Farm Credit Network Discusses Ag Issues Forum & Commodity Classic
Thursday, April 4, 2013
Farm Credit is a proud supporter of the Commodity Classic, the annual gathering of America’s soybean, corn, wheat and sorghum farmers. Keith Lane, senior vice president of agribusiness at Farm Credit Mid-America, also participated in the Ag Issues Forum, a pre-conference event sponsored by Bayer CropScience. The 8th annual event brought together media and thought-provoking professionals who influence the agriculture industry in unique ways. In this guest post, Lane discusses his prospective on the future of farming.
The 2012 drought, volatile commodity process and global economies are shaping lenders’ perspectives on the future of farming. And while the future of agriculture is bright, we can expect some dips in the upward moving profit chart. Some of the factors that will affect this are an increasing world population which will double in the next 40 years, developing economies that are consuming more protein, and greater demand for ethanol and exports. From a lending perspective, we’re looking at the future of farming in the following areas: segmentation, volatility, farm real estate values and capital access. Let’s take a deeper look into these four areas:
The traditional farm – 2,000 to 2,500 acres – has dominated the agriculture credit market for the last several years. But production agriculture’s composition is and will continue to change. The old financing model was one size fits all, but today, different segments are becoming clear including lifestyle, local food initiatives or CSAs, traditional and large-scale farms. Farm Credit’s mission is to serve all of these segments with attention to their differences in capital needs.
At Farm Credit Mid-America, we began planning for 2013 in 2008 as part of a five-year plan and we began specific planning for 2014 last week. Planning isn’t something we do once a year; it’s a continual process that changes based on today’s circumstances. Farmers will need to adopt this multiple scenario planning attitude in response to volatility. Producers shouldn’t wait for a crisis, or an even slightly more difficult situation, to begin planning. A strong 2013 crop will change supply side pressure on grain prices. That coupled with the speculative money going out of commodities if interest rates rise could take as much as 40 percent off current prices. In planning for the future, farmers will need to consider what their operation can cash flow with two times the current interest rates and 30 to 40 percent lower grain prices.
Farm Real Estate Values
I’m concerned, but not panicked, by the real estate bubble. Is it possible that farm real estate process will level off? Yes. Is it possible that farm real estate prices will drop? Yes. We should not, however, have a repeat of the 1980s. Farm Credit is well-capitalized and prepared to be a consistent, constructive leader. Here at Farm Credit Mid-America, we have established real estate caps in grain areas. A strong grain producing county in Indiana or Ohio may have a $6,000 per acre maximum loan. In addition, farm balance sheets are strong as a percentage of assets, crop insurance controls weather risk and more irrigation is in place to control production risk.
It is possible to outgrow your lender due to statutory lending limits or specific limits established by the lender. Land costs and input costs have increased the need for money. Farm Credit Mid-America partners with other Farm Credit associations and non-System lenders to be certain operating and expansion funds are available to farmers of all sizes. Farmers own the only small businesses that have enjoyed unfettered access to credit since the 2008 financial crisis and Farm Credit plays a large role in that availability. If you are a producer with capital needs in excess of $2 million, talk with your lender about the limits.
- Keith Lane
VP Agribusiness & Dealer Credit at Farm Credit Services of Mid-America
Article originally published on FarmCreditNetwork.com: