Editorial content organized by topic
Sponsored content from industry partners
PRODUCT/CONTRACT ANNOUNCEMENTS
Latest offerings by category
Latest offerings by category
Articles submitted by industry partners
| AgPulse 2025: Our allies... the Farm Credit System? (January 2009) |
|
|
That’s no typo—we asked a special panel to predict how ag, and ag banking, would look at the quarter century. Wow, how things may change. By Steve Cocheo, executive editor, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
That’s just one of the startling predictions for ag banking in the year 2025 But ask veteran ag banker Dennis Everson about his business in the year 2025, and he’s got some very definite ideas, including one shocker to current thinking: U.S. farm banks will by then have stopped seeing the Farm Credit System as an advantaged mega-competitor to banks; instead, they will see the Farm Credit System’s institutions as allies. “We’ll see some unique things happening between us and our government-sponsored entities,” says Everson. “I think we will see a lot more partnership.” Beating swords into loanshares There is much behind Everson’s argument, but one factor is human nature. “This current generation of bankers that has done nothing but fight with the Farm Credit System will have all retired” by 2025, says Everson, who is president of the Agri-Business Division at First Dakota National Bank, Yankton, S.D., (and winner of the ABA’s 2008 Bruning Award for commitment to agricultural banking). This will clear the way for a fresh perspective. Part of what may bulldoze the way for such change, and for that fresh thinking, may be a shift in the future status of the federal Farm Credit System, suggests Samuel Miller, senior vice-president, agri-business and food banking, at M&I Marshall & Ilsley Bank. Miller thinks the partnering up—which has been seen now and then in individual markets—may come even sooner than 2025. “Farm Credit may get to the point where they say, ‘We need more capital, and we need more predictable capital’,” says Miller. “I can see a scenario where they give up their cooperative status and become a for-profit bank. And that will level the playing field.” What would drive such an evolution, when the present is marked by relations that range from competitive to downright cutthroat? Miller suggests regulatory reform might be one driver. Much is going to be looked at in the new Congress, and a look at Farm Credit isn’t inconceivable, even though the mortgage market is center stage. But the other is a market-driven need to evolve. “As the number of farmers shrinks,” says Miller, “so does their potential customer base. And if they want to get into other lines of business”—a seemingly perennial goal—“that means that they have to level that playing field.” What events could lead to banking and Farm Credit going from institutional enemies to cooperators? Everson and Miller were two of five participants in a telephone roundtable panel discussion assembled by ABA Banking Journal and the ABA Agricultural Bankers Division in November to discuss the future of ag banking and agriculture. The group included a noted ag economist, three American ag bankers, and an ag banker from Canada.
Ag Banking Roundtable Panelis
Dennis A. Everson, President, Ag Business Division, First Dakota Nat. Bank, Yankton, S.D., $698 million-assets
Brian Little, Head of Agriculture and Agri-Business, RBC Royal Bank, Toronto, Ontario, $723 billion-assets
Samuel J. Miller, Senior Vice-President, Agribusiness & Food Banking, M&I Marshall & Ilsley Bank, Appleton, Wis., $57 billion-assets
Roger Sturdevant, Executive Vice-President & Agribusiness Division Executive, Bank of the West Fresno, Calif., $64 billion-asset
Dr. David M. Kohl, Professor Emeritus Agricultural and Applied Economics Virginia Tech, Blacksburg, Va.
As Sam Miller’s answer presaged, shrinkage and consolidation were frequently predicted for agricultural America by the panelists, who addressed these topics at a similar session, also pegged to the quarter-century mark, at ABA’s National Agricultural Bankers Conference in later November. The group addressed trends among both farms and farm lenders. Everson had done some number crunching to reach his conclusions about future farming. “By 2025,” said Everson, “I see the ‘lifestyler’ farmers as being all gone.” By lifestyler he means people who work off-farm jobs during the week, and work their farm evenings and weekends. “The Baby Boomers are the ones that really got into the weekender stuff,” continued Everson. “They don’t mind working 80 hours a week at another job that pays a salary, and the rest weekend farming.” These farmers are 44-62 years old right now, Everson continued, and they’ll be 61-80 by 2025, pretty much past the rigors of farm labor. They won’t be followed by Gen X and Gen Y, Everson believes. That group “works to live instead of lives to work,” said Everson, “and so I don’t think they are going to have much interest in being a lifestyler. They are just having too good a time on the weekends.” Everson noted that one Iowa study based on U.S. Census data found that a few years ago there were 1,000 ag producers under 25 in the state, whereas there were 3,500 under 35 years old. That’s a potential 71% drop. All told, this means there will be fewer people willing to run America’s smaller farms, and that will contribute to acceleration of farm consolidation. “We will have nothing but corporate farms owned by groups of investors, simply because the biggest crisis in ag industry today is lack of youth,” said Everson. This has legislative as well as business implications “The U.S. determines a lot of our farm bills based upon the weekenders,” said Everson, “versus the commercial producers.” So ag policy may shift. But so, too, will the need for ag banking services. So Everson predicts that the banks—large and small—that are currently the largest agricultural lenders will be the only banks serving the remaining producers. What Canada is seeing Growing, self-contained farms will be adding to their holdings both for efficiency and diversification, suggested Brian Little, head of Agriculture and Agri-Business at RBC Royal Bank. As an example, he posited that a large Ontario dairy would likely want to diversify by buying a poultry operation in another province. As such growth occurs, needs will change. “Some of these folks, instead of borrowing today’s $10 million, will be borrowing $100 million in 2025,” said Little. “And some of them may even become publicly held farms. That’s how I think our own ag industry is going to go.” Even with Canada’s already concentrated banking business, Little thinks there are consolidation implications. “We have six chartered banks and we have a federal lender called Farm Credit Canada,” says Little. “I think that two or three of these chartered banks are going to rise to the surface and capture some of the large farm business by 2025.” Where the federal lender will fit in depends on its appetites for growth, over time. Maybe not “all or nothing” While all participants agreed that there will be shrinkage among both producers and financiers, some of the others didn’t see such a drastic shift coming by 2025. Most expect something more like a barbell distribution coming for the farm sector in the U.S. In some aspects, the shifts will depend as much on technology and energy issues as on demographics. M&I’s Sam Miller, for instance, does a great deal of dairy finance, and he sees more and more integrated “closed-system” operations that make use of by-products. Manure, for example, an unavoidable bovine issue, is already being converted to methane and then into electricity at farms in Wisconsin and other states, Miller points out. He predicts that other uses for such renewable, formerly wasted assets will be found. And he expects to see farmers making more money as these possibilities are explored. “We harvest corn right now and that gets ground into livestock feed or turned into ethanol or made into Fritos,” said Miller. “But we’ve still got the rest of that corn plant, which is great organic matter that might be turned into power as well.” Roger Sturdevant, executive vice-president and agribusiness division executive at Bank of the West, Fresno, Calif., said such large operations will be balanced at the other end of the “barbell.” “You will have a lot of boutique and specialty crop operators, and in the middle you will still have that lifestyle group,” he said, differing with Everson. “However, the larger, integrated operators are probably going to account for something like 90% of your basic commodities and protein sectors.” Sturdevant predicted that “most of your fresh produce is going to be grown on a hydroponic basis, and the production facilities will be located within 1,600 miles of major metropolitan areas.” Miller pointed out that with fuel prices recently at a high point, the costs of moving produce from farm to consumer are underscored. “A big share of the food dollar goes for transportation,” said Miller, “and you can become more competitive by keeping that farm production local.” A factor feeding the boutique and specialty movements will be the advent of “urban farming.” “In Kansas City, they already have rooftop gardens,” said Sam Miller. He sees this coming to other areas, in the form of greenhouses and other structures that contribute to delivery of local food for an increasing number of local mouths. Dr. David M. Kohl, professor emeritus for agriculture and applied economics at Virginia Tech, Blacksburg, Va., told fellow roundtable members that he expects to see a European model market in the U.S. by 2025. He said that 20% of food, fuel, and fodder will be local, natural, and organic. “People will take control of their food,” he said. Not all participants agreed, as has been hinted already, with Everson’s view that the lifestylers will be gone. “They will be people who either grew up on a farm, or had grandparents or aunts or uncles who had a farm, and who believe that the country is a great place to raise children,” said RBC’s Brian Little. “They’ll take the farm instead of the golf course membership. I think there will always be a few of the lifestylers.” (RBC is the largest nongovernment lender to agriculture in Canada.) In a similar vein, Little also believes that agri-tourism—from corn mazes to pick-your-own fruits and vegetables and fresh farmstand produce—will continue to have an appeal. And that will keep some smaller operations run by lifestylers in business. Dr. David Kohl agrees, and thinks in the U.S. the trend may be even stronger. “As people go more and more high tech, around 2025 they will begin to seek life experiences—outdoor types of experiences—even more than we do today,” predicted Kohl. This will be accompanied by a deeper demographic shift in preferences that Kohl expects, partially due to the large Hispanic population, and the growing number of minority homeowners who will want reasonably priced, energy efficient homes requiring minimal maintenance: “Your big, fancy Ken and Barbie doll houses will go the way of the Harvestore silo.” Syndications on the rise Everson’s predictions are overlaid by broader industry issues—the possibility, for instance, that the TARP capital program will facilitate consolidation. But consolidation isn’t the only option for meeting the needs of larger players. Bank of the West’s Sturdevant, for instance, sees more teamwork among ag banks by 2025. “As farming operations come to be fewer and larger, that’s going to require larger credit facilities,” said Sturdevant, and I think there will be an increase in syndicated credits. There will probably also be more partnerships among commercial banks and the Farm Credit System. And I see community banks playing a prominent role in financing the lifestyler producer as well as the people involved in specialty crops or niche business.” Dr. Kohl predicts that by 2025 there will still be about 2,000 banks involved in ag in North America, and that they will be all over ag country. Of these, 10 to 20 will be large banks—including foreign banks. While there will be more of a European flavor to American agriculture, he said, “you’re also going to have a segment of very, very large farms, very analogous to the Ukraine or South America.” This shift is going to be entwined with complex, complementary migrations of population and ag production, he said. “One of the things that we’re going to expect to see is geographic migration of farmers and ranchers,” said Kohl. “As the metroplexes expand, [farmers] will go to other areas of the country where they can expand operations to significant size.” Community ag banks, he says, will be scattered throughout the areas given over to lifestyle and European-type operators, but they will also take pieces of the larger agricultural producers, as well. BJ The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0109/index.php?startid=16 
Set as favorite Bookmark
Email This
Trackback(0)
Comments (0)
 Write comment
|
TrackBack URI for this entry
Subscribe to this comment's feed
| Tweet | Follow Us:  |
