As a major, irreplaceable gear in the agriculture machine, lenders back producers in all sorts of economic climates. With the recent market downturns, what is the picture like from the lenders’ perspective?

Greg Cole, president and CEO of AgHeritage Farm Credit Services, spoke at the Jan. 26 Arkansas Soybean Association Annual Meeting in Stuttgart. Shortly after, he talked to Delta Farm Press. Among his comments:

On what the current atmosphere is like for ag lenders…

“The start of the current environment really began in 2014 when there was such a rapid decline in the price of the crops we raise in the Delta. When prices fall as hard as they have and expenses don’t fall at the same rate, it sends you from an extremely good profit scenario to a very bad scenario. Add onto that the change in farm bill structure – from a direct payment to PLC and ARC.

“Farmers went from making very good money prior to 2014 to many losing money since. Obviously, lenders now must have much more conversation and adjustment of plans. That’s not true across the board, of course. Some farmers were very proactive and positioned their balance sheets very well. Others are more reactive and stressed and come in having to refinance carryover losses and structure credit to ensure they’re able to meet their operating needs.”

Does the Turner Grain fiasco still figure into the mix with some of your clients?

“You have to break it out a bit. It was an unfortunate event. There were farmers in the Delta involved with Turner Grain and that only exacerbated the stress they’ve come under with the market downturn. If Turner didn’t pay for their grain or they lost the opportunity from contracts that’s easy to understand.”

What about the Turner Grain legislation that’ll be taken up by the Arkansas legislature next term? Any opinion on that?

“We need to make sure there are proper safeguards in place. There need to be commonsense checks and balances in the (grain marketing) business. There can’t be another situation like Turner Grain occurring.

“I’m not big on regulations, but the problem with Turner Grain is no one was looking over their shoulder. You had a multi-million dollar business and there has to be accountability, normal safeguards, to make sure folks aren’t harmed. Farmers need to know who they’re doing business with.

“This is a great example of what we tell producers about counterparty risk. If you sell something, it’s only good if you collect the money. So, really, Turner Grain was a counterparty risk event. A group of farmers were doing business with an entity in a state with little, or no, regulations. It was very difficult for farmers to determine ‘is this a viable business? Can they pay me back when I sell my grain?’”

Farmland values, loan-securing process

On farmland values…

“The synopsis is we’ve been in a bull land market since 1987. Land values have gone up every year since. Looking at Delta farmland over the last decade-plus, it’s averaged over 10 percent in compounded annual growth.

“In the Midwest, the values were appreciating at an even greater rate. Now, the values of Midwest farmland have started to decline.

“Meanwhile, here in the Mid-South, in talking to our appraiser group, we still have positive appreciation in land values. However, it’s moderated substantially and our study says over the last year values are up only about 3 to 3.5 percent.

“Going forward, I think a big driver will be interest rates. If rates go up rapidly and substantially, it could have more of a negative impact on value of farmland. If rates go up in a more moderate pace, the value will see less impact.

“Our view is farmland values will be flat to declining. But currently, as I said, the value is still positive. We have no evidence that farmland values have fallen in the Mississippi Delta.

“I think you’ll see more segregation in land values. Quality land will always retain the highest relative value. More marginal land, if we do go into a declining environment, will see a quicker decline.”

Have you considered making things that save producers money – things like computer irrigation scheduling programs – part of the loan process? 

“No. We get that question all the time.

“We interface with customers at a high level of financial expectations. We don’t get into micro-managing.

“Now, we do encourage them philosophically. ‘You need to use best management practices. You need to be efficient. You need to use the better technologies.’ That’s the limit to what we do. We’re not going to tell farmers how to manage their operations. That doesn’t mean we don’t provide a lot of information and encourage them, though.”

On common concerns for farmers…

“The big picture is that anyone involved with agriculture must understand the type of business and industry they’re in. It’s cyclical. How you survive and thrive in a cyclical business is identify the good times and maximize them. Then, you must identify when the cycle is going in reverse and minimize the effects. A lot of the decisions you make during the good times may very well determine how you make it through the not-so-good times or if you make it at all. That’s where we are right now.

“Those who were making a lot of money during the good times and saved money, positioned themselves well, will be okay. If you didn’t make a lot of money through 2012, it’s going to be a tough couple of years.

“As a lender, you tell folks to properly assess their situation and make suitable adjustments. An efficiency cycle requires that costs come in line with new price realities. Everyone needs to look at their costs and spend money only on things that produce revenue and benefit the bottom line. If their assets aren’t making money, they need to discard those assets to exhaust the carryovers.

“Those who do that will be fine. Those unable or unwilling to do so are on much shakier ground.”