Farmers have spent 2022 working through challenges like rising inflation and supply chain delays, just like other businesses and consumers across America have had to do.
Those who make their living in agriculture, and the ag bankers who work with them, have needed to think even more creatively and constructively than usual, ordering often-replaced parts before they break, sourcing supplies from farther away or collaborating with neighboring farms to share equipment to get crops planted on time.
“These people in our industry are the most resilient people in the world and they are willing to help one another because they are working for a common goal, which is to feed the world,” said Brian Gilbert, ag banking manager and senior vice president from The First National Bank in Sioux Falls, S.D.
Meanwhile, inflation has led bankers to take different approaches to how they’re pricing their agricultural-focused products or to consult with their farmer-clients about what inflation may mean for them. Those working in ag have also needed to strategize with regard to changing land values, including in some areas where prices are wildly fluctuating.
Weather has, as usual, been unpredictable, with a “mixed bag” of drought or wet, stormy conditions depending on the growing area, said Heather Malcolm, vice president, Bank of the Rockies in Livingston, Mont., about her state, though the same would apply to other areas throughout the region.
While they work with their customers to help them with their financial needs in the present, ag bankers are formulating plans for how their banks will secure the next generation of banking professionals. Community banks are addressing these succession plans in a variety of ways, from recruiting at land grant universities to retaining young talent and helping them work their way up the ladder and hiring from adjacent industries.
Ag bankers from several states shared their experiences of the past year and their strategies for the issues awaiting their field. Their comments have been edited for clarity.
How has rising inflation changed how you’ve priced agricultural-focused financial products?
As the Fed has raised the fed funds rate, we have seen this impact on both short- and long-term interest rates for our borrowers. We have seen the rising interest rate environment since the beginning of the year. All indications point to continued higher interest rates. With the current higher rates, we are seeing a small slowdown in ag real estate borrowings.
— Heather Malcolm, Bank of the Rockies, Livingston, Montana
We have raised our loan rates slightly as the Fed has increased the Prime Rate. In most cases, this has been a small percentage of 25 to 50 basis points.
— Terri Barrett, Financial Security Bank, Kerkhoven, Minnesota
We have been closely watching what the Fed has been doing — and will be doing — on interest rates. While we have not directly followed rate increases, we continually evaluate our interest rates along with those of our competition. Sensitivity analysis is conducted both at the bank and customer level.
— Mike Youngs, TruCommunity Bank, Garrison, North Dakota
Agricultural products have risen since the beginning of the year as far as interest rates. We have heard more concern from customers as far as where the interest rates are going and how that will affect their operation. However, the current rates are still historically low; we have just seen consumers become used to the very low rates.
— Noah Juergensen, Home State Bank, Jefferson, Iowa
We have not adjusted our pricing strategy due to inflation. We’ve been trying to help consult with our ag customers on the importance of understanding their breakevens and their input costs so they feel confident to lock in the profits that the grain markets have offered for not only 2022, but also for future years.
Construction lending has always created challenges to lenders due to the risk of delays and cost overruns. In ag, there are many times where the construction process creates even more challenges with unique buildings/structures and oftentimes producers want to serve as the general contractor or maybe do a portion of the labor themselves. We pay attention to this in our approval process and again help educate our customers on the potential pitfalls this can cause.
— Brian Gilbert, The First National Bank, Sioux Falls, South Dakota
For the last 10 years, you could quote a rate and it would be good for 60 days easily. Now we’re having to quote a margin over our index. And that is on a more week-to-week basis so far as setting the rates. Sometimes, especially on a construction loan, we’ll just do the margin over the index. We’ll commit that far out on a rate.
— Rick Gentis, First Bank of Berne, Indiana
What are you hearing about supply-chain breakdowns with regard to new farm equipment or the parts needed to repair old equipment? What’s been the impact of such disruptions to farmers in your area?
Our customers have been pretty resourceful both in planning their crops and crop input needs by working closely with their input suppliers to navigate possible shortages and evaluating crop rotations for possible savings in fertilizers and pesticides.
Equipment has been a different concern as, in some cases, delivery of purchased equipment (new or used) has been delayed due to manufacturing and transportation delays. New equipment purchases are beginning to move to made-to-order vs. implement-lot shopping. Repairs are even more frustrating as parts are frequently unavailable with no indication when parts will be back in stock. This has pushed farmers and ranchers to be more proactive on maintenance and repairs and, in many cases, purchasing extra parts they know they will need for their operation in the next one, two or more years.
— Mike Youngs, North Dakota
We are seeing its effects in our area. To say that it is impossible to get parts for new or old machinery is true in some cases, but not in most. We have found that if the part needed is a true necessity, there is a way to find one. Some local dealers have pulled parts from new, unsold machines to service their existing customers’ current machinery. One thing that is certain is that the farmer will be paying a premium for these parts if they can find them. We have seen a lot of farmers being proactive with finding some parts for their machinery that are common to replace often.
— Noah Juergensen, Iowa
Used equipment is certainly selling at a premium due to the unavailability or the time it takes to take possession of new equipment that may have been ordered months ago. On the parts end, it is difficult to get specialized parts in many cases. Our customer base has banded together with neighbors to help one another get the crop in or out when the other is sitting idle waiting on a part.
— Brian Gilbert, South Dakota
It’s been a big challenge on equipment. I’ve got a customer who [received] a planter July 1 that he ordered last year, so he missed a whole planting season. We’ve got another customer that builds pole barns and there’s a six-month delay on getting overhead doors for their commercial buildings. And another farmer, in his cattle barn … had some fans he needed to repair and replace and they can’t get parts until September because they’re back-ordered, and we had 95-degree heat the last two weeks. It’s been a real challenge.
— Rick Gentis, Indiana
The supply chain breakdown has caused a lot of disruptions for our ag customers. Overnighted parts have turned into three- to four-week parts. These delays have been extremely detrimental to our customers’ operations. It really slowed down spring work and now has slowed haying as well.
— Heather Malcolm, Montana
Some items are hard to come by and my customers are having to source their parts/products from a variety of suppliers. Many of my customers have indicated that they are having to wait longer or drive farther.
New equipment is highly inflated in price, which makes it harder to invest in it. Used equipment can be hard to come by and usually draws a premium.
— Terri Barrett, Minnesota
How are land values fluctuating in your area and how is it affecting farmers’ balance sheets?
Land values are highly inflated. We are seeing auctions produce sales around $10,000 to $12,000 per acre. This is up from $5,000 to $6,000 just a couple of years ago. These adjustments are inflating our customers’ balance sheets.
— Terri Barrett, Minnesota
Land values have risen over the past year and are sitting steady for the most part in our area. At most land auctions there are two different types of bidders: The older farmer with a large land base or the investor. In our area, for a good-quality, 80-acre parcel, you can expect to see anything from $13,500 to $15,000 an acre. These new land prices can certainly change a farmer’s balance sheet. However, it depends on how the farmer likes to look at their land value, whether it be cost or market price.
— Noah Juergensen, Iowa
Our land values have seen an increase over the past two years. We have seen an influx of people in Montana, and those people have cash to purchase ag real estate. In the past month we have seen a leveling out of the appreciated values and a slowing of the purchases. Our agricultural producer balance sheets are showing … appreciated values at this time on a market-value basis.
— Heather Malcolm, Montana
Land values in our immediate area have just been crazy. We were having a lot of $12,000 acre sales last year and now that’s $17,000 and now we’ve had some $20,000, $21,000 acre farm sales recently. The appraisals won’t justify it, the income side won’t justify it, but there’s a lot of cash out there that people are speculating that, with inflation, they better put it in a hard asset.
— Rick Gentis, Indiana
Land has been on the rise in the past 18 months and we are at or near record-high levels again. We tend to not adjust existing land values on the balance sheet as this can possibly mask operational profitability issues. However, the land inflation certainly gives borrowers more collateral cushion when contemplating that next purchase. However, with land at these prices it is difficult at best to justify the purchase from a cash-flow standpoint and it’s making it even more difficult for younger producers without a large land base to buy land at auction. This is especially concerning as all farmers want to create opportunities to bring the next generation back to the farm.
— Brian Gilbert, South Dakota
Land values have not fluctuated much in recent years. There was minor softening a couple years ago, but recent sales have been strong. Unless necessitated by a purchase or restructure, we tend to leave farmland values static on the balance sheet to better assess changes in net worth.
— Mike Youngs, North Dakota
How have growing conditions been so far?
In parts of Montana, we are still really dry and didn’t get the spring moisture. Other parts of Montana got the spring moisture and have good growing conditions. In southwest Montana, we had severe flooding in mid-June, which has washed out head gates, irrigation pumps. Some hay fields were under water. It has been a mixed bag depending on the location this year.
— Heather Malcolm, Montana
Western North Dakota suffered a severe drought in 2021 [while] 2022 has provided very good growing conditions starting with late spring snowstorms, which brought significant moisture. Crops, pastures and hay land have all benefited from this early moisture along with timely rains throughout the growing season.
— Mike Youngs, North Dakota
Crops in our area look good to excellent for the most part. However, we had some severe storm damage in the early growing season to farmsteads, destroying bins and buildings. This financial impact is not yet fully known as farmers are navigating the replacement cost and existing coverage with their insurance agents.
— Brian Gilbert, South Dakota
So far, we have seen decent conditions. We had a late start to the planting season due to unseasonable cold and wet spring weather but have been on track now. We received some timely rain. If we can continue to see some moisture, we will be set for a decent harvest.
— Terri Barrett, Minnesota
Weather conditions up until the past several weeks have been above average. We have had rain when needed and plenty of heat. Planters were late to get into the field by almost a month due to a wet and cold spring. We have had two windstorms come through the county recently, leaving behind some greensnap corn. The northern parts of the county were hit more than the southern, and some people have said their fields have 15 percent to 20 percent greensnap. However, if your fields were not damaged by wind, I would say we are on track to produce another good crop this year.
— Noah Juergensen, Iowa
We got a little bit late getting started on getting the crop out, but then it went pretty well. But we’ve been extremely dry for the last month and this is probably the hottest June we’ve had in 10 years.
— Rick Gentis, Indiana
Ag lenders across the industry are aging alongside their producers. How are you recruiting and training the next generation of ag lenders?
We have been fortunate to train and develop our ag lending staff over the years. In other words, we have moved our employees up the ladder as they have wanted to learn and develop their skills. Currently, we have experienced ag lenders who are in the middle of their careers. We also have a great pool of young bankers looking to join the loan department.
We invest in each employee. We work to provide top-level benefits, salary and educational opportunities. In addition, we work to allow our employees to engage in our community as part of their job. It is our responsibility to provide a vibrant and engaging employment opportunity; not only retain our talent but to cultivate it as well.
— Terri Barrett, Minnesota
I am a small part of our bank’s plan to bring in another generation of lenders. I am fresh out of college, graduating from Iowa State University in fall 2020, and have returned to my home county. Our bank has pursued several other young, local candidates for job positions. A core strength of ours is that many of our staff members were raised in our county. Our knowledge of and passion for the ag industry in our area helps us form strong relationships with our customers.
— Noah Juergensen, Iowa
At The First National Bank in Sioux Falls, we are very fortunate to have ag bankers of all ages. We offer flexible work schedules to allow them to help with farm chores in the morning or evening and give them the ability to help plant and harvest during the growing season. We think this is paramount as we want to help not only our customers, but our bankers to have the opportunity to be part of their family’s operation. This also helps our bankers stay connected with the ag industry by being active in their own family operation.
Also, we stay very well connected with our land grant university and try to stay involved with students. We offer internships from time to time to help build future bench strength for our department.
— Brian Gilbert, South Dakota
We list our job openings with the land grant university and utilize our existing staff networks to recruit new lenders. We offer not only internal and on-the-job training but external training opportunities for our lenders. They are encouraged to attend ag lending schools, Ag Lenders Range School and other training options. We continually try to build our bench.
— Heather Malcolm, Montana
We have had a real challenge finding experienced ag lenders. So the last three we’ve hired, we’ve basically recruited from fertilizer sales and seed sales. And we put a real emphasis on hiring local people who have been active in the past in 4H, FFA, somebody who shows a real passion for ag. That way they know the community they’re in, they know the people and they’re stable. They stay and it’s worked out really well for us by doing that.
— Rick Gentis, Indiana