Ag bankers consider 2019, look forward to 2020
By Alaina Webster
Between trade tensions with China and natural disasters affecting virtually every part of the country, ag producers in the U.S. faced a challenging 2019. Will 2020 be any better?
In speaking with a handful of bankers from the Southern and Midwestern parts of the country, the answer seems to be a resounding maybe. Due to the USDA’s Market Facilitation Program, most producers who were hit with either production or trade issues have been able to make ends meet, but with weather uncertainties always a factor and trade talks continuing to drag on, most producers aren’t looking forward to more of the same next year.
“Risk management seems to be a topic that gets a lot more conversation nowadays,” said Joseph Beaver, senior vice president, agriculture lending, at First Southern Bank, Florence, Ala. “Marketing, hedging, crop insurance, all those sorts of things — everybody’s having to pay more attention to that and really kind of manage the downside with commodity prices where they are. Those things need to become more prevalent — at least we think they need to be more prevalent. We’re having more conversations around those kinds of things. The producers certainly have an interest in that and probably have to spend more time than they like spending on it.”
Still, bankers revealed the majority of their producers support the ongoing trade discussions, believing long-term gains outweigh short-term discomfort, and farmers and ranchers are thankful the USDA’s MFP is helping them to maintain their livelihoods while the government continues to wrestle with China.
In short, “cautious optimism” might be the best way to describe the sentiments of both ag bankers and producers going into 2020. For a more nuanced, in-depth perspective, read on for quotations from the panelists::
- Walt Stephens, market executive, president, Greenville/Leland markets, Regions Bank, Greenville, Miss.
- Joseph Beaver, senior vice president, agriculture lending, First Southern Bank, Florence, Ala.
- Leonard R. Wolfe, president, United Bank & Trust, Marysville, Kan.
- Ronald “Ronnie” Petree, market president, Home Bank, Lake Charles, La.
- Peg Scott, CEO, Union State Bank, Greenfield, Iowa
- Bill Crutcher, market president, First United Bank, Wichita Falls, Texas
What trends have you seen in 2019?
Labor shortages: “One of the top trends that has been in the forefront of the industry for many years is that of labor due to the fact that the agriculture industry is so heavily dependent on the labor force. This resource is becoming more and more expensive in an industry that is squeezing its margins to the very penny it has.” — Walt Stephens, Mississippi
“You continue to have less and less farmers. You have no new farmers really starting, so I worry that we’re going to lose a way of life and the culture down in the rice industry.” — Ronnie Petree, Louisiana
“When grain prices began to fall … cotton rebounded a little bit. In about ‘15, we saw some people start to come back in, and in ‘18 we saw just about everybody come back in … There’s one big obstacle there, one dilemma for people who want to come back into cotton — it takes about 1,500 acres to justify buying a roller picker, and some people tried to come in less than that, and it’s just very difficult to find the labor that you need to use the old equipment. It’s just about cost prohibitive to have that custom harvested, so either you have to come back in a big way or not at all.” — Joseph Beaver, Alabama
Low commodity prices: “We’ve been fortunate that while commodity prices have been down, yields in our area have been good and it looks like it’s going to be another good year.” — Peg Scott, Iowa
“We’re going to have some really good crops this year — I mean, weather permitting, if we avoid an early frost or hail or something like that — but generally it’s going to be pretty darn good. The prices aren’t great. The prices are very similar to what they were at this time last year, but the new 2019 market facilitation program pays differently this year than it did last year. It paid on what you actually produced last year, which didn’t help those that had issues with weather and had to collect through crop insurance. This year, the program pays on a per acre basis for planted acres.” — Leonard Wolfe, Kansas
“We’re seeing contraction within the industry. We’re not seeing expansion, and I think you’re going to continue to see that for the next couple years until these commodity prices rebound.” — Bill Crutcher, Texas
Certain products harder hit than others: “Due to the weather conditions … our yields are off in regards to rice substantially. There’s predictions between 30 and 35 percent, which is huge. There’s a lot of crawfish production in our area, and a lot of those farmers’ yields are off as well. It’s hard enough to make money on rice, so a lot of people will use the crawfish to supplement their income … I’ve been in banking for 41 years, and every year pretty much a group of farmers will say it’s going to be one of the worst years … and usually I felt pretty confident that things were going to be pretty good in the long run, and I still feel that will happen in this case, but it looks like it’s going to be tighter than normal, than it has been in a number of years.” — Ronnie Petree, Louisiana
“Livestock is always up and down. What we’ve seen is the biggest stress in the ag sector has been on our livestock producers, the cattle producers and our hog producers. Dairy — they’ve had some really good years the last three years, but this year is probably going to be a little low for our dairies, but the row crop is going to be, I think, pretty good. It’s going to be a below average year for our beef and pork and dairy producers in this area.” — Leonard Wolfe, Kansas
“I’m looking at the contraction of livestock … The worst thing that’s happened to the dairy industry is select breeding. We’ve overpopulated our milk herds; therefore, they’re over producing, producing more products on the market, which is going to have an adverse effect on the price. And one thing we’re seeing within that industry, those guys know that, and they’re contracting, they’re liquidating their herds, which is counter cyclical because then we’re putting more beef on the market, therefore it’s pushing prices down.” — Bill Crutcher, Texas
How have weather-related disasters impacted agriculture?
“For natural disasters, you can assume what the normal ones (tornadoes, hurricanes, etc.) would do to the agriculture industry in Mississippi; however, the one that has garnered the most attention was the flooding event that took place in the south Delta back in the first few months of the year. During that time frame, we had approximately 544,000 acres of homes, trees and cropland underwater for several months and as a direct result, this area was not able to continue its normal way of life, most of which was agriculture related. Forty-five of our 82 counties in Mississippi were designated as natural disaster areas to floods.” — Walt Stephens, Mississippi
“You wouldn’t think that you’d have both, both too much water and not enough, but we’ve seen that this year. We also had some areas that did experience some devastating hail this year, too. We’ve had hail storms that come through certain areas … that looks like a herd of buffalo went through … It looks about a mile wide. I heard it’s as far as you can see in both directions.” — Leonard Wolfe, Kansas
“We had biblical floods back in the late winter, early spring, when it was time to start planting. We had the same issues here that you probably have seen many places. We had delayed planting, and once it was planted, we had sidewall compaction, all the issues of trying to plant in fields that were really too wet to plant, and a fair amount of prevented planting. They’ve had to change their crop mix based on what they could get in the ground.” — Joseph Beaver, Alabama
“I hope and I pray to God that we won’t see the weather conditions that we faced this year. There were a lot of things that all fell into place at one time that weren’t good. They’re good producers; they make good yields. But when they’re [historically] making a 45 to 55 yield and they’re down in the 28s to 30s, 35s, that rough.” — Ronnie Petree, Louisiana
Do producers support the ongoing trade war?
“Nobody’s happy that it’s still dragging on. As far as the long term, I think the majority of producers are still in support, that we need a long term solution. That support has started to erode some. I’ve heard more people that are growing unhappy, but the majority are still supportive and think we need to get this. We’ve taken the hit now, so let’s go ahead and get it fixed. That’s kind of the sentiment, I guess.” — Joseph Beaver, Alabama
“Of course, the tariffs have been a concern, but most farmers I talk to are supporting the tariffs. Their comments generally are that we’ve been taken advantage of as a country for a long time and it needs to be done. We need to get this straightened out so that we’re on a level playing with other countries, particularly China. Our ag customers have gotten a subsidy last year and this year to make up for the depressed prices caused by this whole tariff issue. So we feel like our customers are hanging in there, certainly not making a lot of money, but they’re able to hold it together. If the weather hadn’t been as conducive to high yields, then we’d have some serious conversations.” — Peg Scott, Iowa
“I believe that all of the farmers I have spoken to are in support of the tariffs as they as an industry want fair trade; however, as the end of the day, most if not all of them just want to make a living. Most in the agricultural community feel that in response to the tariffs the USDA and the rest of the government are doing what they can to help support the industry in the form of the market facilitation program, but at the end of the day, they all know this program will not last forever.” — Walt Stephens, Mississippi
“In talking directly to my producers, they’re concerned about it; they’d like to see it put behind them. They would rather see the market dictate the prices rather than the tariff issues and the trade issues, but as long as they get those market facilitation program payments that reimburse them for their losses they’re experiencing indirectly from the trade war, my producers seem to be fine with the trade war so far. It’s a battle that needs to be fought, and they’re supportive of it as long as they get these MFP payments that compensate them for the loss of the market.”– Leonard Wolfe, Kansas
“I think the industry as a whole agrees it’s time to finally jerk some things back in line, let us get everybody on equal footing … But it makes people nervous so they don’t know what’s going to happen … that creates uncertainty in the market, and it makes me scared.” — Ronnie Petree, Louisiana
“It is affecting our commodity prices, primarily cotton as well as wheat. These tariffs have really driven down the price. Fortunately the government stepped in with FSA payments, which is helping. It’s just not near enough to help these farmers get to where they need to be … [Half of producers] are supportive because they support a free market system. Your other half are against it because we are hindering trade, but in the long run, it should be beneficial for our producers.” — Bill Crutcher, Texas
Where is the industry headed in 2020?
“The challenges are going to be the substitute meat sources. It seems as though it’s growing in popularity. It’s really being pushed hard by the restaurant industry, and we’re seeing more advertising … Consumer changes — I think that’s going to be our biggest fear going forward, the taste of the consumers and their preferences.” — Bill Crutcher, Texas
“We do need to get consumption inside the United States increased, but we also need to create other markets. I think pricing will still be a challenge, and then of course, who knows? It’s an act of God that we have to rely on.” — Ronnie Petree, Louisiana
“2019 was the fifth year in a row of lower commodity prices, which has caused a lot of borrowers to erode their financial position in order to continue in the ‘family business,’ and as a result, we will start seeing more and more balance sheets with less equity. Borrowers will also be forced to start trying to roll short term debt into long term debt hoping to keep the business afloat — hope is not a strategy. I believe the trade wars will continue to be on the forefront again in 2020, and I do not know what that will continue to mean for the commodity markets. Farming has always been an industry of peaks and valleys so to speak, but 2019 and into 2020 could definitely put us as an industry into uncharted territory.” –Walt Stephens, Mississippi
“The ongoing challenge is going to be commodity prices. Everybody will continue to struggle with that. I think that’s forcing producers to look at things in a different manner. I hear more talk about managing for profit versus managing for yield, but I certainly wouldn’t say that is a prevailing sentiment. It’s something they’re having to look at, and I don’t think that it’s something they like to have to look at … You know, risk management seems to be a topic that gets a lot more conversation nowadays. Marketing, hedging, crop insurance, all those sorts of things. Everybody’s having to pay more attention to that and really kind of manage the downside with commodity prices where they are.” –Joseph Beaver, Alabama
“Our customers have been farming for a long time, so they have quite a bit of equity; they’re not in as fragile a situation as many of them were in the 1980s.” — Peg Scott, Iowa