In year of recovery, lenders dial in to agriculture market

After a rough year for commodity prices, 2016 is poised to be a year of recovery for agriculture businesses, alongside lenders looking to enhance their own books of business.

UMB Bank is among those building its agribusiness unit. The Kansas City-based institution steadily is climbing the American Bankers Association’s Top 100 Farm Lenders list. Based on total farm loan volumes, UMB moved from No. 49 in fourth-quarter 2011 with $76.7 million up to No. 31 in the first quarter this year with nearly $539.5 million loaned.

Other local branches of regional and national banks ranked on the list, which is based on Federal Deposit Insurance Corp. data, with Fayetteville, Ark.-based Arvest Bank taking No. 28 at $562.9 million and Kansas City-based Commerce Bank at No. 58 with $317 million.

“In general, more of it is for working capital simply because they didn’t make money last year,” UMB agribusiness unit President Bill Watson said of farm-loan activity.

Despite a rebound in recent weeks, Watson said commodity prices are well off highs experienced in 2011 and 2012.

“In terms of reinvestment, either in equipment or land, that’s pretty quiet,” he said.

For meat producers, the recent lending market is more pronounced in Newton and McDonald counties, where a handful of ag companies received nearly $11 million in U.S. Small Business Administration loans in the first quarter.

Tyler Keatts, a financial services officer for the Springfield branch of FCS Financial, said livestock operations, primarily cattle, are more typical of most agribusiness in the southwest corner of the state.

“We’re not as influenced by the crop sector here as much, which is a good thing,” Keatts said. “We didn’t see the same struggles as the northern areas did last year.”

A different animal
Part of what makes southwest Missouri a unique ag market, other than the products, are the farmers.

“A good amount of people involved in ag here are what we consider a part-time farmer,” Keatts said, noting FCS’ local borrowers tend to be employed in a different line of work and have the corresponding income to support operations.

“The Springfield area market is so different from a lot of areas,” he said.

“You can be 30 miles from Springfield, have an off-farm job and still do that at home.”

Jesse Young, owner-operator of Young Family Farm LLC, is also a different type of farmer, growing primarily hydroponic lettuce along with some kale and bok choy on his 10-acre farm north of Springfield. A 2010 agriculture business graduate from Missouri State University, Young started his operation in 2012 for about $70,000, and has built a new greenhouse every year, each as big or bigger than the last.

“To start a business, that’s not too bad,” Young said of the startup cost. “Especially with dairy and cattle, it’s much harder to get into. Who has $400,000 lying around?”

With a $65,000 SBA loan from Simmons Bank, Young is building a 4,500-square-foot greenhouse this year to take advantage of expanding opportunities. Young Family Farm supplies product locally to MaMa Jean’s Natural Markets, Hy-Vee and Harter House stores. With occasional surplus sales to Kansas City-based Balls Food Stores last year, Young grew 2015 revenue to $45,000. He said that number is on track to increase 50 percent in 2016.

The bread and butter of UMB’s farm business is large producers, and in that regard, Watson said the number of customers is growing. He added UMB’s new prospects are borrowers seeking at least $1 million, and the company’s sweet spot is closer to $3 million-$10 million.

“That’s an initial target area, especially in southwest Missouri, and as you move into different parts of our footprint, that goes up,” Watson said, adding that stretches from dairy farms in Arizona to grain fields in Illinois, capturing business in most states in between.

Nest eggs
A unique agribusiness landscape means some local branches are entirely devoid of ag lending, despite a strong pedigree within the overall holding company.

While Jefferson City-based Central Bank posted No. 73 on the ABA’s Top 100 with $226.8 million, Mike Booth, senior vice president at Central Bank of Branson, said most of that business is driven by his branch’s sister banks in central Missouri.

“I’d love to tell you it’s right up our alley, but we’re not in ag lending,” Booth said, noting Forsyth institutions make up the bulk of the Branson-area’s ag market. “Down here, it’s music shows and go-cart tracks. The tourism industry doesn’t have many cows running through it.”

Keatts said FCS’ activity in the first half of the year is on pace with 2015 – when the loan agency experienced a spike. Local mortgage values jumped 53 percent to $23 million on 155 loans from $15 million on 160 loans in 2014.

Keatts said impacting those numbers the past 12-18 months is financing for free-range egg operations, adding FCS’ local branch performed loans for 15 such businesses that totaled around $15 million. Considering the office’s average loan is typically a few hundred thousand dollars, roughly $1 million apiece isn’t chicken feed.

“Statewide and locally, we’ve seen that as an influence that’s created some new activity,” Keatts said. “I think it was a quick boom, and it has kind of slowed down.”

Watson said other areas have softened in the past 18 months. Land prices, which increased across the Midwest the past decade, declined 5-10 percent in southwest Missouri for quality farmland and as much as 35 percent for lesser ground. Also on a decline, and fueling the need for lending, is depreciating used equipment value.

“That’s sort of the piggybank for farmers,” Watson said. “If you have a 5-year-old tractor and you need to raise cash quickly, you can always take that to market. It’s weak right now, so that’s taken away one potential source of liquidity.”