🏦 What can we learn from SVB & the 1980's?

Weekly Edition #13

Good Morning. Welcome to the Gravel Road - your weekly agri-news infotainment. We’re not just making you a better ag-business operator, we’re making you a better person.

📢 We’re working on making some exciting changes here at the Gravel Road. Over the next week or so, we hope to have things in place to be able to provide you an update. Stay tuned for more.

Here’s what we have this week:

• 💗 Lessons from the ‘80s

• 🏦 Bank Talk

• 🤖 Farming Tech

• 🌧️ Mud

WISDOM

In 1981, a local community ag banker received a death threat from a customer.

Unfortunately, this was not an isolated incident. Local branch managers with tears in their eyes being forced to foreclose on their friends. Countless sleepless nights had by farmers and lenders alike. And worst of all, numerous producers who took their own life because they just couldn’t see a way out.

This was the reality of the farm collapse of the 1970s & 1980s.

What went wrong back then, so we can avoid repeating history? These were five of the major factors of the farm crisis -->

• High Interest Rates

The Fed raised rates in the late '70s to combat inflation.

This made it difficult for farmers to borrow money & finance their operations.

Farmers with the highest levels of debt experienced the worst of the credit crunch.

• Overproduction

Technology advances in the '60s & '70s led to a significant increase in production. So much so that prices fell.

The sharp drop in prices caused many farmers to fail to turn a profit for multiple years. Specifically those dependent on a single crop.

• Export Competition

Increasing competition from other countries put downward pressure on prices.

Amplified by the Carter Grain Embargo on the Soviet Union in 1980.

Further harming profitability.

• Government Policies

Subsidies & price supports were designed to stabilize prices and protect farmers from market fluctuations.

However, this led to unintended consequences like overproduction & discouraging innovation.

• Weather Related Challenges

These decades had severe weather events that added insult to injury for already struggling producers.

Regional droughts & floods were the main issues.

The results were grim:

-There were over 300,000 farm bankruptcies in the 1980s

-Ag debt increased from $217 billion in 1980 to $335 billion in 1985

-Countless emotional and social impacts to rural America

So what can we learn from this lesson? There have been scores of articles, white papers, essays, and books Monday morning quarterbacking the economics of the situation.

Yes, there are practical takeaways from a financial management standpoint. Keep your debt levels down, avoid variable rate loans, diversify your operation, etc.

But,

I think one clear lesson stands out above all else.

Control what you can control. Accept the things you cannot control. Understand the differences.

Develop meaningful relationships with those you work with on a daily basis. When hard times happen, you must lean on those relationships to persevere through the uncontrollables.

We weather storms better, together.

SEEDS

• 🌧️ Spring Slop: Mud impacts a feedlot steer more than you’d think. This article explains that a matted hair coat is only 20% as effective at providing insulation as a dry, clean winter coat. Use proper management to prevent the 10% decrease in gain and feed efficiency brought on by excess mud levels in your feedlots.

• 🏦 SVB Failure: By now you’ve heard the US experienced its largest bank failure since the GFC of 2008. Here’s an article discussing what happened, how it happened, and providing some tips for farm country to apply in the aftermath. Don’t panic, there doesn’t seem to be a pending run on the banks, but do understand the FDIC insured limit of $250K and be aware that nothing in life is truly risk-free.

• ⛺ Campsite Cash: Looking for extra income? Some farmers, ranchers, and landowners are listing their farmground on campsite booking websites. It’s like Airbnb or VRBO for country folk. And some folks are making 5 figures plus.

• 🐔 Expensive Flu: Updated numbers from the USDA show more than $670 million have been spent combating the current outbreak of HPAI (bird flu). Here’s a running summary of confirmed daily infections for more details.

• 🌱 Data Tech: Two giants, Microsoft and Bayer, have partnered to combine their cloud-based data management forces. The platform will allow companies to build tech products for farmers to more easily organize and access data with the ability to license the capabilities.

• 🥩 USA Labeling: Some of the largest groups in the US beef industry are providing their reactions to the proposed USDA rule tying additional restrictions to the “Product of USA” label. The comment period is currently open, and statements by the groups have fallen on both sides of the fences.

• 🚜 High Tech Tillage: Equipment powerhouse CNH Industrial became a minority investor in tech startup EarthOptics, placing a bet on the future of tillage becoming autonomous.

THIS WEEK’S TOP TEN: Ag Banks

We’ve all heard more than we cared to about banking this past week. I didn’t realize I knew so many banking regulation experts until the SVB news broke…

But, it got me thinking. Agriculture takes a ton of capital to start and operate successfully. Turns out there are some giant banks financing the industry. So, what are the largest banks that help to loan money and receive deposits from America’s farmers & ranchers?

Here’s the top ten largest farm bank lenders ranked by dollar volume (as of 2020):

1. Wells Fargo Bank - $6.2 billion

2. Bank of the West - $3.1 billion

3. John Deere Financial - $2.3 billion

4. Bank of America - $2.3 billion

5. Great Western Bank (now FIB) - $1.8 billion

6. First National Bank of Omaha - $1.7 billion

7. Pinnacle Bank - $1.7 billion

8. US Bank - $1.4 billion

9. BMO Harris Bank - $1.3 billion

10. Bremer Bank - $1.2 billion

Note: This is a list of banks compiled by the FDIC. It does not include credit unions, insurance companies, or private debt organizations. The largest of these non-banks are Farm Credit Services, MetLife, Rabo Agrifinance, and Compeer Financial.

MEME OF THE WEEK

That's a wrap, folks.

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