The Tri-state and Siouxland Ag Lenders Seminars were combined into a virtual seminar in early November due to health concerns from the Coronavirus pandemic. 158 lenders, consultants and academics from five upper mid-west states heard four presenters, including: Mike North, President of EVER.Ag; Dr. Wendong Zhang, Assistant Professor, Iowa State University; Dr. Mark Stephenson, Director of Dairy Policy Analysis, University of Wisconsin, Madison; and Dr. Chad Hart, Professor of Economics, Crop Market Specialist and Extension Economist, Iowa State University.
Participants represented over 50 lending institutions, 15 consultants from other ag businesses and eight academics and researchers from Universities and Extension specialists. An on-line retrospective program evaluation was used to collect insights from those attending. From the data it was estimated that their clients represented 7,033 ag producers; those producers cropped over 4.8 million acres and milked over 381,767 dairy cows.
For the past two years the evaluation asked what percentage of their clients had plans for expansion in the next five years. In 2019, the average was 40 percent and in 2020 that edged down to 37 percent. Other clients had plans to exit the industry, in 2019 that number was 13 percent and in 2020 that number was 12 percent. Concerning dairy clients, the lenders were asked how many had plans to add automated milking systems (AMS). In 2019, 12 percent indicated that was being considered. In 2020, that number had dropped to 8 percent.
For the past three years we asked several questions focused on agricultural loans to better understand the state of farm loans in the upper mid-west.
Topic 2018 % 2019 % 2020 %
More Less Same More Less Same More Less Same
Number of “at risk” accounts in portfolio 50 0 9 50 10 40 35 13 52
Rejecting or reducing loan requests 45 0 55 29 6 65 10 8 82
Change in alternative/vendor financing 71 4 25 75 0 25 70 0 30
The lenders were asked to indicate the changes they were making to respond to the changing farm income. They were given six options, this chart shows the responses:
Bank changes % indicated adoption of practice 2018 2019 2020
Increased collateral requirements 39.0 35.5 33.0
Reduced dollar amount of loans 12.2 6.5 7.0
Increased dollar amount of loans 0.0 3.2 13.0
Increased interest rates 34.1 22.6 4.0
Rejecting more loan requests 45.0 22.6 20.0
No change in lending 2.4 9.7 23.0
The lenders were then asked to rank their economic concerns for their dairy clients. They were given these seven choices: working capital, debt to asset ratio, feed prices/availability, milk prices cash flow, profitability and other. Working capital and profitability tied for the top concern with cash flow clearly in the second spot followed by milk prices.
In 2019 the lenders were asked if they had seen indication of personal stress in the farm families they served and found 71 indicated they had, and 13 percent had been prompted to take some action or intervention. In 2020 that number has increase to 91 percent seeing stress in families and 20 percent have been prompted to take some action.
Not surprising, over the past three years the percentage of females attending has increased each year. It is interesting that the age of participants is changing with more 35-44-year-olds attending; However, those 45-54 years of age are the highest demographic, and has remained constant at about one third.
While the advent of the coronavirus has affected the dairy market with new highs and lows over the past eight months, in fact, the market has reacted as it should; adjusting prices to clear commodities from the market. Lenders have reviewed their lending requirements and continue to serve the industry. With the improved 2020 milk prices they have slowed collateral increases and are increasing the size of operating loans, plus slowed interest increases or lowered some interest rates.
However, continued volatility has contributed to “at risk” loans in their portfolios and as a result, producer risk management strategies have become even more important to acquiring the capital to survive and grow their enterprises.