Community banks are financing ag innovation

Living Green Farms

Ag loans are for more than just supplies and equipment. State Bank of Faribault financed the creation of Living Green Farms, an indoor vertical farming operation based in Minnesota.

The U.S. agriculture industry continues to see big-picture changes, from consumer trends to erratic weather conditions, but community banks are there for them. That puts them in a key position to support agricultural innovation and help push the industry forward.

By Ed Avis


The pressure on America’s farmers is evolving. Climate change makes the weather less predictable, political maneuvering disrupts markets and changing nutritional trends alter what Americans are buying. These factors make the consistency of community banking all the more important.

“All of our ag lenders are either farmers themselves or their spouses are farmers or they grew up in an agribusiness,” says Jeff Spiehs, president of $118 million-asset Farmers and Merchants Bank in Milligan, Neb. “We understand farming from our own perspective. We understand how expenses are continually going up, and we understand the commodity side and the marketing side.”

These days, community banks are not just lending money for seed and tractors. They’re also funding innovations in farming, taking risks on new crops and technologies, and acting as business consultants to their ag clients.

“We’re partners with our customers, and I always believe that,” says Spiehs, whose bank holds about two-thirds of its assets in agricultural loans. “When our customers succeed, the bank succeeds.”

“We’re partners with our customers, and I always believe that. When our customers succeed, the bank succeeds.”
—Jeff Spiehs, Farmers and Merchants Bank

Community banks have a long history of helping farm clients endure difficult times. That help has been especially essential in recent years, as tariffs rile international markets and erratic weather patterns delay when farmers can plant.

For example, $700 million-asset First Bank of Berne in Berne, Ind., has been through some nail-biting moments with its farm clients but has stood by them.

“The last three years in a row, it’s looked bleak going into the season but ended up better than expected,” says Rick Gentis, agribusiness banking manager at First Bank of Berne, whose ag loans-to-asset ratio is about 37%. “This year, most of our guys didn’t start planting until the first of June because of the constant rain, but then 90% of the growing season had perfect growing conditions.”

Whatever the weather, the community bank keeps the support going. “We go in with our eyes open, but we know we’re a long-term lender. We’re here to stay,” Gentis says. “If we’re concerned about a borrower, we might renew the line on Dec. 1 [instead of March 1], so if we have to exit it gives them time to look at other options. We don’t want anybody to get to planting time and not be able to take care of their needs.”

Advancing ag innovation

When John R. Carlander learned about an entrepreneur who was seeking a large building to use as an indoor farm in 2012, the idea intrigued him.

“Our farmers in the Midwest have a very short growing season, so any time you can work with somebody who is thinking outside the box, who can extend their growing season to two or three or four turns, and can reduce the footprint it takes to do that, is very interesting to us,” says Carlander, president of $217 million-asset The State Bank of Faribault in Faribault, Minn. “For me, that’s an outstanding business plan.”

The community bank, which has about 15% of its lending portfolio in agriculture, supported the entrepreneur by selling him a foreclosed factory building at a loss and extending a favorable line of credit. Today, the business, Living Greens Farm, supplies greens to Walmart and other retailers and has patented elements of its indoor-farming technology.

“There was a lot of risk in this kind of venture,” Carlander says. “They had to create the [infrastructure] they needed to do this. If this thing doesn’t pan out and you go into liquidation mode, you have a very limited number of potential buyers. Who’s going to want this single-purpose manufacturing plant? So, we had to believe wholeheartedly that they were going to produce a crop and could actually sell it. It’s gone well.”

Often, community banks provide financing for agribusiness that extends beyond food crops. For example, $950 million-asset American State Bank in Sioux Center, Iowa, has an ag borrower that breeds pigs that are genetically designed for medical research. “This company can build a genetic model for just about any disease,” says Stan Speer, president and CEO of American State Bank, which has a 46% ag loan-to-assets ratio.

The community bank has also funded a farm working on cloning technology and one that makes medicinal products from cow tracheas. All of that cutting-edge agribusiness requires community banks willing to take risks.

“I’m proud to say we’re a vital and necessary partner of this community,” Speer says. “We have very courageous borrowers in this community. They’re very aggressive. We have a large number of operations that are $10 million and higher, especially for a community of just 7,500.

“I’m biased, but I think we play an integral part of the many successes we have in this community. You need somebody with an appetite for a degree of risk, because if they don’t, they will not be involved in this kind of financing.”

Organic growth

Organic food is trending. More and more, consumers in the U.S. seem to want to eat food grown without chemical pesticides or potentially hazardous fertilizers.

But organic farming can be costly. It takes at least three years of organic management before a farm can be certified, and, once certified, the added costs of being organic equate to greater credit needs and risk.

Living Green Farms

State Bank of Faribault won’t take on projects like its loan to Living Green Farms unless it believes wholeheartedly in the borrower’s prospects.

“The lending to an organic farm is very much the same, but it’s a little higher risk because the cost is greater and the markets are fewer,” Speer says. “You have to have confidence that your customer is asking for financing in an area that they have a market for that is willing to spend a premium.”

Despite those challenges, community banks extend financing to organic farms when appropriate.

“The best managers can make organic farms work,” Gentis says. “Some people treat organic farming like a fad or they just see it as an opportunity to diversify, but they need to have the skills to succeed with it.”

Another hallmark of successful banking is the fact that borrowers often rely on their community banks for essential information, not just about financing, but also about agriculture trends and markets.

For example, Spiehs says it’s common for Farmers and Merchants Bank lenders to provide market information to ag borrowers when appropriate.

“This day and age, it’s harder to sell the crop than to raise it,” he says. “So, we’ve tried to help our customers do a better job by taking advantage of the opportunities as we see them. Here in the bank, we can see the markets on a daily basis, and we have access to certain reports, and we try to pass that information on to our customers when we think it would positively affect their operations. We want to help them make decisions.”

Gentis says First Bank of Berne guides agricultural borrowers by providing financial ratios and other comparative data to help them understand how well they’re doing. “We do a lot of consulting on the financial side to help them see how they compare to their peers,” he says, “and to show how their numbers are trending.”

Farm consolidation

Community banks, which make more than 80% of all agricultural loans, according to ICBA, have stood beside their clients through countless challenges. But now, those community banks are seeing a fundamental change in the very nature of that client base: Small farms are being replaced by larger and larger operations.

Spiehs says consolidation among area farms means everything is getting bigger. “The average size of the farm and the average loan has grown larger over the last 10 years,” he adds. “It makes it difficult as a community bank to rely solely on local depositors to fund the loans. So, from a liquidity standpoint, we have to look outside our local area.”

Changes in client size, ag technology, climate and food trends affect the daily life of community bankers, but they remain farmers’ best partners.

“We strive to provide the best possible service,” Spiehs says. “What’s good for our customers is good for the bank.”


Ed Avis is a writer in Illinois.

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