AGRICULTURAL LENDING: RESURGENCE IN A STORIED PRACTICE

By Tony Centonze John Bartee is the Agriculture Lender at F & M Bank. He has only held that title with F & M for one year, but has been doing Ag lending for more than twenty years of his career.

As Middle Tennessee has been constantly changing and growing, a positive for the majority of our residents, farmers have been subjected to a lot of pressure, coming at them in a variety of ways. In an unexpected twist, this year of pandemic has shown some positive signs for the Ag industry.

“In agriculture, we have been in the bottom of what's called a super-cycle,” Bartee said. “We had the 1970's and early 80's which were a bottom from an economic standpoint. Then, in the late 80's we had good productivity and prices. Of course, everything comes and goes in cycles, but we are hopefully finally coming out of the bottom of this super-cycle. The last six or eight years have been a real struggle for a lot of farmers. They've had to restructure debt. They've had to pull equity from their properties just to cash flow their operations.”

Bartee says that the industry is finally starting to see an uptick. “We had a good crop year in 2020. Prices have rebounded moderately. That, along with a lot of COVID-19 relief funds, have probably made this year one of the more positive cash-flow years for farmers in the last six to eight years.

“The cost of getting started in this business is daunting. Typically, you won't see someone farming who hasn't inherited some farmland, or some capital. It does happen. It's rare for someone to get started with nothing and make it.”

JOHN BARTEE

Bartee says that one of the main obstacles for Middle Tennessee farmers is 'land pressure'. “That's the pressure farmers are feeling from all the development that's taking place. Farmers have to be competitive if they want to purchase real estate, but how can they compete, on price, with a developer. It's not likely they can spend the same money for farmland.”

Another challenge farmers face is the cost of equipment.

“Equipment costs are astronomical,” Bartee said. “A brand new combine with all the bells and whistles, and two headers, will cost upwards of $750,000. One combine can comfortably cover 2,500 to 2,600 acres. Farmers have to contend with wear and tear, maintenance, fuel prices, input prices, fertilizers and chemicals, and seed prices.”

“If you underestimate farmers, you're missing the big picture. We just wrapped up Leadership Clarksville's Ag and Industry Day, and we were having this very conversation. Today's farmers, the majority of them have at least a bachelor’s degree. Some have a Masters or other advanced degrees. They have to be excellent marketers, mechanics, chemists, biologists, soil scientists. They have to do it all.”

While advancements in technology and science have created higher costs, and increased education requirements for farmers, the industry has seen increased efficiency and higher yields.

“The advancements in Ag technology, in things like equipment, genetics, and seed variety testing have been substantial,” Bartee said. “These guys read and study constantly. They take extra classes to learn how to do, what to do, and when to do. The technology we have now is amazing. As we speak, there are two companies that have developed completely autonomous tractors. We also have auto-steer technology in a lot of equipment.”

“Years ago, people talked about precision farming and being exact. We've gone beyond that. We are now living in the age of prescriptive farming. Technology, from the equipment standpoint, as well as the seed/chemical/fertilization, and application side, is phenomenal. We now have spray rigs, applicators, that can shut off individual nozzles when the crop doesn't need whatever application is being applied. So, there is very little overlap. We're not over-spraying or over-fertilizing. Even our chemical and seed companies are offering drone technology that uses infrared scanners. They fly over the fields, map them, and see what areas are weak in whatever way. Farmers know if they need a fungicide or another application of fertilizer, or whatever. The technology is there. and it's getting more readily available.”

The pressure to stay up on what's happening in the industry falls not only on the farmers, but also on those in Ag lending.

“I laugh,” Bartee said. “We have banking laws that we have to contend with. We have to keep up with the latest trends in banking, but I also have to keep up with the latest trends in agriculture as well. If for no other reason than to be able to communicate effectively with our customers. Efficiency and effectiveness are key to a modern farmer's success.”

Bartee says that leading Ag economists and other industry gurus have been estimating the end of the current supercycle for some time. Some had estimated “Of course, nobody really knows,” Bartee said. “They've been talking about this for years. Sadly, we've stayed in those lows. I think we're finally near the end. In this area, we've had a really good crop year, maybe not record yields, but near record yields. We've also seen solid price rebounds. China has purchased a boat-load of Ag commodities from us, and are continuing to do so.

“I don't think we're going to see a skyrocket uptick, but we are starting to realize there is a coming gradual uptick in prices for the farmers.”

This is the time of the year when most farmers are wrapping up their operating year. It's a busy time for Bartee and others in the Ag lending business.

Bartee has noticed a trend toward smaller specialty farms in recent years. Ironically, this trend has not been hampered by the pandemic, in fact, just the opposite.

“There has been a tremendous increase in the number of small farms, as well as niche and specialty farming. And, support has been tremendous. With the pandemic we've been going through, support for that segment has grown exponentially. The consumer wants to know where their food is coming from. They want to know the person who is raising it. They want to go out and be able to see it.”

“It's a tremendous opportunity for this younger generation. That segment may be somewhat removed from the farming industry, but now is a great time to get into the business with a small operation, like custom freezer beef, or pork, or produce they sell at the local farmer's market, or downtown market. We've seen a tremendous amount of growth in that industry. Home-processed milk and ice cream has really become popular.” In a reversal of fortunes, large producers are now facing problems, while smaller, specialty farms are seeing a bit of an economic boom.

“It has been especially challenging for the dairy industry. It's the law of large numbers. If they can't milk (x) number of head, they are not going to be profitable on the normal commodity markets. So, a lot of these local dairies have gone to pasteurizing their own milk, bottling it, and marketing it. That's a huge trend right now.”

“It's amazing because it's more artisanal, and the movement itself is very organic. The purchasing power has flown into these local small operations. Honestly, if you told me 20 years ago it would be this popular, I would have laughed in your face. I never thought it would be this popular here in Middle Tennessee, Nashville maybe, but even in our rural areas we're seeing that the population wants to buy local. It's absolutely a great thing. We will always have commodity Ag, we have to. We have to produce on a large scale, but it's a great feeling to see the popularity of the local niche markets, and to see this type of enthusiasm for this trend.”

The good news is that farmers are seeing a long-awaited uptick in prices. Also, the financial support for things like growing one's operation, acquiring more land, or upgrading equipment is there. Additionally, there is a willingness among lenders to partner with newcomers to the industry.

“We look at everything that comes our way,” Bartee said. “We have a great team and great leadership at F & M Bank. There is a reason F & M has been here as long as it has, and stays as strong in the community as it does.”

“People can call my local number (615) 384-6228. I'm in the Springfield branch, but I will cover our entire footprint, if needed. I can also be reached online at www.myfmbank.com.”