Most Important Issue with which Bankers Should Be Concerned

Recently at the Graduate School of Banking at Colorado, I was asked, “What is the largest single issue bankers should be concerned about?” After some thought while driving across the Midwest, here is my best shot.

The biggest single issue is one of the major strengths of agriculture, and that’s the strong balance sheet created by high land values.

This fact is leading to many inappropriate lending practices that are OK in the short run, but can’t face any adversity in the long run. First, many producers and even some lenders are saying that the price levels of corn, beans and beets have moved to a new plateau. This in turn supports the level of investment in farm ground.

I will carefully remind individuals that the marketplace will react to current levels of prices not only here, but also in South America and other production areas throughout the world. The bottom line is to make land cash flow for an agricultural return, you are looking at a 50% decline in values.

That being said, you still have artificial influences such as older individuals seeking a safe haven in land investment, outside investors, tax-free exchanges, low interest rates and government programs in support of strong land values. However, you are the judge; will these artificial influences be sustainable in the long run? I don’t think so!

Other Perspectives

  • Wow, the corn and bean crops look good in the Midwest.
  • My neighbor just sold 575-weight cattle for net $1.20 per pound. How will the opening of the Canadian border (if and when) impact this?
  • At a farmer/rancher panel in Kearney, NE, two panelists indicated that they have received mailers about interest-only loans on real estate. Danger! Danger! Danger!


My e-mail address is:sullylab@vt.edu

Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.

To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.

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