We reached out to our credit analyst intern, Joe Ver Steegh, to get his opinion on the current state of the agriculture industry from a student’s perspective.
Have you ever been on a rollercoaster? I’m sure at one point in your life, many of you crawled into one of those tiny cars, buckled in, and held on for dear life as you flew around the track. There is a rush that some can’t get enough of, while others would rather not do it again. Ever. Agriculture is similar to a rollercoaster, with its ups and downs and twists and turns. Even in my short 21 years of existence, we’ve seen record yields and record profits only to be scrounging for extra cash to pay the bills a few short years later. However, farmers recognize that these cycles are a natural occurrence in the agricultural economy and the general economy. There will be always be fluctuations as the market responds to cyclical conditions.
As someone who will be graduating college in the next year and looking for a full-time job somewhere in the agricultural sector I can’t help but be a little fearful of the way things are trending over the last few years. There’s no doubt that things are tight and getting tighter. It makes you wonder if companies looking to hire college graduates will start to follow suit and slow down, reducing the total number of opportunities that existed just last year.
Entrepreneurship in the Ag Sector
The fierce competition has led to many college students giving entrepreneurship a try. Along with that, many exciting new technologies, products and improved methods have come from this model. All in all, I believe this entrepreneurial business route of making breakthroughs and challenging the status quo is crucial to continuing to meet the ever-increasing demand put on producers and agriculture in general.
The current market makes me think back to the stories I have heard from the 1980s ag crisis. (I don’t think my generation knows just how good we have it.) I remember hearing a story about how a neighbor’s tractor had sat at the dealership all winter because the farmer didn’t have enough money to pay for the new motor that had to be put in it. Or how people lost a farm because they couldn’t afford to pay the interest (rates were around 20 percent) on loans, let alone the principal. Another story was that the only reason one family was still farming today was that the bank was too busy arguing with a neighbor who was worse off than them during the 1980s. I hope that we don’t see this kind of market during my lifetime, but remembering helps keep things in perspective. I know that the ag industry has its ups and downs, but we all still want to be part of it.
According to the Iowa Banker Association in a recent article about the agriculture economy today’s farmers are in an overall better financial position, with strong equity and less debt on their balance sheets, as compared to the 1980s. The current low-interest rate environment also provides today’s farmers with a lower debt service cost.
The Iowa banking industry remains in a strong and healthy condition and is prepared to assist farmers through this economic cycle. After many years of prudent management, Iowa’s agricultural banks have strong balance sheets that allow them to help those clients in distress. Iowa banks have a variety of tools available to help farmers in need of assistance, often partnering with public agencies, like the Farm Service Agency. Farm borrowers and their lenders may consider any number of tools to weather financial challenges, such as loan restructuring, collateral enhancements, USDA loan guarantees and most importantly, frequent communication.
One thing that has always left me in awe is how people all across the agriculture sector come together after a tragedy. Take the recent wildfires in Texas as an example; people’s livelihoods were devastated in the blink of an eye as their crop, livestock and homes were destroyed. And yet, no one backed down and threw in the towel. People across the country stepped up to lend a helping hand, whether it was sending hay and other feedstuffs to ravaged areas or helping pick up the pieces directly afterward. It was a beautiful thing to hear. To know that complete strangers from thousands of miles away will send whatever aid they can to those affected by tragedy makes me proud to be part of the agricultural industry.
Iowa Bankers also suggests that farmers be proactive in asking for help if they need it. If a farmer does encounter cash flow difficulties during a cycle, they should notify their banker as soon as possible. The sooner a borrower can visit with their banker about their situation, the sooner their banker can work with them on debt restructuring issues and find any other available tools and assistance.
Iowa banks are committed to helping Iowa farmers through these types of challenges and will work within their regulatory guidelines to ensure adequate capital remains available to serve the agricultural community. I think we can all agree this gives some peace of mind to those in the agriculture world – banks do their best to work with you, not against you.
Even with the struggles my classmates and I will face over the next few years, we all still look forward to being part of a great industry with a long, respected history.
TS Ag Finance is very proud to have Joe as our intern for a second year and know that he has a bright future ahead of him. Feel free to share your views in the comment section below.
The views and opinions expressed in this article are that of the author, not of the entire organization.
*Source: FDIC, 2015 farm and agricultural production loans at Iowa banks. Contact: Bob Hartwig