Ed Elfmann of the American Bankers Assocition Weighs in on the Current State of Ag LendingThu, 21 Nov 2019 22:12:47 CST
With Dipping prices, uncertain markets, and extreme weather conditions, farmers and ranchers have become a bit nervous about running out of money to support their farms. We caught up with Ed Elfmann, American Bankers Association Senior Vice President in Kansas City to discuss the current state of agricultural lending.
With worries that we could be repeating the 1980's, one of the worst farm depressions to ever hit the U.S., Elfmann says a lot of things have changed since then, "The big thing to recognize is that the 80s were set up a lot differently than we are right now. Interest rates were 18-25% depending on where you were. That alone changes the whole cost of having a loan. But the other thing that happened in the 80s that we have to look at is that land values were a lot different, they started dropping off very quickly, and that created a lot of problems. The other side of it, the land was purchased at 5% down and 10% down, now we are talking 50-60% down on a land loan in order to have it. We've almost created an artificial floor in some ways on land values, which then helps us from a lending perspective because you have collateral tied up in the land."
The recent Agricultural Lenders Survey was released November 11th, and the Ag Bankers Conference was November 10-13th. Elfmann says they saw a lot of positives with the survey, "When we look at the survey results, the big takeaway for us is you know we are concerned, but this isn't the 80s."
Elfmann says one of the most important thing producers can do is to have that conversation with their banker, "Get in and chat with them. Talk about your plan. Talk about what you should be doing, and not just with your banker, get out of your kitchen table and go to your farm office table and sit around that table with your accountant, your lawyer, your marketer, and come up with a plan of action. What are we going to look like for the next year, 5 years, 10 years? And when you start developing those plans, you'll start looking at your finances a little bit differently, and it makes everything easier across the board when you are doing all that."
Elfmann reminds producers that it's essential to get out and have those conversations and the importance of communication. "Always be communicating, always be communicating. That makes such a big difference for good times and bad."
So what is in store for the long-term? Elfmann says we are in a plateau, "Not getting better, not getting worse. Commodity prices are going to feed into that, cattle prices will feed into that, and all kinds of other issues always do. All we can do is make sure we work together, and we are having the best outcomes possible for both the producer and the banker."
Looking ahead for 2020, Elfmann says the best piece of advice he would give producers is to keep those lines of communication open, "Get in early and talk to those folks and make sure everyone is on the same page. Any business you are in, if you have people who are not seeing eye to eye on things, it's not going to work, so make sure you are on that level, seeing eye to eye making sure itís what you want it to be, and be paying attention. Find out your cost of production because when you know that number it's going to be a lot easier to market that crop, and a lot easier to make those cash flows going into the future. So putting all those things together; Communicating, figuring our your cost of production which can get you your cash flow numbers, you'll be in a really good spot going into 2020."
KC Sheperd and Ed Elfmann talk about these issues and more. Listen to the complete interview by clicking on the listen bar.
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