Cultivating the Next Generation of the Ag Economy. (BANK OF THE FUTURE)
ABA Banking Journal | By: Deborah Whiteside
Supporting agriculture has been one of the oldest historical activities of America’s banks–but for anyone interested in America’s future, ag banking will remain front and center. As of March 31, 2021, 1,113 U.S. banks–nearly one in four–provided enough credit to agriculture to be considered a farm bank by the FDIC, and commercial banks held $164.6 billion in farm debt, with $99.8 billion in real estate and $64.8 billion in non-real estate loans, according to a recent report by the Federal Reserve Bank of Kansas City.
But the agriculture industry, already under stress, has been impacted by the jolts that shook the U.S. economy in 2020. The COVID-19 crisis severely restricted business activity, triggering a sharp economic downturn in the second quarter followed by a rebound in the third quarter. The U.S. food and agribusiness sectors navigated school and restaurant closures, a sudden decline in gasoline consumption and a murky global economy. As a result, lenders are concerned about farmers’ access to working capital, their income and leverage levels and the impact of uncertainty over trade and tariffs. Against this backdrop, farmers need their lenders to deliver bold solutions. Many ag banks have turned to Farmer Mac, which ABA endorses for secondary market ag loan and mortgage sales, for these solutions.
Farmer Mac provides financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac’s customers benefit from competitive pricing and long-term fixed rates.
While banks must take risks to help their communities to survive and thrive, they must also manage and mitigate risk with tremendous care. All forms of lending present unique risks, but the balancing act is especially tricky in agricultural lending, where ordinary considerations like interest rate movements and credit quality are just a starting point. Adverse weather, natural disasters and disease pose outsized risks in agriculture–as we’ve seen to devastating effect in 2021. Business cycles may exceed a year. Changes in government policies can have dramatic effects. Trade, tariff and taxation issues loom large.
Participating in Farmer Mac’s purchase programs offers gives banks a way to derisk their balance sheets easily and manage loan limit issues within their institutions. And banks can offer their customers more product choices (15-, 20-, 25- and 30-year fixed rates) tailored to their needs. For example. Farmer Mac’s AgXpress offers bankers a simple portal to view products and rates side by side and to submit a loan (up to $1.5 million) for underwriting. AgXpress returns a decision in no more than a day–and often in a matter of minutes.
A forward-thinking ag banker can partner with Farmer Mac to creatively manage loan demand and to meet customer’s evolving needs.
Deborah Whiteside is SVP for Endorsed Solutions at ABA.
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