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Corn+Soybean Digest

Lender Economic Storm Clouds: Part 2

Last time discussion centered on overheard lending practices at ag banker and lender schools that appear to be questionable. I focused on loans based solely upon change in net worth, character or collateral/land values. Let’s go deeper.

A producer panelist at one of the schools was disgusted with their lender because the lender provided no feedback on the detailed farm financial information supplied. This operation’s owners and managers presented balance sheets, accrual-adjusted income statements and variance analysis on cash flows, only to have the lender generally ignore them. They have been calculating financial ratios and benchmarking their operation to other businesses. The producer also had a sound risk-management plan. The panelist’s comment was the lender gave an interest rate break to the bigger producer who has lots of real estate, along with spending more of their time with the bigger producer. This sounds like a customer who is ready to find a different lender!

Most of the lenders in the audience would like to have had this couple as customers because of the financial information they track on their operation. The lenders remarked that very few of their customers ever provided detailed analysis. The couple then asked a pointed question to the lenders. “How do you analyze a loan and what factors do you consider?” Many lenders looked like a “deer in headlights” because it was obvious minimal information and documentation was par for the course.

Another point from the schools is that land values are making both lenders and customers complacent in management. It appears that market value appraisals and 80% loan-to-value ratios are creating a never ending cycle of a bubble similar to the housing and real estate bubble of yesteryear in Florida, Arizona and Nevada. A few years on the down cycle will expose these credits’ cash flow and management issues, like their urban brethren.

Thought for the Day
From an 85-year-old Japanese-American farmer for whom I have deepest respect:
The blessing of poverty
The curse of prosperity and easy wealth

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at

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