Results of a survey of agricultural lending banks in the state of Wisconsin shows lenders continue to prefer a consistent commodity marketing plan before providing farmers money for operations. But the survey, which is a repeat of a 2008 survey, showed too many farmers are still not doing a good job of risk management by implementing a commodity marketing plan.
The survey was sponsored by Stewart-Peterson in cooperation with the Wisconsin Bankers Association Agricultural Section. Fifty-seven surveys were collected, representing approximately 40 percent of the banking section membership.
The survey cited high input costs, managing price risks and handling volatile markets as top challenges facing agricultural producers today. How farmers handle these situations impact lending by the bankers, and might be seen by agricultural retailers as a warning. If a farmer isn’t a good risk to a banker, then that potential customer isn’t a good risk for various forms of credit often provided by retailers.
Most of the lenders surveyed said that less than half of their clients currently implement a consistent and disciplined approach to commodity marketing. The percentages are similar to the same question asked in a 2008 lender survey, explained Stewart-Peterson in a news release.
Lenders were asked whether they observed a difference between those who implement marketing strategies and those who do not. Eighty-four percent (48 of 57 respondents) said that there was a significant difference. Lenders were also asked to anecdotally describe the differences they see.
Stewart-Peterson ranked the responses on how the better risk management farmers are superior to their counterparts in two main categories:
- Improved financial performance and stability
- Improved management and decision-making; greater awareness of financial position for better decision-making.
Lenders indicated that a farm’s approach to commodity marketing has a significant influence on lending decisions. Fifty-three of 57 lenders say they are more confident in a producer’s management ability when they see a track record of success.
“We repeated this survey in 2011 because we wanted to see if perceived challenges and approaches to risk management have changed since the first survey in 2008,” says Scott Stewart, president and CEO of Stewart-Peterson. “We found that the business challenges have remained similar, as have lenders’ observations of producers who implement consistent and disciplined marketing strategies.”
Stewart noted that lenders indicated the following were either “major barriers” or “somewhat barriers” to marketing performance:
- Knowing how various marketing tools work
- Producers wanting the top price all the time and losing confidence if a strategy does not produce the top price
- Knowing how to apply various marketing strategies with specific risk management/cash flow needs of the operation
- Maintaining the time and discipline to do marketing well.
What this survey ultimately reveals, Stewart said, is the positive impact that consistent and disciplined commodity marketing has on a farm operation from the lender’s point of view. “In today’s credit-crunched industry, that is a key management differential,” Stewart pointed out.
“The survey reveals an industry need,” Stewart said. “Producers have conquered just about every management challenge in agricultural production. Consistent and disciplined marketing is the last management frontier to explore and conquer.”