Consulting for the big players
Blanchfield, who is chairman of the ABA Center for Agricultural and Rural Banking, said Farmers Home Administration spends a lot of time working with intermediate size farms. Also, the 577,000 are good customers of rural banks. “They are not real interest-rate sensitive.
What they want to know the most is ‘can I get the loan.’
And yes, they can. They don’t ask for much,” Blanchfield explained. Basically all the agricultural companies in the U.S. are putting the most effort into chasing the 270,000 to be customers. “Isn’t that incredible how consolidated this industry has become,” he said.
“The scale of these farm deals has gotten so big,” Blanchfield noted. “Rural banks are going to be hard pressed to finance an operation that needs $100 million. That is a real challenge to our business model of local deposits and lending to local businesses.”
These big operations are playing in a global market to earn return on their investment. As Kohl said, “We’ve got to think globally and bring it down locally.”
To go along with his global sound bite, he said, “You are talking about big data in your businesses as consultants. Your key is to take this mound of data and do something with it. We are drowning in data and starved for organized information.”
He also noted, “Any time an asset crashes, you’ll have six years of corrections. It is called six years of economic whitewater.” He used the stock market crash of 2007 and the stock market improvement in 2013 as an example. He also said the farm real estate crash of 1981 resulted in a comeback in 1987.
“You basically have to help your client through whitewaters. All six years are not going to be bad years, but it usually takes about six years. And if they have to sell assets during that downturn, they will be discounted 10, 20 or even 40 percent; it was 38 percent on average during the farm crisis with it being higher in some sections of the country and lower in other sections.
Blanchfield talked about near-term “pain makers” other than what Kohl mentioned. In short, some of the pain makers that farmers and the ag industry should expect include: conservation compliance to qualify for crop insurance, interest rates rising and farmers and ranchers having trouble paying half the interest that people paid in the 1970s, the Washington farm lobby being less able to push through legislation supportive of ag, the lack of an economic safety net for farmers when a crisis hits, and farm real estate prices hitting a wall as commodity grain prices drop to half of their recent peaks.
“While you are consulting with your clients, whether you are an agronomist, accountant or crop insurance rep or whatever, just ask them the question, ‘What are you doing to hedge your interest rate risk?,’” Blanchfield recommended.
He concluded by saying, “As consultants, your job is to look at sickness, to put together information of patterns and non-patterns and be able to provide your client with information that is factual, true and actionable.”
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