Modern farmers need modern finance
With 4,256 career hits, Pete Rose is one of the greatest baseball players of all time. Still, his success in the batter’s box wasn’t achieved by amassing towering shots deep into the top deck, but rather through singles – and a lot of them. Hitting a single – or even a double – is an important part of the overall game. It is the same in agriculture.
Throughout his 20-year agricultural career, Jonathan Auten has proven he can produce a crop. Yet splitting up when profit margins are tight means he must not only fill a bin, but also take advantage of market opportunities while managing his risk.
When commodity and livestock prices were high, the farmer in Ayr, Nebraska, took him out of the park.
“I was fine and I was able to repay my debt,” says Auten, who grows corn and soybeans and raises cattle.
Then the agricultural economy turned.
“It’s no secret that agriculture is at its lowest for about six years now, and a farmer’s track record reflects that,” says Billy Moore, president of insurance and field operations at Ag Resource. Management.
The producers who rolled in the runs to stay profitable were the ones hitting the singles and doubles rather than the home runs. However, even getting to the base has become difficult for Auten.
Finding financing options
Although his loan officer at the time – who had funded Auten’s operating loan for 10 years – did not say he would not renew it, the traditional lender suggested that Auten look into d ‘other financing options.
“I went from thinking everything was fine to suddenly feeling lost,” Auten says. “I wasn’t sure they would be here in another tough year.”
While exploring new ways to finance its operations, Auten discovered Ag Resource Management (ARM). Founded in 2009, the non-traditional lender provides operating capital tied to a specific growing budget. Since it lends against the future value of the crop, the financing is not based on land or equipment liens. Instead, he uses crop insurance to protect the investment.
“A bank takes a balance sheet and looks at what has been,” says Moore. “We are looking at what can be and are offering two types of loans.
One product offers a holistic approach where the entire loan is financed internally by ARM. The second is an agricultural input loan in which ARM partners with suppliers of agricultural inputs to provide third-party credit to the financial package it offers to a farmer.
Both loans are handled by ARM’s proprietary underwriting platform, which generates documents to help assess the true cost of growing a crop. While the information gives farmers better insight into performance, it can also lead to difficult conversations.
“They might have to give up a leased piece of land that isn’t profitable or consider planting a different crop,” says Moore.
Auten admits that he is more vigilant than ever on how the budget works.
“As long as I’m very careful with my expenses and stay within the budget that my area manager, Jay Landell, and I are creating, it’s a pretty foolproof system,” says Auten, who has been with ARM for three years. “The fact that Jay and I were going through the budget together helped me more than anything. ”
Many of these collateral-based lenders, says Jennifer Ifft, assistant professor at Cornell University, say they are making a significant investment in getting to know their borrowers and overseeing farm operations and collateral.
“From the very beginning, I felt like Jay was with me no matter how many acres I own,” Auten says.
Not lenders of last resort
While there is a perception that companies like ARM are lenders of last resort, Ifft says it may be more accurate to define them as specialty agricultural lenders who bridge a gap between traditional agricultural and non-agricultural lenders, and who charge a higher interest rate. .
“However, paying a higher rate is not sustainable in the long run, so there should be a plan to revert to standard loan products within a few years,” Ifft said.
Auten says that while ARM charges him more interest, the lender has also helped him take advantage of third-party financing. “My blended interest rate is actually lower than what I’ve paid in the past with a traditional lender,” he says.
It is also important for a borrower to understand that these types of loans can come with other fees. Ifft says, “You’ll want to take a close look at the terms. What is the risk if you cannot repay? What is the penalty if a payment is late? ”
As an increasingly diverse number of lenders seek to meet AG’s financial needs, you need to remember that it all comes down to having a clear understanding of your overall financial situation. After all, if you don’t know your cost of production, how can you confidently market a crop?
Now that Auten knows exactly where he stands financially and manages his risks better, he’s hitting singles – and even a few doubles.
“ARM has really helped me understand the value of every penny,” he says. “It allows me to go through these difficult times. ”
A higher level of purchasing power
While financial stress may be the reason some farmers turn to a non-traditional lender, conventional loan products at competitive rates have convinced Jason Lattus to change. By working with FarmOp Capital, the West Kentucky farmer is able to benefit from higher purchasing power.
“I can borrow 100% of my operating needs,” says Lattus, who grows corn, soybeans and wheat. “Having the ability to use that extra capital really benefited my operation. ”
Not only does this give him more flexibility when negotiating and pre-paying for his inputs, it also allows Lattus to work within his marketing plan to sell a crop when he needs it and store it when not. does not.
“I was able to strategically lock in great price points and I can sleep at night knowing I have these hedges in place,” says Lattus. “If you’re looking to hit a home run rather than a base shot in today’s volatile market, you’re much more likely to sit on the bench. By doing my best to get on base, I can at least keep playing.