High prices for food, fuel good for ag banks

Agriculture lenders are a happy lot these days. Business is good, they say. It’s never been better, as a matter of fact. And short of a highly unlikely global economic collapse, it should remain so indefinitely.

“The ag sector in Northern Colorado is very healthy,´ said Greg Bell, chief lending officer at New Frontier Bank, one of the top ag lending banks in the nation with $800 million in loans. “Extremely good things have happened. We’re one of the top dairy expansion states in the United States, which brought the Leprino cheese plant to Greeley. JBS Swift is increasing kill capacity (of cattle), and in addition to that, high energy costs are having a positive impact.”

You read that right. Before the cost of gas began to skyrocket, Bell explained, Canadian cattle-feeders shipped 35 head of finished cattle per trailer load to JBS Swift’s meatpacking plant in Greeley. Now they’re bringing in 90 to 100 cattle per trailer and finishing them to 1,200 pounds here in Weld County. The upshot is more demand for feed and better prices for farmers.

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“It really began in earnest one year ago when JBS bought Swift. They wanted a steady supply of cattle,” Bell said.

Ethanol drives corn

Ethanol production has also driven up corn prices. Though detrimental to cattle feeders, it’s good for farmers. Des Moines, a top corn producer, pays growers 70 cents less per bushel because the corn is exported, Bell said. Colorado, on the other hand, is an import state – it doesn’t grow as much corn as is needed.

Bell said the Midwest’s devastating floods have taken out 20 percent of the nation’s corn crop. Higher prices for corn farmers are sure to result.

The ag sector hasn’t always been robust, Bell said. Just two years ago the dairy industry was reeling from low prices due to overproduction. But increased exports – an 89 percent increase just last year – helped that sector stabilize.

“We’re becoming balanced on supply and demand on a worldwide basis,” Bell said. “There is not overproduction of food in the world anymore.”

Dan Allen, president and CEO of First Farm Bank, said the fall of the American dollar “has made our product more attractive and has made us more competitive on a worldwide basis.”

He describes the ag-lending sector as “stable.”

“We’re seeing higher than normal prices, but we’re also seeing higher than normal input costs,” he said. “They offset each other to some degree.”

He noted that real estate values continue to climb due to higher crop prices.

“Farm investors are buying land for recreational and other investment purposes,” he added. “There’s more interest in farm land from outside of agriculture. It’s coming from the investment community. We’re looking more attractive to investors than Wall Street.”

Allen noted that increasing commodity prices the last few years have allowed “several farmers to heal up and encourage them to stay in it for a while.”

Large loans needed

Farming is not cheap. New Frontier’s Bell said the average loan to a row crop farmer is $1 million while larger ag operations, such as livestock feeders, operate with $6 million loans. And large ag corporations typically will have $50 million loans.

Tad Mozena, vice president of community relations for Rabo AgriFinance with regional headquarters in Cedar Falls, Iowa, said the ag-lending sector is not experiencing the same financial crisis as the mortgage industry.

“We’re committed to ag lending and that’s all we do,” he said. In good times such as these, he added, more financial institutions begin offering ag loans, too. “Then when it turns the other way, you don’t see them.”

Mozena said that total assets under management at Rabo AgriFinance – with corporate headquarters in the Netherlands and an office in Greeley – is close to $5 billion. Loans go toward everything from daily operations to upgrading equipment. “I can’t say loans are used for one area more than the other. We are starting to see more outside investors, however. Ag is piquing their interest – and we have for the last couple years,” he said.

But this is not to say there won’t be challenges in the years ahead. With the average age of a farmer being 60, one of the biggest challenges is making the ag sector attractive to young people. One way to do that, according to First Farm Bank’s Allen, is via financial products and programs to help them get started.

“Mostly it means being flexible and willing to work with them and be creative in financing packages,” he said.