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It seems as if almost no one believes the next five to six years in agriculture will be as good as the last half-dozen. Steve Hemingway, who farms near Iowa City, Iowa, tends to agree; but, heck, what does he know?
"I've been wrong about interest rates going up for 10 years," says Hemingway, who farms about 2,500 acres and runs a cow/calf herd. "I grew up in the 1980s when interest rates got really high, so that's my reference."
That doesn't mean his operation stayed the same. He's no fool. "I think we've made more land purchases in the last five years than I would have ever thought possible," Hemingway says. "We had some opportunities we never saw coming. Land tends to stay in the same family, but around here the past five years, it hasn't been that way."
Those purchases made, Hemingway eventually heeded advice to refinance long-term debt at continued lower interest rates. That process led him to refinance with the Farm Credit System (FCS) -- moving the loans from a local bank with which they had a long relationship.
"We kind of outgrew our local banker," Hemingway says. "We need to have access to quite a bit of money that we may or may not use."
"One of the challenges that community banks face is one of size and scope," says Kent Thiesse, vice president of MinnStar Bank, in Lake Crystal, Minn. "As farms and credit needs grow, it is more of a challenge to have lending capacity to deal with that. What we've done is partner with other banks in participating on loans," Thiesse says. "We're doing more of that type of thing now. As we go down the road, we potentially see even more small banks merging."
Hemingway's local bank does the same -- works with other banks so they're able to meet the needs of their customers. Still, the bank couldn't compete with the rates and longer terms available through the FCS on this particular loan.
That's not to say community banks can't compete with the Farm Credit System. "One of the great things that has happened over the last 20 to 30 years is the development of long- and short-term credit resources from Farmer Mac [a secondary market that purchases farm loan bundles] as well as certain insurance companies like Met Life," says Mike Hein, vice president/senior lender with Community Liberty Trust and Savings Bank, in Durant, Iowa.
"There was a time when Farm Credit was the only game in town for long-term or large-producer financing," Hein says. "That is by no means the case today."
The need of producers to have access to adequate amounts of money is accentuated by the increased volatility of prices for commodities and inputs.
Experts generally don't see a repeat of the volatility of the past six years -- but they don't see as much price upside either.
"Some of the heat in capital purchases by farmers -- land, equipment, long-term durable items -- has cooled off," says John Blanchfield, director of the American Bankers Association's Center for Agriculture and Rural Banking. "I have talked to bankers who tell me that land prices have flattened in their areas as the appetite of farmers to buy land has slowed."