Farm debt is at $52 billion, an all-time high. So when a leading agricultural economist and one of Canada’s prime agricultural lenders take a meeting, who among us would miss the opportunity?
David Kohl, American ag economist and professor emeritus at Virginia Tech’s department of agricultural and applied economics, has participated in Royal Bank-sponsored speaking engagements for several years. With him this year at recent management conference was Brian Little, national manager of agriculture and agri-business for the Royal Bank of Canada.
Their arrival nearly coincided with a prime interest rate increase of one quarter of one percent, so the future of agricultural fiscal security was topic number one.
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Does the specter of a meltdown like that of the early 1980s loom on the agricultural horizon?
Kohl and Little say no, with Kohl a bit less effusive than Little. The ebullient ag economist cautions against “creative lending,” noting the key to wise farm debt is its responsible use. He remarked upon the exuberance, particularly in the United States, surrounding the ethanol boom, higher commodity prices and rising land prices.
“There’s some caution in the wind,” Kohl remarked.
But Little and colleague Les Lindberg, vice-president of commercial markets for RBC, say agricultural lending in the 21st century takes a different approach. Though not in just these words, they say the “easy money” that presaged many a farm bankruptcy in decades past is not today’s model for lenders.
Banks today ask for more extensive information before lending, and an analysis of cash flow is key. On farmers’ part, in general they are more experienced managers than those of earlier generations, and thus understand risk, keep better records and have a keener appreciation for market fluctuations and risk mitigation.
In fact, both Kohl and Little say the changes in farm culture could provide modern producers with even better protection against the crash that some fear could follow today’s relative boom.
For example, more producers are forming management teams, in which they involve partners, family members, agrologists, lenders and other farmers with whom to exchange ideas and provide mutual auditing of project success.
By and large, modern farmers are better educated, more science and business oriented, and privy to a greater sense of their role in the global economy, the bankers say.
Careful, responsible lenders plus mature, business-oriented farmers. It might be an equation for farming success, but caution should always be the coefficient.
