Consultant Tells Ag Bankers How to Prepare for Tough Times Ahead

Bankers are worried about the drop in farm profits and the repayment capacity of their borrowers, said professor emeritus and ag banking consultant David Kohl at the American Bankers Association National Agricultural Bankers conference held in Omaha in November, reported The Progressive Farmer.

Kohl explained that the current economic downturn is different from the previous one because:

• The numbers are bigger. “A 10,000- to 12,000-acre operation can go upside down $3 million to $4 million quickly,” Kohl noted.
   
• Volatility is greater.
   
• Debt concentration is greater.
   
• Debt Interconnectedness is greater. “Some of your borrowers might also own the local John Deere dealership or the local grain elevator,” said Kohl.
   
• Trade and global risk are factors. “When the Ukraine problem arose, rail cars switched to carrying energy, not grain,” he said. “China’s slow-down in corn imports has a large impact on prices.”
   
• Bankers are complacent about the collateral build-up. A one-year downturn will affect repayment. A two- or three-year downturn will affect liquidity. If we see five years of lower prices, collateral will be impacted.

Kohl advised ag bankers to become teachers, coaches and facilitators, as well as money providers, and recommended visiting farms once a month to “make sure that ‘full bin’ is really full.” He also said bankers should not spend all their time on the 4% of borrowers in trouble, but should monitor their borrowers who are current on payments.

Kohl also predicted that liquidity will be a bigger problem in the coming years, but he said he is still optimistic about the future if lenders take this cycle in stride. He hopes they remember the financial lessons they learned during the 1980s recession. S