Non Equity Farmer

[jazz]

I saw this post on the WP and then it got some play with the govt and FCC in a larger story.

Guy says he is massively profitable, no equity, cant get a loan for anything. Rents 5000 acres and never stopped to buy a couple quarters. Someone should have educated him in the lending world before he started down that path. Banks want to lend against something secure, not your balance sheet. Unsecured lending will be twice the interest rate as backed assets. There are tons of 6-10% loans you can get and they will borrow you on your good looks.

I've never tried it but cant you put up your equipment as security?

And yes you can technically look very profitable by expanding every year. That's been tried in our neck of the woods too. Eventually hits a wall.

https://www.producer.com/2020/01/young-farmers-face-financing-issues/ Young farmers face financing issues

https://www.producer.com/2020/01/asset-poor-farmers-face-cash-hurdles/ Asset-poor farmers face cash hurdles

[RTK]

Quite an article - never saw that coming. Imagine a bank not wanting collateral for a large operating loan. Been profitable over the years never bought any land or equipment or built working capital in that period... so profits went to his living expenses. Hmmm.... shocked

[helmsdale]

Own ZERO acres... Absolutely no way I can even begin to afford going rate around here.

Went to work in the patch right out of university, and started trying to save up to buy a few quarters. 1 opportunity came up in the 5 years I was working. I offered 25% above market on 3/4's and was BTFO by an outside investor.

There have been exactly ZERO other opportunities since then... Some land has traded hands, but it has been sold to long term renters of said land who are rather well healed and there is absolutely ZERO benefit to me long term to get into a bidding war on dirt they were renting.

Since then, land has appreciated somewhere in the neighborhood of 300%. Only avenue available for me to farm was to rent. Those that I've been renting off of, have ZERO desire to sell as they see nowhere for land prices to go but UP, so why not rent in the meantime and let their descendants decide whether to hold the asset or liquidate it.

That said... I can honestly say that credit (at least on my end) is still STUPID EASY to get...

Want an FCC input line of credit? No questions asked $100,000 unsecured!

Input supplier line of credit? I've yet to be turned down. Can honestly say I haven't asked for the moon though either.

Line of credit at the bank? How much do you want?

And all of this done without anything to secure against, and ZERO cosigning by any related parties other than myself.

The trick at least on my end, has been to try and keep the credit use as limited as possible, write cheques for what you can, and squeeze the ol belt a couple notches tighter on the personal side...

So I'm inclined to believe that there are other underlying reasons as to why certain "young farmers" are unable to source credit. And perhaps, the banks, credit agencies, and input suppliers are sending a very non-subtle hint that the current path of some upstarts is unsustainable?

[jazz]

So I'm inclined to believe that there are other underlying reasons as to why certain "young farmers" are unable to source credit. And perhaps, the banks, credit agencies, and input suppliers are sending a very non-subtle hint that the current path of some upstarts is unsustainable?

A less than a year revolving facility is a cake walk for anyone, equity or not. You can get a couple hundred out of Nutrien with a smile and yes $100k from FCC if you can fog a mirror.

But he is looking for something else, bridge financing, non repayable, interest only. That requires land. Says he has had 5 yrs of disaster. I don't know that area but this seems to be a hail mary to save his farm and only equity can do that, not revolving credit.

I like his comment that the rest if us are just farming off inflated land values.

You can always own land, it doesn't have to be under your nose to own it. Equity is portable. You can rent around you and buy something 50 kms away and rent it out. Owning dirt is forced equity accumulation.

[AlbertaFarmer5]

I'm going to say something unpopular, and it could just as easily apply to my own operation, and many others. On a previous thread I gave this producer credit for starting from scratch, not faulting his management, but maybe the timing and location are the problem.

Perhaps 5 years of weather disasters in a row, may indicate that the previous decent years were the exception, and these 5 years are back to normal.

I'm a couple of hours south of Evansburg, but about as close to the western edge of farmland as they are. So we probably have very similar challenges, low heat units, short growing season, excess water more often than not, grey wooded soil, varied topography, bush, wildlife, if anyone closer to the area knows otherwise, please correct me. I have driven through the area often, and looks like it would be a very challenging area, and I don't think it has been traditionally broadacre crops, likely for good reason. A quick look at google maps looks like when it is wet, it is really wet, lots of bush remaining, or freshly cleared, water runs, low areas and obstacles.

We had a number of years with extended growing seasons, which made a lot of us on the fringes think that was normal, and we get offended at the suggestion that global warming didn't permanently make us the new banana belt.

I don't know how much realistic research the banks use to judge climate/weather risks when lending money to farmers. But just maybe they look at 5 years of disasters, and the historical land use, and the actual climate trends ( not the ones Chuck imagines are occurring), and have established that this is too big of a risk, and with no land for collateral, he would be the first to feel the pinch. If anyone else who owns land wants to risk, or burn their own equity to continue to fight mother nature, the bank will gladly agree.

And that is part of the process of low prices curing low prices. One way or another, the least profitable or most risky acres will come out of production. Every acre looked profitable at the highs. And in a disasterous year like 2012, prices still made up for production problems.

[ajl]

Farm econ 101: Be long real estate when government is manufacturing inflation. This is the story of the last decade. The flip side is to be short when deflation rules the day. That was the first half of the 1980's. We have enjoyed 5 crappy weather years here as well and the only gains I have had in this time was thanks to government working hard to fan the flames of inflation as actual profits from produce production have been non existent during this time, as the guy in the article is likely experiencing. If central banks are out of fire power, then the next period is more like the 80's. Land is this immediate area is marginal and was broken in the 70's, put back in grass in the mid 80's with help from the permanent cover program, and then broken again over the past decade. Pretty sure Evansburg and west is in the same boat. This year will be interesting. I have hope that there will be prevent plant in the Dakota's this year again which should keep the whole thing from collapsing and we are bound to have a decent year weather wise. Otherwise will need to have the PCP again

[AlbertaFarmer5]

Farm econ 101: Be long real estate when government is manufacturing inflation. This is the story of the last decade. The flip side is to be short when deflation rules the day. That was the first half of the 1980's. We have enjoyed 5 crappy weather years here as well and the only gains I have had in this time was thanks to government working hard to fan the flames of inflation as actual profits from produce production have been non existent during this time, as the guy in the article is likely experiencing. If central banks are out of fire power, then the next period is more like the 80's. Land is this immediate area is marginal and was broken in the 70's, put back in grass in the mid 80's with help from the permanent cover program, and then broken again over the past decade. Pretty sure Evansburg and west is in the same boat. This year will be interesting. I have hope that there will be prevent plant in the Dakota's this year again which should keep the whole thing from collapsing and we are bound to have a decent year weather wise. Otherwise will need to have the PCP again

Where are you at AJL? I have you somewhere east of Edmonton, is that right, or am I confused with someone else?

Most land in this area started being broke around the turn of the century, and every quarter seems to have been homesteaded at the time, but only partially broke, with the remainder of the productive ground being broke in the 50's and 60's. All has been in production continuously ever since, but the balance does go back and forth between livestock or crops as climate and markets dictate.

[ajl]

NW of Vegreville. Straight east of Edmonton.

[SASKFARMER]

So this guy probably will win farmer of the year and then like most of the winners be gone in a few years. Land and building assets and a cash reserve wins. Oh just working for a wage farming.

[Sheepwheat]

My experience is sure different. I must have only contacted ham fisted lenders. They all want collateral for any kind of loan. And they all want proof of repayment power. Early in the sheep, we went to borrow a little cash for fencing and supplies. Turned down because we wanted to only use the sheep operation with no real income as of yet.

Had quite a conversation with a manager from fcc. I was telling him my frustrations of not getting funds for such a small loan. I asked how do people start out? I’ve been farming for 26 years. Even with the fcc start up loans they wanted income tax proof that the venture was profitable. He said no one starts out with nothing. Everyone has ppl co-signing, land given to them, using dads equity, quarter put up by dad, and on and on it went. He claimed EVERYONE, even start ups, have outside income, equity, co-signing. I asked about younger farmers who I know have borrowed millions. He stated they would have been co-signed for, or using equity and or someone else’s income tax to get those loans.

Because I wanted to keep my grain business and my sheep business separate, we said screw it and used our own cash. I must be the only farmer who couldn’t get a loan for a tiny amount from fcc. Sheep were valued at about 8 times the loan. Well we can’t use stock as collateral. I offered a tractor worth about 5 times the loan asked for, no dice. I offered more, another tractor worth another three times the loan. NOPE. We need to see you can repay it FROM THE SHEEP, or bring in the grain farm information. I showed him my projections, with production of six times the value of the loan in the next year. NOT GOOD ENOUGH. He needed history, proof of the sheep profitability. Hard to give when you are in year two.

Sure opened my eyes. So some kids seem able to go get a whack of cash to play farming with. While a seasoned farmer with equity and realistic projections gets turned down. Hard to believe. But if what he said was true, sure seems like a lot of benevolent old farts out there aiding the next generation. Which is fine, but why have start up loans then? Why advertise and brag about loan products that in reality need co signing.

I still don’t know how some guys even do it. It is aggravating to me.

Oh well, we’ll do it on our own then. As someone once said, “Just watch me!” Lol.

[jazz]

Oh well, we’ll do it on our own then. As someone once said, “Just watch me!” Lol.

Sheep I have never been able to work with FCC much either because they want land security and cosigners, lots of them if they can get it. With a few free quarters and a couple cosigners to spread the risk around you could probably get $10m out fcc.

If there is risk in lending in the farm sector, FCC is probably holding it.

The collateral has to be very specific too, it has to be something that is illiquid and cannot be sold off over night, that's why equipment and stock and grain cant be used except for revolving, but when they are on your title with you, you are locked into a long term dance with the lender that you cant get out of overnight.

[bucket]

Sheepwheat


Sadly the people described above are the guys sitting on boards telling a different story....they are 4th generation self made men/farmers .....

They can't even understand why or how the farm was still there for them....

The industry is in trouble if skilled farmers are told to take a hike.....young guys that will be good farmers are never given the chance.....

[AlbertaFarmer5]

When I got my first land mortgage, I was barely out of school, all I had to provide was a letter from my employer stating that I had a job as long as I wanted it. No collateral, no co sign, no business plan, no proof of crop insurance. I wasn't even aware of any of the young farmer programs, and have never dealt with FCC or AFSC. Paid down, or paid off the first mortgages very fast, and from then on, used the equity in existing land as collateral for future mortgages.

[AlbertaFarmer5]

The industry is in trouble if skilled farmers are told to take a hike.....young guys that will be good farmers are never given the chance.....

I agree, the industry, and society in general is missing so many potential opportunities from young and ambitious outside the box thinkers, all because the only skill set that will is required to go farming now is hereditary. I refuse to believe that just because your great grandfather worked really hard ( and smart), and took the right risks, sacrificed, and built a successful farm; that you are magically going to be the best candidate to run that business today. But we won't allow anyone else to even get a foot in the door to find out.

[SASKFARMER]

In every aspect of life you need to own something to be able to borrow money.