The land lending business is our area of expertise – and our passion at AgAmerica. We’re not only committed to understanding the needs of today’s farmers and ranchers, but to helping overcome the financial challenges they face.
We’ve identified four key trends having an impact on the agricultural industry, and how smart lenders can best respond.
- Family Succession Planning.
In autumn of 2015, AgAmerica commissioned research among 500+ fruit, vegetable, citrus, and cotton growers across the country to identify and better understand the family dynamics at play in their businesses.
The prevalence of family businesses in agriculture was well represented in our research audience. Nearly three-quarters of the respondents noted they are family businesses. And the plan for these businesses is almost always to keep the farm in the family. Nearly 40 percent of all respondents reported they “definitely expect to transition business ownership to the next generation.”
Business owners understandably worry about many things when thinking about selling their business, but one concern clearly weighs on them most heavily: setting the next generation up for success. That was the No. 1 concern when growers were asked to identify all of their concerns.
We followed up with a number of the growers who said setting the next generation up to succeed was their top concern so we could better understand their fears and learn what steps they might be taking to keep the farm going. As one grower said when asked what they’re trying to do to ensure their successor’s success: “We are paying down as much as possible to make entry into ownership as painless as possible. We also hope to have enough liquidity and diversification that we can withstand a reasonable level of economic shock which is bound to occur some years in agriculture.”
Other growers noted that preparing the farm for future success is a very literal concern. “Setting the next generation up for success would mean financially as well as the conditions on the ground as far as the land’s ability to produce,” he said.
AgAmerica is especially committed to working with family operations to help you navigate the challenges associated with passing the farm down from one generation to the next. We structure our land loan packages to allow the next generation to get a head start. For example, our interest-only 10-year line of credit is unique to the industry and helps families ensure financial flexibility in the future. The next generation can even apply for a five-year extension to further take advantage of this operating line.
- Shift to Longer Term Products.
Although interest rates have remained relatively low, borrowers in our industry are seeking out both longer-term fixed-rate products and lines of credit. The opportunity to lock down a low rate is, of course, attractive. But what’s proven extremely motivating for our clients is the 10-year line of credit we offer. This unique product lets them avoid the stress of requalifying each year and eliminates the hassle of annual paperwork renewals.
Plus, AgAmerica’s Farm & Ranch lending program offers 15-, 20-, and 25-year terms and has no standard prepayment penalties, which is different from programs offered by typical agricultural lenders. That means you can pay down your AgAmerica loan at your leisure, on a schedule that works for your operation.
- Crop Diversification.
Droughts, fires, floods – America’s farmers and ranchers increasingly have to react to climate and market challenges by changing the crops they grow. In fact, roughly 47 percent of the respondents told us they changed their crops in the last three years and another 8 percent plan on doing so in 2016.
Crop diversification has become more prevalent, with more than 50 percent of fruit and vegetable growers reporting a change in their farmed crops. The growers making these changes are turning toward a wide range of crops in hopes of boosting their sales. The fruit and vegetable growers identified 15 different crops they’ve added of late, with apples (added by 14 percent), corn (6percent) and grapes (5 percent) being the most popular choices. Cotton growers who have switched some acreage identified six different crops they’ve added to their fields, and the vast majority of them planted more corn (added by 70 percent) followed by sorghum (35 percent).
In our home state of Florida, the citrus industry has been struggling with “greening,” one of the most serious citrus plant diseases in the world. Although there has been some progress in developing greening-resistant varieties, many citrus growers have begun exploring alternative crops and business models. In support of this move, AgAmerica has launched a Citrus Grove Conversion Program to help these farmers transition part or all of their grove to pasture or row crop land.
- Falling Commodity Prices.
Finally, crop commodity prices are down across the board with few exceptions. This drop has created a need for more “creative” financing for farmers who may not be considered good candidates for traditional banks and ag lenders. I believe it will be the lenders who break from the industry norms, redefine the rules of the game, and instead custom-build loan solutions for their clients who will succeed in 2016. To learn more about AgAmerica’s expertise with a variety of crop commodities, check out our recent agricultural land loan case studies online.
About AgAmerica Lending
Whether you are expanding your existing ranch, buying a farm, or making long-term improvements to your farm or ranch, AgAmerica has the agricultural land expertise to help finance your dream.
For more information about AgAmerica, visit us at www.AgAmerica.com or call us at 855.596.6679.
Author: Phoebe Moll, VP, Director of Marketing for AgAmerica Lending