New CEO of Farm Credit Services of America is Optimistic About Agriculture

Where were you raised?

I grew up on a small dairy farm south of Omaha near Avoca, Nebraska. We milked 60 to 70 cows, raised corn and soybeans, a little wheat and milo, and also had small swine operation and small feedlot. My dad still lives on the farm, but it's all rented now. My direct family is not involved in farming any more. I graduated from high school in 1987 when the Midwest was just coming out of the Farm Crisis. I had long conversations with my dad about carrying on the farm, and I believe he would have loved to have seen that happen. My passion was to stay in agriculture but not necessarily be a farmer my whole career. I joined FCSA as a loan officer in 1992 after graduating with an agricultural economics degree from the University of Nebraska. I started in Kearney, Nebraska. The lending community in agriculture was starting to rebound in 1992.

How has the Farm Credit business model changed in the past few years?

Years ago, we were guiding the business looking backward to delinquency trends and credit quality trends. What's evolved in the last six or seven years is a more forward-looking, through-the-windshield risk management function where you are spending a lot more time thinking and analyzing what could happen in the future.

What is your focus as CEO?

We have to continue to evolve and change the organization as our industry changes. We are looking at a transformation in agriculture over the next 10 years in terms of technology. How will that impact the industry? We will continue to lend through cycles like we are going through right now. We will provide the value in the market that our customers expect from us.

How do you see technology changing agriculture?

There's clearly a transformation starting to occur on the use of data. Combines are equipped with information-gathering equipment. Precision ag is advancing very quickly. There is real opportunity in how customers are going to use that kind of data, not just in terms of how to increase yields in production, but also increasing profit margins. How can data position farmers for the volatility the industry seems to have at an increasing pace?

Where do you see the farm economy heading?

For the next three years, barring some type of unforeseen supply or demand shock, we see a commodity price range similar to where it is today. We anticipate the corn price during that time to be in the $3.50 to $4.25 range. The focus needs to be on efficiency at the producer level. We must continue to drive down costs as much as we can. We have producers that are cash-flow viable in the mid $3 range. We've been in this situation for three years, and planning for more of the same. There is also a lot of volatility around trade issues, as well as the upcoming Farm Bill. From a risk management discussion, those are top of mind key issues that add as much volatility into this equation as we've seen for some time.

Is there any good news?

Interest rates. The Fed is talking about two or three increases on short-term rates, but long-term rates continue to be favorable. Also, the livestock industry continues to show expansion on a worldwide basis.

Will this be a rough winter financially for farmers?

There is increased risk this winter because we have more volatility in yields. We've got some areas in Nebraska that raised tremendous crops. My dad is 86 and he says the yields in his area surpass anything he's ever seen. Then we have areas in central South Dakota where some producers almost zeroed out their crop because of the drought this summer. Producers with high yields along with cash flow and balance sheets conditioned for volatility will have their costs in line with prices. There is no consistently across the board because not everyone got the yields.

What trends do you see in the livestock sector?

We are optimistic long term about world-wide protein consumption and the U.S. playing the key role as the provider of that protein. That's why we've seen the expansion recently in the swine industry with new packing plants and new hog buildings going up. We feel like that's a trend that will continue, but it's subject to protein continuing to flow outside the U.S. That's why trade is such a critical issue right now. We must keep those trade routes open.

If you had to give farmers a New Year's resolution, what would that be?

Make sure you understand your financial picture and your underlying costs. Account for family living expense, overhead, cost of debt, and everything else. Where are you from a cost perspective relative to price? It's always important to maximize yield, but it's even more important to maximize margin.

Are you optimistic about 2018?

The positioning of U.S. agriculture long-term is still favorable and there are a lot of reasons to be optimistic. No one can provide the level of production with the type of quality and capability the U.S. has. Technology is going to continue to advance and reshape the industry going forward. You still have to think longer term while dealing with agricultural commodity price cycles. Look out the windshield to see how it's evolving and changing in the next five to ten years and make sure you are evolving with it.

How is this ag economic downturn different from the Farm Crisis of the 1980s?

The ag lending community has looked back on the 1980s a lot. The perspective has helped to position the industry for this current cycle. For example, in 2010 and 2011, as real estate values started to take off, Farm Credit was one of the first to put lending caps in place to avoid over-expansion of debt. You don't want to do cash flows when corn is $6 or $7 dollars. That discipline served us well.

We clearly have a different interest rate environment compared to the 1980s. About 75% our real estate portfolio is under fixed rates right now. The interest rate volatility was a real challenging situation for everybody at that time.

The overall health of the farm balance sheet is solid, which is a big difference from the 1980s. We went into this current cycle with about half the debt level from a percentage standpoint as we did in the 1980s. We also have risk management tools like crop insurance.

What opportunities do you see for farmers in 2018?

Consumers end up driving demand in a lot of different ways. If you look across the entire ag sector, we see producers looking for opportunities in niche and non-traditional markets more than what we've seen in the past. Clearly, livestock expansion has been an opportunity. An example of that is the Costco chicken plant in Freemont, Nebraska. A lot of the farmers that will end up growing those chickens are grain producers looking to diversify their operations. You see more of that emerging. Consumers are demanding locally-produced products. Those types of opportunities are here to stay.

[Note: FCSAmerica provides credit and insurance services to farmers, ranchers, agribusiness, and rural residents in Iowa, Nebraska, South Dakota and Wyoming. Frontier Farm Credit serves eastern Kansas.]