma chapter), Block & Bridle, and the Pioneer Dairy Club. He also serves as an ambassador for the UW–Platteville School of Agriculture. During the summer of 2023, Achenbach interned at Peoples State Bank in Prairie du Chien, Wis. as an ag loan officer.

Pictured (left to right) are: Michael DeLong, vice president – commercial/agriculture loan officer, Pillar Bank; Cassandra Krause, executive director, Wisconsin Bankers Foundation; Jenny Jereczek, director of agriculture banking & market president – Durand, Security Financial Bank; Taylor Lindsay, 2023 WBF Agricultural Banking Scholarship recipient; Dr. Brenda Boetel, professor and Agricultural Economics department chair, University of Wisconsin – River Falls; and Tony Betley, vice president – senior agricultural banking officer, Nicolet National Bank.

Taylor Lindsay is a declared agricultural business major and animal science minor expected to graduate from UW–River Falls in May 2025. Growing up on her family’s beef farm in Boyd, Wis., Lindsay has been around agriculture her entire life. Involved in 4-H and FFA throughout high school, Lindsay is pursuing an agribusiness career to not only remain active in the agricultural industry but also to help make a difference in her community. At UW–River Falls, Lindsay is a member of the Agricultural Business and Marketing Society, Agribusiness Leadership Team, Block and Bridle, Collegiate Farm Bureau, and Collegiate Livestock Judging Team. During the summer of 2023, Lindsay interned as an agriculture credit analyst at Nicolet National Bank in Eau Claire, Wis.

“In awarding the Agricultural Banking Scholarship to two deserving individuals, the Foundation aims to support and encourage the growth of talent in the agricultural finance sector,” said Foundation Chair Rose Oswald Poels. “I am pleased to recognize Chad and Taylor for their achievements and outstanding commitment to Wisconsin’s agricultural industry and wish them the very best in their future agribusiness careers.”

To learn more about the Wisconsin Bankers Foundation and its current scholarship opportunities, please visit wisbankfoundation.org.

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From the Fields: Choppy Waters Ahead for Row Crops in 2024

By Adam Sommer

Winter in Wisconsin is defined by many words, but rarely are the words crisp or comfortable one of them. February has brought some unseasonably warm weather to the state as we wrap up the month, and it has been quite crisp and comfortable. It has left us dreaming of spring. With spring comes one of the wonderful seasons of year on the farm. Crops are being sewn across the state, calves are being born, and the season brews new hope for the agricultural year to come.

However, 2024 looks like a year of some uncertainty across many agricultural fronts in Wisconsin. Interest rates have remained higher than recent memory, inputs are costly, and commodity prices have tumbled. Farmers are whispering of concerns for what the year ahead looks like, and choppy waters look like a near certainty.

So, what does this mean for our row crop operators? A year of tighter margins and pricing challenges is likely ahead. Barring global economic shifts, geopolitical forces upending the current pricing outlook, or a major weather event changing the current trajectory, farmers are preparing for prices that are down from a year ago. Below are two charts (one for corn and one for soybeans) using CME Group data on pricing for the March, September, and December corn contracts, and using the same data on pricing for the March, August, and November soybean contracts. This illustrates the trend we continue to see for both old crop and new crop pricing in 2024.

Even as the trend points down for crop pricing, many farmers here in the state of Wisconsin will reference a dry 2023 crop year and the hope for a spring bump in price. Anecdotally, there is still a large amount of grain stored in bins across Wisconsin. This unpriced crop could be troubling for the income statements of farmers, in some cases, against borrowed funds. The concern is that even as the year was dry, production remained at a strong, although not bin-busting, level. What that can mean going forward is that production across the United States could be at record levels given good growing conditions, should that occur in 2024. Much of what is driving these future markets is the anticipation of this higher production level and challenges on the trading front with a strong U.S. dollar to boot. Ending stock projections for corn could reach one of the highest levels since the late 1980s should projections ring true. With that concern in mind, it prompts the question as to how the farmer and banker can respond?

In our world, this means that conversations with farmers early in 2024 are all that more important as expectations are set for the coming crop year. Conversations should address the needs of the producer, alternative strategies for shortfalls, and plans regarding insurance coverage and marketing strategies. Not all that different than the annual conversations, but with more depth around the downside risk. Anticipating corn prices with a three or four leading the way hasn’t been a consistent concern over the last few years. Doing so will harken back a few years and with inputs elevated it leaves some concern.

In conclusion, some of the best steps row crop farmers and ag bankers can take are steps of preparation and communication. Farmers are a resilient bunch who have weathered the ups and downs of the rolling commodity cycles. Preparation and awareness will help each of them in this cycle as well. And the hope is that this is all premature speculation. The hope is that farmers in Wisconsin have a bumper crop, with international partners buying more, and a prosperous year ahead. We wish all the farmers the best as they tackle this next crop season.

Sommer is assistant vice president – ag and commercial loan officer at Bank of Brodhead. Sommer also currently serves on the WBA Agricultural Bankers Section Board of Directors.

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From The Fields: The Ups and Downs of 2023

By Lance Lansing

2023 certainly felt like a rollercoaster ride for the ag economy. After two consecutive years of record or near-record high market prices, the outlook for 2023 was not as rosy. Then we had drought conditions in the corn belt and upper Midwest that caused more production and market uncertainty. Market prices continued to steadily go lower with few exceptions. With increases in land values, rent, interest rates, and questionable yields, 2023 brought up the old proverb that we are “living in interesting times.” All in all, we never felt secure about having decent profits in 2023 like we did in 2022. As ag lenders, we are used to seeing income and profit in cycles with some years leaner than others but, in my opinion, this year had more question marks than usual.

So, let’s look at the farm sector profits forecast put out by USDA in November of 2023.

“Net cash farm income is forecast at $157.9 billion in 2023, a decrease of $42.5 billion (21.2%) relative to 2022 (not adjusted for inflation). This follows an increase of $51.1 billion (34.2%) from 2021 to 2022. When adjusted for inflation, 2023 net cash farm income is forecast to decrease by $49.2 billion (23.8%) from a record high of $207.1 billion in 2022. Despite the decrease, net cash farm income in 2023 would be 15.0% above its 2003–2022 average of $137.3 billion. Net cash farm income encompasses cash receipts from farming as well as cash farm-related income (including Federal Government payments) minus cash expenses. It does not include noncash items (including changes in inventories, economic depreciation, and gross imputed rental income of operator dwellings) reflected in the net farm income measure.” Excerpt taken from Farm Sector Income Forecast published by USDA November 30, 2023.

As you can see from the USDA’s 2023 income forecast, the ag sector is way down from last year but still above the average from 2003–2022. With the reduction in net income, my first thought was that we would see some serious red ink, but income was high enough that our well-run operations will still be operating in the black. Many came into 2023 in a good liquidity position due to the high net profits in 2022 and land value continued to appreciate throughout the year. Another contributing factor to good liquidity was the lack of availability for expansion due to shortages in supplies and labor. Keeping cash on the balance sheet is always a good idea during uncertain times.

Agricultural land values increased by 8.1% from 2022 but even more impressive is that from 2009 to 2023 cropland value increased 107%. Pastureland increased from 2009 by 66%. This cost increase with higher interest rates is creating a high barrier of entry for young farmers and limiting expansions for many operations. In Wisconsin we saw the average value per acre go from $5,700 to $6,200 per acre. That is an 8.8% increase from 2022 to 2023. The more impressive increase though is the average value in 2019 was $4,950 making the last four-year increase over 20%. This kind of increase with the prime rate going from 4.75% in October of 2019 to 8.5% in July of 2023 has created a market that has slowed some operations from investing in cropland for expansion.

Rents have also been cost prohibitive to some operations. Landlords seeing 2022 market prices have been asking for more rent. Higher market prices have sparked more competition and bidding wars between producers for the available tillable soil. The rent market will adjust faster than other inputs, but it is continuing to creep up year on year.

Lastly, we will look at the yields for 2023. Overall, Wisconsin crop production declined in 2023. If you had asked me in June about the harvest, I would have categorially said we will have little to no yield in our area, but 2023 kept surprising us. Corn production is forecast to be down 5%. Yields are expected to average 171 bushels per acre, down 9 bushels from last year. To me, that is incredible for how we started the year. The yield was down due to several factors including the dry weather conditions. Soybean production is forecast to be down 9% from the previous year. The average forecasted yield is 49 bu. per acre. Still an incredible outcome considering how the year started.

The takeaways of 2023 for me include the following:

  • Our state’s agriculture economy is still going strong and may have dodged a bullet in 2023
  • Stronger yields than expected and some decline in input costs will help our strong credits remain profitable
  • Our marginal and weaker credits will struggle in years like 2023 but should have fared better than expected with better yields and carful marketing

I have not touched on the livestock or the dairy markets because they would need their own articles this year. Milk prices from July of 2022 to July of 2023 dropped $8.90. That market saw its own rollercoaster ride. The beef market has seen new highs and continues to remain strong. We have seen our cow/calf operations make very good profits this year and this trend looks to continue for the near future.

From the way this year started, I think we can all breathe a sigh of relief that we continue to work in a great industry that will persevere another year. Happy New Year! I can’t wait to see what 2024 brings.

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.

 

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From the Fields: Recap From the 2023 ABA Agricultural Bankers Conference

By Chris Schneider

This November, about a dozen ag bankers from Wisconsin and I made the trek to Oklahoma City for the 71st annual American Bankers Association (ABA) Agricultural Bankers Conference. This year, the number one message was getting the ACRE Act through Congress to help the American farmer. This act, which would create a tax exemption on ag loans and rural home mortgages, will aid in saving approximately $1.15 billion in ag loan interest and will reach 17,000 local communities across the country.

In attendance at this year’s event was Congressman Glenn “GT” Thompson (R–PA), who chairs the House Committee on Agriculture. During his opening session, GT offered updates on agricultural policies including the Farm Bill and shared what bankers need to know going into 2024. My impression of him was that he is committed to helping the American farmer and local communities.

Interest rate discussion was no surprise due to the past 12 months of increases. While many were questioning whether we will see it rise more, stay stable, or flatten out some, we will have to see if — as usual — the election year brings with it some softening of rates. I’m not sure if we will see the low rates of past years again in future.

Representatives from the ABA and Farmer Mac shared with attendees the results of the 2023 ABA/Farmer Mac Agricultural Bankers Survey. A few of the top and notable themes from this past year have been interest rate volatility, lender competition, credit quality, increased regulator burden, and weak loan demand.

In just the first day of the conference, attendees gained insight into food spending trends (a shocking 51% is spent on food outside of the house), student loan debt, legal cannabis, and more. Throughout the rest of the event, topics including new technologies and artificial intelligence (AI) and ESG trends and the sustainability especially the ag community. To me, the greatest take away from this year’s event was that in order to have successful farmers, ag bankers should be prepared to aid them in strengthening their ag IQ. By understanding the cost of production, strengthening their balance sheet, developing a marketing plan, and utilizing technology to set next level, we can help our clients do all the little things even better.

Schneider is vice president – senior ag banking officer at Nicolet National Bank in Manitowoc. Schneider also serves as Past Chair of the 2023–2024 WBA Agricultural Bankers Section Board of Directors.

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Farmers Are Cautious but Optimistic for 2024

Ag bankers reflect on 2023; prepare for the year ahead

By Hannah Flanders

Agricultural bankers in Wisconsin described 2023 as a year of highs and lows. As expected, it was difficult for Wisconsin farmers to beat the success of the last several years.

In 2021, farmers in Wisconsin were well-positioned for success. Ideal conditions for growing, increased receipts across the board, and lower expenditures than the national average set the stage for record profits in 2022. However, as 2023 unfolded, so too did a number of challenges causing farmers across the state to feel the pressure.

“There were times earlier in the year that I was certainly feeling more like a therapist than a banker,” notes Kevin Konkol, vice president – agricultural/business banking at First State Bank in New London. “However, agriculture runs in cycles. Farmers are aware that every one or two good years are followed by several years of headwinds; that’s where we’re at right now.”

Across the state, ag bankers are still seeing the strength carried over from the last several years, but deterioration is expected into the new year as farmers slowly begin pulling back.

One of the primary challenges that loomed large was the surge in interest rates, which reached over 500 basis points. Though relatively close to the historic average of between 6% and 7%, ag bankers note that many younger-generation farmers are experiencing sticker shock.

“Much of the older generation of farmers have seen rates hit 18% or 19%,” highlights Konkol. “This generation, on the other hand, has never seen prices so high.”

Jenny Jereczek, Security Financial Bank – Durand market president and director of ag banking, notes that while local farmers are cautious but optimistic for the year ahead, how rates will continue into the new year is the question on everyone’s mind. “When the U.S. dollar rises in value, our commodity prices and exports decrease. Coming off several great years, farmers still have relatively strong balance sheets but are seeking new ways to optimize and retain their margins in times of uncertainty.”

It’s up in the air whether current rates are here to stay. . . at least for the foreseeable future. In September 2023, the New York Times reported that Fed officials believed that rate hikes were close to the end and that the economy has seemed to settle into its long-term trajectory.

Whatever the prediction, ag bankers note that commodity prices remain a top concern for many farmers looking ahead.

This year, milk prices dropped from near-record levels to below $14 per hundredweight but have slightly rebounded since the summer. Compared to last year’s average of nearly $7 per bushel of corn, farmers saw prices hovering around the $5 mark.

However, a record-breaking 18% increase in cattle and beef prices from the year prior is expected to offset some of the headache.

“The main concern I’m hearing from farmers is cash flow; they’re all wondering where it will come from,” says Bank of Brodhead’s Assistant Vice President – Ag and Commercial Lending Adam Sommer.

Cody Kirschbaum, vice president – ag relationship manager at Peoples State Bank, Prairie du Chien, elaborates, “As term loans and operating lines of credit come upon renewal, many are experiencing the cost to borrow nearly doubling compared to 2022. This is expected to significantly affect the cash flow of an operation.”

The U.S. Department of Agriculture forecasts that net farm income will decrease by nearly 23% from the year prior. This alarming projection comes just as the cost to borrow increases and production expenses are forecasted to surpass a staggering $458 Billion.

In an effort for Wisconsin farmers to sustain the longevity of their farms, ag bankers each suggest that farmers, in partnership with their lenders, should closely monitor trends in foreign trade and input costs that often dictate U.S. market movements.

“In the last several years, farmers have gotten better at budgeting and understanding how they are able to mitigate risk to retain their margin. By following current events, farmers are able to create a game plan, and with the help of their lender, stick to it. In a volatile market, opportunities — whether it be diversifying or risk mitigations tools — are still available,” notes Jereczek.

However, it is important that producers utilize available resources and tools to help make the best educated decision possible for their specific operation.

“One size doesn’t necessarily fit all, so the playbook may look a bit different from farm to farm depending on the operation,” states Kirschbaum.

Unlike many areas where farmers are experiencing a decrease in returns, experts point out that farmland values throughout the Midwest — including Wisconsin — have remained robust. According to the Federal Reserve Bank of Chicago, farmland values in Wisconsin increased by 8% since 2022, reflecting the strong financial conditions of the past few years.

Of course, being in Wisconsin, weather conditions also played a pivotal role for farmers this year. More than 80% of Wisconsin experienced moderate to severe drought conditions right at the start of the 2023 growing season.

“Farms in the area are doing well considering the spotty rain we encountered this year,” notes Jereczek. “However, final yields for the fall harvest are yet to be determined.”

With the ongoing conflict in Ukraine — a major grain exporter — and the probability of droughts across the U.S. impacting crop yields, lower supplies are expected to impact the availability and cost of feed as well as exports abroad.

Like most sectors, the ag community is also concerned with consolidation, rapid innovation, and generational transitions.

“For many, this last year has really emphasized what variables we should be paying attention to moving forward, alongside the importance of risk mitigation and margin management,” highlights Kirschbaum. “In a quickly evolving economy and society, ag bankers need to be prepared. As trusted advisors and confidants, our role is to help our clients prepare for both the expected and the unexpected.”

The last several years have been a rollercoaster for Wisconsin’s agricultural sector, but experts agree that farmers throughout the state are well-prepared to tackle the uncertainties and opportunities that lie ahead.

“They’re a resilient bunch,” emphasized Sommer.

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