Perspectives from the ABA Agricultural Bankers Conference by Dr. David Kohl

By Dr. David Kohl

The period following the presidential election intersected with the American Bankers Association’s Agricultural Bankers Conference in Milwaukee, Wisconsin. In my 47 years of addressing the conference, this was the third time the bankers convened next to the shores of Lake Michigan. The annual dose of networking and education from a wide array of national speakers covering a broad spectrum of topics was timely as the agriculture industry is in the throes of an economic downturn. What were some of the points, perspectives, and actionable takeaways from this year's conference?

The do's and don'ts of an agricultural bank

Considerable discussion focused on bank cultures and high-performing institutions. Five characteristics were discussed on how banks of any size can compete. Owners and board members must champion the agriculture industry in not just words, but actions. In other words, they walk the talk. As institutions become larger, they often become more corporate, which sometimes manifests as a void in the agricultural and rural community. Successful agricultural banks will have very competent people in key positions that carry out the vision, mission, and the core values. They know how to stay in their lane in the competitive environment with a focus on what they do well. One characteristic that was often mentioned, but sometimes taken for granted, is empowering support staff who are often the window to the business. An educational mindset is a top priority with both internal team members and customers as well.

I noticed the lack of new bankers in attendance at this year's conference. Hallway conversations centered on the fact that many tenured lenders’ positions were not being refilled upon retirement, or their positions were being filled by technicians and support staff. Of course, many banks are in a cost-cutting mode where educational opportunities are a low priority, which is critical in this part of the economic cycle. Another observation heard at the conference was that increased regulations are driving the consolidation of the banking industry and, in some cases, owners of family-owned banks are cashing out.

How bad is the agricultural economy?

One banker shared that he had $300 million in an agriculture loan portfolio that was either in a stressed or foreclosure situation, spread across a number of larger agricultural credits. The team at FINPACK indicated that the goalpost of financial performance was still in play, that is, larger operations tend to generate profits when well-managed. At the other end of the spectrum, large operations tend to lose a considerable amount of money when not well-managed or well-positioned.

Hallway conversations centered on the hope of another government disaster aid package, similar to the one earlier this decade, that would be the cure for profits and cash flow in this downturn. The FINBIN records illustrated that 60 percent of net income was generated through government infusion in 2020 compared to only 26 percent in 2023.

Machinery and equipment values are often the first to decline in a downturn and are devalued across the board by about one-third to one-half. Of course, inventories with no marketing and risk management program are at the mercy of the marketplace. With the exception of the West Coast, land values are holding par with more “no sales.” However, some competitive bidders are making headlines with record busting sales, particularly in the Midwest.

Sanctions and tariffs are a major concern for producers that are dependent on export markets. Borrowers with diversified operations, those in the livestock industry, or producers with off-farm revenue were found to be quite resilient in the short run, but there is always concern in the longer term.

Other points and perspectives

I chuckled when I heard an old phrase from decades ago about agricultural lending called the 3G's: good man, good loan, and good luck. To some extent, this has occurred where land value inflation has covered up some management and character flaws in recent years.

Many attendees at the conference indicated that there were smart kids entering the banking field with technology and computer skills. What is difficult with many of these new hires is their lack of interpersonal skills with limited eye contact, handshakes that are like a wet rag, and the inability to take coaching and critique.

One wise lesson gleaned from the conference was to make deposits early and often throughout your career and life in terms of giving, which allows one to take withdrawals later in life.

In the Women in Ag Banking Seminar at the conference, an important concept discussed that is relevant for today's world is to establish boundaries. As a result of technology, being available 24/7 is a recipe for burnout both in professional and personal life. Many of the women in attendance did not look for banking as a career, but banking found them. Attracting and retaining young people in the banking industry needs to be deliberate through internships and work-study programs.

Zippy Duvall, President of the American Farm Bureau Federation; John Boyd, President of the National Black Farmers Association; and John Asbury, CEO of Atlantic Union Bank, all indicated that financial literacy and education need to be championed by lending institutions. Whether it is in business or personal finance, having the skill set in action can provide the competitive edge.

Ice cream and butter buns

Craig Culver, Culver’s Co-Founder and Chairman of the Board, was a refreshing speaker in a down economic environment. What started in an old root beer stand with his parents is now just over 1,000 franchises throughout the United States. He stressed that having the right partner and being passionate about the industry was critical. His experience with McDonalds’ training program early in his career was critical for Culver's ongoing success. He indicated that a banker had the confidence in his family when they were facing an economic downturn. The banker provided more than just financial support, which was critical for both banking and business success. Giving back to 4-H, FFA, and to farmers is a priority of the Culver franchises.

As we move towards 2025, make education a priority and keep a positive mindset. Be a lifelong learner and surround yourself with the right people. The down cycles allow one to build the best business models because the return on relationships often has a positive impact on the return on assets and investments.