Agricultural Lending Summit

Agricultural Lending Summit

Recently, I was part of an agricultural lending summit designed for lenders, producers, and others that work closely with the agriculture industry. A series of questions followed by dialogue and exchange provided some perspectives and insight as we close down 2020 and launch into 2021. In no particular order, let’s discuss some of the key themes specific to agricultural lenders and business operations.

Ag Lenders

Interestingly enough, one of the challenges discussed was about the transition of human resources and the acceleration of technology platforms for exchange with customers and internal bank use. One senior lender manager stated that he was about to lose a customer as a result of the retirement of a long time, legendary loan officer. The senior manager indicated that they could have done a better job in the transition by tag-teaming the account to provide reassurance that there would be stability in the relationship. Others chimed in with advice concerning the situation. They advised that the new lender, who was about to lose the account, should be given a good mentor and to utilize a tag-team strategy.

Some individuals indicated that the inexperienced agricultural lender needed to be a sponge, spending time reviewing the files, financials, loan narratives, and the customer relationship management reports. The junior lender also needed a keen understanding of the industry, current and future conditions, and economic trends. During the dual visit, they both needed to ask questions and be good listeners. For example, inquire about goals, the history of the business, and possibly develop alignment with the junior generation, if available. One lender indicated that it often takes three to five years to develop an individual's brand, and patience is very important, particularly following in the footsteps of an agricultural lending legend.

One manager’s strategy was to have monthly video meetings with his entire team, ranging from the tellers to the credit analysts. In these exchanges, specific individuals are required to tell the bank’s story and how their individual responsibilities are contributing to profitability and enhancing relationships with customers. These meetings have been a valuable exchange of great ideas. Storytelling, backed with information customized to an individual, is a powerful relationship builder.

Another idea proposed was to build customer relationships through the use of information. One lender developed a scorecard of key financial information. To take it a step further, they went to the marketing department for advice on how to simplify and bring value in the eyes of the customer. Next, they did a dry run with key customers to validate the eye appeal to the end user. Whether it is financial ratios, cost of production, or a breakeven analysis, this practice provided better financials for the lender and made the customer a better manager. In other words, attempt to develop a mindset that there is a cost of not doing business with the specific lender.

Lender work culture is especially important to bring out the passion and commitment of people. It is important that individuals feel that they can speak out and occasionally “poke the bear” to challenge the status quo. The thought of being listened to and having your suggestions put into practice is powerful in the process of incrementally getting better and building loyalty.

One young banker’s frustration is that some producers have goals in their head, but they do not know the process of getting to the end result. He further stated that if a producer did not know their goals, had very little understanding or interest in financial and business management, or no motivation to develop goals, it was generally a waste of time to pursue the relationship.


Working side-by-side with producers to review cash flow scenarios and marketing and risk management plans with financial sensitivity analysis can provide a pathway of outcomes. This approach provides touch points to build and enhance relationships, even while using technology during the pandemic.

The rise of government support payments as a percent of net income is a great concern of many for 2021 and beyond. Government payments of other competing nations can quickly turn the tide of competitiveness for U.S. farmers and ranchers. In the U.S., future government stimulus programs that compete with other sectors and distort images of the industry are of vital concern to the customer risk profile.

The future administration’s stance on global trade and the rise of competition through new trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could have an impact on the income statements and balance sheets of agriculture. This is true if the United States is not involved with these trade agreements.

Regardless of the commodity, much success is centered around the management mindset of individuals. After decades of analyzing farm business records, I have found there is a distinct segmentation of the top, middle, and bottom third of producers linked to profits and cash flow. Granted, the same producers will not be in a given segment every year. Weather and other adverse events can quickly change a business’ fortunes. However, the group said when observing a field of producers some common characteristics generally separate performance regardless of the commodity.

The top third of producers are usually those with high production and operational efficiency. Their balance sheets usually exhibit modest financial leverage when compared to others. Working capital is generated through farm profits and disciplined cost management. These producers also are disciplined in family living costs. The top third of producers will have high business IQs and tend to be proactive, good planners who execute and monitor their plan.

The bottom third of producers are looking for the “next big thing” or high prices for a quick fix. Many in this group are reactive managers. This segment may show high amounts of equity which can lead to passive management. Producers in the bottom third of profitability may rely on capital appreciation of assets, such as land, to cover up mistakes in management as a result of a lower business IQ.

These are a few of the points covered in the agricultural lending summit that are applicable to both lenders and customers operating in a decade of economic volatility and uncertainty, which can create challenges and chaos for some, but opportunities for others.