First things first: As every farmer knows, agriculture is not an easy business to get into. Lofty land and equipment prices are significant barriers. Weather-induced risk is an inherent and unpredictable stressor.
In the modern era, global competition is mounting — notably including emerging powers such as Brazil and Russia — and corn, soybean, and other commodity prices have been under pressure for years amid a worldwide glut.
And yet, when we take a long view, we see that the need for food produced by American farmers is almost certain to prove paramount as the world’s population swells over just the next few generations. The United Nations projects that the global population will increase to 9.7 billion by 2050, an increase of roughly 2 billion from today.
For young and future farmers, the long-term opportunity is immense. That makes it more important than ever for banks to work in close partnership with new farmers to develop affordable and tailored loans that can help finance crop and livestock operations for the decades to come.
It will be equally as important for farmers to find a bank that has experts on staff who understand both their local agriculture markets and how to partner with federal farm loan programs to help them secure loans to either start or grow their operations.
The USDA loans are often administered and serviced by banks and guaranteed by the federal government, and can be simpler to apply for and secure thanks to advancing technology and more sophisticated digital tools for underwriting. Loan limits, too, are higher now following passage of the 2018 Farm Bill. For example, the limit on a direct farm ownership loan rose from $300,000 to $400,000, and the limit for the Participation Farm Ownership Program rose from $300,000 to $600,000, increasing would-be farmers’ buyer power.
The USDA’s Farm Service Agency, in concert with bank partners, is increasingly active in extending credit to farmers. Between April 2018 and April 2019, the agency increased by 18 percent the amount it obligated for direct farm ownership loans. Ag-focused banks play a key role in figuring out the best loan options for farmers, navigating the application and approval process, and servicing the loan long term.
The result of working with a banker who understands the industry and the opportunities available through government and other industry agencies is more farmers securing substantial loans to buy land and equipment without a huge down payment. The Direct Down Payment Farm Ownership Program and the Participation Farm Ownership Program from the Farm Service Agency exist to help spur investment and opportunity for farmers — including beginning farmers, minority or women producers, and urban farmers.
Here is an example based on a $1.2 million farm using the FSA Participation Loan Program.
- The farmer can work with a bank to secure a 15-, 20-, 25- or 30-year, fixed-rate loan for $600,000 at an estimated going rate of 5.5 percent in a first lien position.
- Working with the Farm Service Agency, the farmer can then apply for a 30-year, fixed loan of $540,000 at 2.5 percent, in a second lien position behind the bank.
- This means the farmer needs to come up with a down payment of $60,000.
Farmers are best served when working with a bank that understands the intricacies of farm loans, the various agencies that specialize in these types of programs, and the rates available to first-time farmers. Most community banks have (or should have) developed an excellent relationship with the FSA and other agencies and are able to work with new clients to secure the type of loan that can get them into their first farms.
While there are caution signs in the overall economic picture for the U.S., there is cautious optimism for the ag sector. Average net cash farm income is projected to rise 11.4 percent this year. Every ag region in the United States is forecast to generate an increase of at least 5 percent, and all farm sectors, with the exception of poultry, are projected to produce 2019 income gains.
The opportunity is there. With the right partners, we are confident new farmers can profitably grow today and into the future.
John Bartels is senior vice president and commercial banking officer for Columbia Bank, based in Spokane, Washington.