Adjustments ahead: Ag banking in changing economy topic of conference
Riverton – On May 18-19, bankers and lenders from around the state gathered for the Wyoming Bankers Association Agricultural Bankers Conference.
In addition to discussions on management tools, current market trends and other topics, the conference featured a presentation by John Blanchfield of Agricultural Banking Advisory Services who spoke on agricultural banking in the post farm boom economy.
As hearings begin for the 2018 Farm Bill, Blanchfield noted that House Ag Committee Chairman Mike Conaway (R-Texas) has stated the farm bill will be delivered on time and under budget.
“The last time a farm bill was delivered on time was 2002,” said Blanchfield.
He continued, “For those who are currently receiving either Agriculture Risk Coverage or Price Loss Coverage, that’s supposed to all end in October of 2018, but the last farm bill went two years longer. You should be prepared for an extended period of wrangling and fighting.”
Ranking member Collin Peterson (D-Minn.) has also asserted that the Conservation Reserve Program needs to increase.
While many of the changes under discussion for the farm bill don’t have a large direct impact on Wyoming, Blanchfield noted that it still is a spillover effect for economies in Wyoming, Idaho and Montana.
According to Blanchfield, crop insurance has become an integral part of the farm bill.
“It’s the cornerstone of the farm safety net,” he said.
He cautioned that 80 percent of crop insurance is subsidized by the government, and some adjustments will be made to the price of crop insurance going forward.
“We need to get the word out because many farmers are not prepared for that, especially in these tight times,” commented Blanchfield.
“The farm bill paid out big in 2016, especially in corn country and bean country,” said Blanchfield.
While there will still be considerable pay outs in 2017, he noted that 2018 will be drastically different.
“2018 will be the year the cheese binds because it’s not going to pay out much of anything, if anything,” he continued.
In 2016, the farm bill paid out $7.8 billion, with Wyoming receiving $4.5 million.
“USDA has already projected that farm bill payments are going to go down by four percent this year,” commented Blanchfield.
Blanchfield stressed that it’s not because the market is better but rather because of use of the Olympic average, where the high and low commodity prices are not used.
Looking back at the last 15 years in agriculture, Blanchfield noted there were certain factors that resulted in the agriculture boom that can’t be counted on the future.
“This goes to my theory that what we’re seeing today is a heck of a lot more like what we’re going to see in the future versus what we saw in the past,” he said.
One factor Blanchfield cited was the rise of ethanol, with 40 percent of U.S. corn production going to ethanol production.
“We’re exporting ethanol now. We’re the Saudi Arabia of ethanol now. Is that going to give us a boost going forward? I don’t think so,” commented Blanchfield.
Another pivotal factor for agriculture success has been trade agreements.
“We’re going to renegotiate the North American Free Trade Agreement. Is it going to be a great win for the United States? That’s what we’ve been told, but are we going to get that? I don’t know,” he continued.
Blanchfield also cited the rise of China and other emerging countries, as well as the improved flow of information to create a world-wide consuming audience over the last two decades.
“I may be wrong on this, but I don’t see a big leap forward of the next generation of countries right now,” he asserted.
Looking at 2017, Blanchfield predicted the farm economy will be flat.
A major concern for both producers and ag lenders is that farmer liquidity is weakening and farm debt is increasing.
“We’re probably going to lose one-third of our young farmers, and one in five wheat, cotton, poultry and hog farmers are highly leveraged,” he said, noting that highly leveraged means a debt to asset ratio greater than 40 percent.
“These numbers are getting to be kind of scary, and I think this is going to be the new normal,” commented Blanchfield.
According to Blanchfield, there have been major demands on Flexible Spending Account (FSA) funding.
“Every year going forward, FSA is going to run out of money until this farm economy changes in some way,” he concluded. “Who gets the money? The ones who can get the loans approved the fastest.”
Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.