As farms grow larger, they often outgrow the resources of community banks, said Curt Hudnutt, head of rural banking for North America at Rabobank, a global leader in ag finance.
“As the U.S. ag industry continues to consolidate, and the size and scope of farm operations continues to increase, that means higher capital requirements which many community banks can’t meet,” he explained. Regulators are looking closely as community banks and the risk they may be carrying on their books for ag loans.
Regional and national banks blow hot and cold on ag, he added. Rabobank, with its origins 120 years ago as a farmer-owned cooperative bank, understands ag and is the leading global player, he said.
“We understand the returns, complexity, global nature and we have enough scale to absorb the cost of regulation. All we do outside the Netherlands is finance ag. Other banks look for assets that have a better return than we have in ag. It is relatively low risk and low return and not everyone understands that, which is fine with us.”
Farms are using more technology to run their operations, sometimes mirroring the work, and the problems, that banks have — such as data silos in addition to grain silos.
Patrick Christie, founder of Conservis, a farm operations software company in Minneapolis, said farmers need a comprehensive view of their operations to understand their profits, or losses.
“Technology, including the Internet of Things (IoT) provides insight into the entirety of the farm to enable a higher level of decision-making,” he said. As farms increase in size they focus more on risk management, he said, and many now employ book keepers or controllers.
“For a decade we have been encouraging our producers to move to CPA-quality statements or audited financials which was unheard of 10 or 15 years ago. We got pushback, but producers now are moving to that quality of information because they need that insight to run their operation with its thin margins.”
Ashley Arrington, a farming consultant who founded Agri Authority to help farmers secure financing, said banks want better quality financial information from farmers, preferably in a format they can evaluate quickly. Software vendors are a growing presence at ag conferences, she said. The most popular programs she sees are Excel and Granular from Dupont.
Some of software allows bankers to log on and see a farm’s condition. Rabobank works closely with Conservis and took it to Australia to see how industrial-scale farms are managed and what sophisticated ag investors like Macquarie want from software.
“Conservis has a global footprint,” added Hudnutt. “They followed us into Australia. I think the tools and leadership in ag software will come from here in the U.S. The U.S. is the biggest and most impactful ag market in the world.”
The bank’s goal is to eventually consolidate all the ag data point into integrated loan documentation tools. Then the bank will be able to add greater value to its work with farmers by assisting with the decisions they have to make at the intersection of farming and finance — topics such as diversification, organic, non-GMO or vertical integration. The bank may provide that knowledge or connect them to companies that can.
“We believe there is power in data and power for the client,” said Christie, “so what we are aiming to do is take on farm production data and combine it with financial, make the statements usable and real-time.” Farmers need to be able to combine financial data with production data to see how much equity and liquidity they have and how much cash flow they can generate.
“The more confident we are in the quality of information the lower the interest rate might be,” Hudnutt said. “With more real-time information we can anticipate a borrower’s running out of funds in the middle of his harvest and automatically increase their line of credit because they will need the money to finish.”
Probably fewer than 5% of farms are really leveraging the operations and financial software available, he added. The challenge for Conservis was that while there are a lot of good solutions for one aspect of farming but no program aggregated all that information. “We sat down and talked and said we need to bring these data together for the farmer in a way that is easy to use, that they can aggregate it and have a real-time view of what is happening on the farm.”
For Conservis, seeing the industrial-scale farms in Australia with their large-scale banks, like Macquarie, was an education in what financial firms needed in data. The investment firms wanted to know what was happening on the farm, what were the costs, the inventory on a monthly basis and if there was any slippage from the financial plan. Farmers driving John Deere tractors can link to the Deers ops center which will record fuel, time of operation, seed, even fuel-wasting wheel spin.
“The farmer doesn’t have to do a thing. We will take that record and bring it into the farmer’s and parse it — here are the two varieties of seed applied, the weather of that location to that record.. The farmer didn’t have to input anything, we can tell them in real-time the new cost for that field and here are the actuals to plant and then the new financial numbers can feed a cash flow forecast.”
A bluetooth adapter can link to a grain elevator, take the weight delivered and shoot it into a smartphone or tablet.
“With so many advances in technology, like GPS, a lot of the manufacturing equipment comes with software that can collect a lot of data,” said Trisha Wagner, outreach program manager at the University of Wisconsin. “It can tell you so much about specific fields, do soil maps and overlay with yields and weather patterns. Part of the challenge is just managing all that information. Farmers get into farming because they have a passion for producing high quality crops or caring for animals; they didn’t get into farming out of a passion for sitting at a desk and going over numbers.”
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