Agricultural lenders see increase in demand for services to support customers
St. Paul, Minn. — A survey of Farm Credit lenders in America’s heartland shows an increased demand for market risk management services as farmers, ranchers and agribusinesses respond to a tightening agriculture economy. AgriBank, the St. Paul, Minn.-based Farm Credit Bank, released the poll with a new report that examines trends innet farm income and farm balance sheets, and points to the need for producers act now to position themselves for success.
When asked which service has seen the greatest increase in demand in 2015, 57.1 percent named market risk management. These same lenders reported significant growth in demand for assistance with business planning, interest rate risk management and crop/revenue insurance.
AgriBank conducted the poll May 14 among chief executive officers of its affiliated Farm Credit Associations. The 17 Associations affiliated with AgriBank are top providers of loans for agriculture and rural borrowers in a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas.
“Which of the following services has seen the greatest increase in demand in 2015 as customers start to prepare for the agriculture efficiency cycle?”
Business planning — 21.4%
Crop/revenue insurance — 7.1%
Interest rate risk management — 14.3%
Market risk management — 57.1%
Source: AgriBank poll of chief executive officers of 14 of its 17 affiliated Farm Credit Associations, May 14, 2015.
AgriBank Insights Report: The Agriculture Efficiency Cycle
A new AgriBank report released with the survey finds that U.S. farmers are in a strong financial position, but crop producers need to cut costs as crop prices fall from historic highs into an agriculture efficiency cycle.
“In recent years, crop farmers across America’s heartland have generally enjoyed a period of strong financial progress. However, in the past few years, commodity prices have declined significantly, and net farm income, based on USDA forecasts, is expected to fall over the next decade,” said Jeff Swanhorst, AgriBank’s chief credit officer. “Producers who see today’s environment as an agriculture efficiency cycle—and find ways to drive down cost per unit of production—can position themselves for continued success.”
• Net farm income falling. After the record $129 billion in 2013, the U.S. Department of Agriculture (USDA) projects aggregate nominal net farm income to decline in 2014 and 2015, reaching a five-year low of $73.6 billion in 2015.
• Farm balance sheets strong but moderating. The U.S. farm sector debt-to-asset ratio, a measure of overall farm financial health, reached an all-time low of 10.6 percent in 2014 and is projected to increase only slightly to 10.9 percent for 2015—still well below the values that prevailed in the 1980s and 1990s. This compares to the high of over 22 percent during the height of the 1980s farm crisis.
• Agriculture efficiency cycles require cost cuts. While strong balance sheets provide a window of opportunity for producers to adjust to changing market conditions, the expected decline in net farm income means producers must bring income and expenses in line. A solution in periods like this is to drive a higher level of efficiency into operations, which can reduce the cost per unit of production.
The report outlines four steps producers can take to adapt to today’s agriculture efficiency cycle:
• Understand all of the primary factors that determine their cost per unit of production.
• Research and thoroughly evaluate those practices, techniques and technologies that have the potential to reduce the major cost of production categories. Adopt those that can have a major impact on cost per unit of production.
• Take advantage of historically low interest rates by locking in fixed rates when appropriate.
• Use crop/revenue insurance and sound, prudent marketing strategies to protect and enhance the gross revenue side of the farm income statement.