Beginning farmer 2: lending

Shay

Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Tevis Motta Central Bank. Tevis, how are you today?

Tevis

Mott: I'm doing great. Beautiful day here in Central Illinois.

Shay

Foulk: Yeah, I agree. We've had some rain here and looking forward to kind of what the rest of summer will hold us as our crops finish out. Today's conversation, we wanted to look specifically at lending for beginning farmers. This is part of our Beginning Farmer Series and the process of lending can be a little bit daunting as you kind of jump into it. And Tevis, I was wondering if you could just kind of give us a little background of, you know, what it is that you do at Central Bank, and then we'll dive into some specifics on what beginning farmers should be thinking about.

Tevis

Mott: You bet, Shay. So here at Central Bank, specifically focus on ag lending. I do do some commercial and some consumer lending on that side of things, but mainly focusing in the ag industry. All the things from, like you said, beginning farmers, farmers that have been in the industry their entire lives, and also ag industry, those that are supplying the products to our farmers and making sure that they're able to do the things that they need to do on a day-to-day basis. So we kind of COVID everything in the ag lending side, but we also commercial consumer side of things. So it's a broad range of topics, but we cover it all. We just try to make sure that we're able to provide the necessary funds to this area and be partners with them and in their operations.

Shay

Foulk: Yeah, thanks for the background there. You know, I guess I would start by asking you the question, Tevis, of when you think of lending for beginning farmers, kind of from the 30,000-foot view, what's your initial thought or what's your initial reaction to someone looking to get into farming and how they might work with you or work with lenders in general?

Tevis

Mott: Yes, I think that begins with a business plan. Any Anything that you embark on, whether it's farming or anything that you decide that you're going to start some type of business— farming is a business— we want to take a look at, okay, what is that plan? Where, you know, where do I want to start? Where do I want to get to? What kind of goals am I going to create? And then decide whether or not your business plan be profitable. And so we've got to take a look at a large— that, like you said, that 30-foot above, you know, where are we going, where do we— what do we want to accomplish? And then we start to narrow it down as we kind of get closer to the ground. We're going to take a look at, you know, that more individualized plan and then focus on, okay, what type of what type of line of credit, what type of inputs do I need to make sure that my operation is going to be successful.

So I think as I look at a person that is going to begin farming, I want to create that business plan and then I want to focus it down to, okay, how can Central Bank be helpful to that business plan to make sure that it's successful. And so, you know, it's not just, okay, I want to start farming today and this is what I think I need as far as an operating line to make this happen. We want to make sure that the individual has really taken a large picture and taken a look at every single aspect from start to finish to make sure that they have a plan and that plan then can be executed. I think that too many individuals get excited about beginning farming because I think both you and I can agree that looking at farming, you just get excited. You know, you get geared up and you get excited about the operation and what you're planning on doing and maybe the future of the operation.

But sometimes we just need to take a step back and say, okay, what does the operation need? And then let's just focus on that first year as a beginning farmer. You know, it doesn't take necessarily a lot of funds depending on the size of the operation. But we also want to make sure that— I like to make sure that that individual is only borrowing or looking upon what they really need. You know, we both know that, that crop prices fluctuate, so we've got to take a look at what the crop prices are for that year and then focus that on, okay, what can we produce as far as gross revenue? And then as we start to pull out those expenses, what are we left with at the end? And make sure that it's going to be a profitable year for them, or as close to profitable. As long as we can, uh, you know, break even, we can farm again the next year, I say.

So if we, if we take a look at that as a beginning farmer, okay, what can we do to make sure that their business plan is going to be successful?

Shay

Foulk: So from a business plan standpoint, uh, when you think about that, are you looking for a 1-year plan, a 3-year plan, a 5-year plan? Uh, we talk about focusing on what this next year is going to provide, but for someone that's looking at getting started, how much time and effort should they put into, you know, developing a plan that has a little bit more of a strategic outlook to it?

Tevis

Mott: I really think that depends on what that individual's goals are, and that's where those goals come into play. Um, you know, are they looking at getting started farming and growing as they're able to grow, or are they an individual that is looking at, okay, I'm starting today with the outlook of taking over an operation that is there and possibly for them to overtake, and how many acres and what size is that operation. So I think as you look at lending for beginning farmers, it really depends on the individual's plan and their outlook. If it's just someone that would really like to get started farming, they have the opportunity to farm anywhere from 10 to 40, 80 acres that first year depending on what they have available in front of them.

And if their goal or maybe their outlook is if they can just continue to farm that one farm, then I think they're, you know, they're maybe a more year-to-year operation because, you know, they don't have the intent or the want to maybe grow this operation on a large standpoint, but if it's someone that is looking at, okay, I'm going to start off this year renting this 40 acres, but our operation is 2,500 acres or 1,000 acres or 800, and I want to be in a position in so many years to overtake all of those acres and take over the operation, I think our business plan and our outlook is much different, and we're maybe more focusing on growing in different areas. So I think that comes back to we're looking at maybe growing a balance sheet that then allows them to have access to more capital so that they are able to farm those additional acres.

Where, like I said, if we go back to someone that's maybe a little bit smaller operation, that they're more of a year-to-year, they're just looking for input money to run the operation year to year, then, then maybe we're not looking to grow as much. And so their business plan and their outlook isn't as important. So I think the, at the beginning, farmer setting a goal and indicating that to your lender to, so that they know what your outlook is, that also helps us to focus on what needs to grow within your operation, such as a balance sheet and the needed capital so that you can continue to grow in your farming operation.

Shay

Foulk: So I'm going to come back to the balance sheet and collateral there because I think that's an important topic we need to look at more specifically. But one thing that you're also looking for from a lending standpoint is kind of a preliminary cash flow analysis. You referred to it from, you know, where are grain prices at or livestock prices or whatever endeavor it is that you're working on. When it comes to that cash flow, if someone's thinking about getting started here, do you recommend that they, you know, kind of present their own cash flow? As a lender, do you have a standard, you know, form or system that you like to see used? How do you think about cash flow as a beginning farmer?

Tevis

Mott: I think an individual that comes in and has done their homework on a cash flow, knows their input costs, knows their expenses throughout the year and can show me that they've thought this through is a really good indication that that individual is going to continue that throughout their operation. And a cash flow isn't a— it's not a dead set. Okay. You know, we know that things are going to change. There's going to be variables throughout the year that are going to come about that are going to change that cash flow. But every operation that has a well-put-together, well-thought-through cash flow, I think personally, has a better chance of being successful because they've thought through most of those variables. They've probably fixed some of their costs by knowing what their seed costs, knowing what their input costs are.

And they have done that so that when it comes time at the end of the year, they know what that net is going to be. Or they're very close. And so putting together a cash flow, whether it's on a piece of paper or on an actual Excel spreadsheet, something that you maybe found online— there's lots of great cash flow Excels that are out there through the different programs, through Purdue or Illinois DOC. There's lots of good things out there that are on the web. You can download the cash flow and you can just simply go to work on it. And so there's great things out there that are available to everyone. But by putting that cash flow together, it really shows a lender that I'm willing to do the upfront work before I get to go do the fun work. The fun work is jumping in the tractor and working the ground, planting, or spraying or harvesting. Those are the fun times.

That's what really draws people to agriculture is being out there and doing the work. But what makes the operations really successful is knowing the numbers and being able to put that cash flow together. So, you know, I don't— whether it's, you know, anyone's cash flow projection sheet or whether it's a sheet of paper that you've just simply wrote down everything, If someone can put it together, we can always put it into the forms that we would like to have in the file, but anything is acceptable on that side of things. So just doing that upfront is great.

Shay

Foulk: Great. Another thing that you're looking at from a lending perspective is, you know, typically a 3-year history of tax returns, correct?

Tevis

Mott: Yes. Yep. We would like to see 3 years and those 3 years for a beginning farmer typically probably won't show any agriculture on it, which is perfectly fine. We just want to see that we need to have that history there that kind of shows us you've got some income coming in. And, you know, someone that may be beginning farming, maybe they're just out of high school, maybe they haven't even filed their own tax returns yet, so that's understandable as well. But Someone that's getting started, we just like to see 3 years of tax returns, whether they're going to show a Schedule F or whether they're just going to show maybe some income from a job that you've had.

That's not necessarily a big support of an operation, but once again, just want to have that in the file to help show some history that you know, they've had income and that they're going towards that agriculture pursuit, I guess.

Shay

Foulk: So, you know, one thing that you kind of mentioned is looking at compiling this information, so the cash flow, the balance sheet, taking into consideration that 3 to 5 year or whatever the business plan time frame is, as well as the tax returns. You know, one thing that I think as a beginning farmer it's important to understand, you said earlier, it's not just going to the bank and saying, hey, I think I need this much money, can you lend it to me?

Understanding that the bank is taking a risk in the investment and there's a certain amount of lending that they're willing to do based off of, you know, a risk assessment formulas that they have, how leveraged the lending institution is willing to be in supporting this, and, and as well as, you know, evaluating, okay, what's the history here and does this person have the wherewithal, you know, did they take the time to do a documented cash flow, and do they understand their cost? All this kind of comes together to figure out what the bank is, or what the lending institution is willing to provide to the farm operation. Can you just talk a little bit about why, you know, why that's such an important consideration and how you think about that as a lender?

Tevis

Mott: Yeah, I think the, the importance there Like you said, Jay, everything kind of comes together and gives us— we look at risk grades, and that risk grade is giving us an indication of where— what type of risk that is to the bank in terms of what type of collateral position are we in. Like you said, how good is the cash flow? What are those projections really showing us? Is this operation going to be profitable? What type of ability are they going to have to service the debt that they're requesting? And so when we take a look at all of that, not only does it give us an indication of, okay, what type of risk is this to the bank, but also how successful is the whole operation, not just the projections. But when you pull together the balance sheet, when you pull together those projections, when you pull together the history of the the customer based on those 3 years worth of tax returns.

How sound is this as a business plan, as an individual? How sound are they financially to take on the debt that they're requesting? And so, you know, I always say if in the beginning farmer is successful, then I as a banker have been successful because I've helped them put together a business plan that makes them not only grow by creating more equity in their operation, but having strong projections and then creating a history that shows that the operation has grown. We want the operation to grow not only profitability, but also that equity. So We want to see an operation just be able to grow in all those categories and not just one.

So that you, as you grow in the operation and as you try to take on those additional acres, that you've done the necessary things and grown your entire— I guess what I want to say, your entire operation so that you are financially in a position to continue to take on additional risk and grow the operation. As we continue forward, I think that we're going to see that input costs are going to rise. The cost of machinery definitely has not gone down. It's only grown. And so an operation really, it takes a lot of capital and it takes the ability to take on a lot of debt or take a lot of risk. And so as you're able to grow as a young farmer, your entire operation, you are able to see that, okay, we're ready for that next step. And I think that, I think that focusing on the whole entire operation's financial position really allows a young farmer to continue to grow.

Shay

Foulk: And when you talk about servicing debt, just for those who may not be super familiar with that, essentially that's just your debt repayment capacity, you know, making sure that you are able to pay back— if you borrow $200,000 from the lending institution, that you're able to pay back that amount plus whatever interest is assigned to that note in the time period that you're working with. So typically within a within a cropping year, or, you know, if you have a— I think the terminology is revolving loan— that you're able to continuously pay off that debt or pay off the amount that you have borrowed and how effective you are there. Am I, you know, saying that correctly?

Tevis

Mott: Yes, definitely. Yeah, we want to see that, want to see the revolving line of credit and its interest that it's accrued over the course of the crop year. We want to see that it's being able to be zeroed out, which would then in return show that obviously the operation's produced enough income to service all of those expenses plus the interest accrued. And then also make sure that we're able to service any of the annual principal and interest obligations, whether it's a piece of equipment that you purchased or a piece of ag real estate that you've got an annual payment on. We want to make sure that the operation— and when I say the operation, for a beginning farmer, typically isn't just what that crop produced, but maybe what they were able to produce off the farm.

And so, you know, we're looking at both their off-farm income plus what the farm was able to produce, and is that able to service that debt. So I kind of look at a We're looking at more of a global look at the operation, which is very typical for beginning farmers that they need that off-farm income plus what the farm is able to do to probably service. So they're supplementing a little bit, you know, using that outside income to help float the farm operation along. But that's very typical in a beginning farmer.

Shay

Foulk: Position. And that leads pretty well into my next point, looking at collateral. So, you know, even if you're looking at just joining into an existing operation, you know, maybe transitioning back into a family operation, or, you know, getting involved with, uh, you know, someone else out there, collateral is extremely important when it comes to, uh, from a lending perspective, you know, the debt repayment capacity and then what position the bank is taking on some of these things that you're involved in. So I think one thing that maybe beginning farmers don't have as good of a grasp on is, you know, the bank is actually going to take first position on, on some of your, you know, the grain contract deliveries or the crop insurance to ensure that they have a guarantee of being able to have that debt serviced.

And collateral becomes really important on that particularly if you're working with family members or someone else that's willing to sign on to these notes of saying, hey, we are going to support you as a beginning farmer. And if, you know, you had a catastrophic year and something went belly up, we would be able to work with the bank to keep you afloat. So, you know, I guess what are some of your comments when you think about collateral and you think about a beginning farmer, Tevis?

Tevis

Mott: Yeah, so beginning farmer, So we kind of hit it there on the head there, Shay, as far as what we were going to look at. We're going to first look at what type of crop insurance that they're going to have, you know, what type of coverage. Crop insurance comes in different coverage categories and percentages, so what type of revenue protection they're going to take against the crop. You know, I would say a majority of those farmers out there, probably the 80 to 85% There are policies that allow you to go up to 90 or 95% of the revenue protection against that crop. And so as you look at the operation, I think crop insurance is one category that we, we could take a look at and say, okay, what type of coverage do you have? What type of protection is the bank able to take there on the crop that you're looking at producing?

And so We typically take an assignment of indemnity on the crop insurance that allows us, like you said, to take part of that crop insurance and protect the loan that they're taking out against this year's crop. And that's only one piece of the puzzle there. As a beginning farmer, though, crop insurance is definitely one of the key parts there on a year-to-year basis. As we look further into it, yes, we're going to take assignment of those crop contracts, whether you're, you know, depending on where you're selling the crop and how you're marketing your crop.

But also, as a beginning farmer, if you have an individual that is willing to, whether it's, you know, whether you've got the equipment already owned or someone that you're beginning to farm with, has additional equipment and is in a position to allow that equipment to be utilized as collateral on your loan, that is always a great opportunity for a beginning farmer to get started, is to have someone there, whether it's one piece of equipment or, you know, a group of pieces of equipment or something that is going to help that beginning farmer say, okay, you know, I know that I've got the first things in place here to collateralize my loan, but what can I also provide to the bank to put the bank in a comfortable position knowing that I'm a beginning farmer, I have no history in farming, and I've got nothing to kind of show that, you know, I can do this.

What can I provide to the bank that would provide additional collateral that would make the bank feel comfortable because we all know that there is extreme risk in farming. We've seen the volatility in the crop prices over the last 24 months. And if you're a beginning farmer that started farming, you know, you have very big risk of potentially coming up short the first year. And so if if they come up short, we just need to know that the bank is in a position that we have additional collateral, that then we can structure that debt. You know, the debt doesn't just need to be simply repaid, but by having additional collateral, you give the bank opportunity to help the operation structure that maybe carryover debt in a manner that the next year you'll be able to service it. Or you'll be able to start making payments on it.

So, you know, additional collateral isn't just used to secure the debt that is being taken out this year, but the additional collateral or ability to have additional collateral allows an operation to utilize it and structure debt in a manner that then, though, that next year's cash flow can handle. And so it just gives both the gives the beginning farmer and the bank an opportunity to have options and gives them the ability, I think, to better structure debt that works for the operation.

Shay

Foulk: And I think moving into those midterm and long-term assets is something that as beginning farmers, you know, it's thought about a lot of what does this actually mean for me as I gain, you know, partnership in that equipment or look to purchase land. And, and the, the bank is willing to invest in that, not only from a collateral standpoint, but also because it gives you better standing, it gives you a better base, um, you know, in a controlled manner, right? Making sure that we're making responsible decisions with the investments that we make, that it fits into our, you know, cash flow, we're able to service that debt with a proper debt repayment capacity.

So, you know, generally speaking, I guess I would ask you is, as, as young farmers look to maybe add value to what they're doing in their business, whether that's investing in livestock or equipment, or if they have a land opportunity come up, that's something that the bank looks at very closely as part of the overall strategy, correct?

Tevis

Mott: Yes, I would say that as you, as an individual and a beginning farmer, as they look towards growing that balance sheet and creating additional assets for the operation, you know, you kind of start with that intermediate or that begin— you know, the intermediate we would take a look at would be just simply if you had that crop in the ground, if your operation was looking at feeding some cattle or hogs, those would be those intermediate assets. Those are things that are going to be on the farm for possibly up to 12 months or a little bit longer. But, you know, they're going to come in, we're going to— whether they're going to feed them out or grow the crop, we're going to harvest that crop or send those cattle or hogs to market, and we're going to get that revenue back in a very short period of time. So those kind of— those are some intermediate assets. They're liquid.

We can get rid of them at any point in time that the operation may need some cash. And so, you know, we're able to move that in and out fairly quickly through an operation. But as you look at beginning farmers and what we need to kind of grow on that balance sheet, we're really going to focus on those, you know, those intermediate assets to long-term. And we're going to take a look at, okay, you know, we want to balance. We want to balance those things out. We don't want just a lot of real quick short-term assets. We don't want to necessarily put all of our eggs into one long-term asset, but we want to make sure that we are focusing on growing each category within those assets to create a nice balance.

You know, as you begin farming, maybe you're able to, like you said, whether it's partner into a piece of equipment or purchase a piece of equipment yourself, Those are great stepping points. Typically, because I take a look at those and I say, okay, well, we can pay that asset off in probably 5 to 6 years, maybe 7 at the longest. But you're able to get that paid off. There's still some equity and some value left in that piece of equipment at that point in time. And then you've got it already paid off and you're not continuing to pay on it. And so that builds that equity position for the overall operation. And then the operation can start to look at, okay, how can we gain some long-term assets like a real estate purchase? And we've got this piece of equipment. We've got it paid off. And now we've got equity in this piece of equipment.

And we can start to use those as collateral for other purchases. You know, maybe the operation doesn't always have the cash needed to put 20 or 25% down on a purchase, but you've got a piece of equipment that you've paid off, you've got equity in it, and you're willing to utilize that piece of equipment for the next purchase. So it's kind of a snowball effect for a young farmer. They're probably always using that piece of equipment that they just paid off, or the couple pieces of equipment that they just paid off, to move forward into the next purchase, whether it's a long-term or short-term asset or intermediate. I mean, they're just going to continue to use that balance sheet to move their operation forward.

And so I think that they should just really look at, make sure that they are balanced across all of those and don't just focus on, you know, buying equipment or growing their short-term and make sure that they continue to get additional acres or continue to buy real estate. They just want to make sure that they continue to do, uh, something in almost all those categories to keep a nice balance on that balance sheet.

Shay

Foulk: Yeah, I think that balance is super important, and I appreciate the perspective on that because I think it's— sometimes we're guilty as farmers of not thinking about enough of what's our overall strategy here, and then also how is the bank perceiving that. Another area that I thought I'd ask you about specifically here is looking at cost management. So from the consulting side of the world, you know, when we look at cost of production analysis and profit management, the number one way to reduce your cost of production is to increase your yield. And sometimes when we look at spending, particularly when times get tough, we see lending institutions maybe be a little bit more reserved on input, inputs and what farmers are spending there. And likewise, I mean, we've seen other areas where it's maybe not as big of a deal.

But when you think about cost management and ensuring you're putting the right dollars towards your inputs, trying to get the best yield, doing the best job that you can on marketing, as a lender, how do you view that?

Tevis

Mott: Right?

Shay

Foulk: Because as farmers, I think sometimes we're guilty of saying, well, you know, I want to do this, but maybe I'm not allowed to. How does the lender think about cost management when it comes to input purchasing and maybe some years when things are a little bit tighter around the belt?

Tevis

Mott: Yeah, I think that when you look at cost management in the operation, I think it kind of goes back to that projection or that cash flow that you've put together to show, okay, Is your cost management broke down per field, per acre? What have you done to identify what you're going to do for that cost management? And then, you know, what do you possibly have that crop marketed at so that we know where you're at on the operation? I think an operation that really looks at the breakeven on a per-acre basis and knows throughout the year. I think as we— like right now, you know, we're looking at insecticide, fungicide, we're looking at Y dropping right now at this point in time of the year.

Hopefully the operation has taken the month of June to know exactly where they are in input costs per acre, and they know where their breakeven is as of today, so that when they're trying to make the decision of Okay, do I go ahead and put on the Y-drop? Do I spray fungicide? Do we need to do those other additional things that could produce additional yield? I don't think that the bank is saying, okay, you know, that's not worthy or that's not necessary. I think that if the operation has taken a look at it and knows their breakeven and knows, okay, If I make this additional pass across the field, maybe I need to get so many additional bushels per acre, and is that even possible with that additional pass? Because we all know that each different application costs money, but each different application could also bump yield.

And so we've just got to weigh out the, the benefits of every path that we make across the field and know that where we have our crop marketed or where we potentially could market that crop, are we still profitable on a per-acre basis? I want to— that being able to show that, you know, really weighs in on the decision-making of, okay, yeah, we, we can make that additional path.

Shay

Foulk: Yeah, I wanted to, to lob you a little bit of a softball there because sometimes lenders get a bad rap on being the bad guy in that situation, and, and 9 times out of 10, it's more so, well, maybe you don't have your numbers presented as well as you should, or maybe you're not giving them the information that they need. So, you know, the other thing I would say on that is, is we do have, you know, like when looking at fungicide passes or looking at additional management techniques and the dollars that you're going to spend there, we do have a tool. It's called a margin enhancement calculator that just looks specifically at, okay, here's the money that we're going to spend on fungicide pass here's what we need to have in return, and, and we evaluate that on a per-bushel basis. So saying, you know, we need a minimum of whatever it may be, 6.3 bushels to justify this cost.

And then like you said there, is it possible? So if anybody's interested in that, they can, they can reach out to us there. But, you know, moving away from the cost management aspect of things, you know, when you look at the risk management strategy that the lenders need to take. How important is it from a safety net standpoint that beginning farmers think about crop rotations as an important part of their risk management? You know, maybe going 50/50 corn-soybean rotation, or, um, or, or maybe even looking at diversification. You know, if we're heavy on the grain side, should we be looking at diversifying into the cattle as we've seen over historical instances that maybe each of those businesses could balance out long-term. How do you as a lender think about that from a rotation and diversification standpoint?

Tevis

Mott: I would say that the rotation obviously is beneficial in the fact that typically on average costs less to raise to raise soybeans than it does to raise corn. So by being rotation, you can cut back on that revolving line of credit, maybe size that is needed for the operation. You've got— and manage that input so that you're just, you know, you don't have quite as much risk. And also, as we look at the markets, you know, For instance, we typically, whether corn and soybeans, they typically go together, but just taking a look at the profitability of the crop I think is very, very important for the operation. I wouldn't say that rotating is the number one thing that they need to do, or when you take a look at it being 100% corn this year and 100% beans the next year.

I think that looking at the profitability and making the decision on what you're going to plant for your operation based on the projections that you've put together, having known costs of inputs, obviously we're kind of projecting out where your crop price is going to be, but you know, knowing those type of things going into the crop year can I guess, give you knowledge of what you should be planting and what makes sense for the operation. Every operation is different. Every operation has a different amount of debt that they need to service on that year, whether equipment or land payments that they have. So when you take a look at your operation, I don't think that necessarily focusing on being rotating or being 100% corn or having those cattle and those different things are as important as it is of just knowing your costs and knowing what's best for the operation.

I will say that going, you know, there's always risk in each operation, whether it's a live animal and you have risk of death and the loss that way, or whether you have a, you know, you're just 100% crop and we have a a horrible storm come through and maybe all your crops are in a very small area. And so, you know, that devastation could be large on just your area. But I think as a beginning farmer and being diversified allows you to have income at different parts throughout the year, which is very beneficial for an operation. So I would say that I, you know, I I'd like to see some diversification, but I also know that by diversifying, that takes additional equipment. And equipment isn't very— you know, equipment's not cheap these days. And so it's— farming is a struggle.

It is a struggle, but I think that it all goes back to what we started with, Shea, and that is developing a business plan, knowing where the operation is, keeping track of that balance sheet. And really focusing on your operation, which is very hard in farming because we're always looking out and looking at what others are doing. But what we forget is everyone is at a different point in their operation. Um, everyone's been doing it for a different number of years, and everyone got started a little bit different, whether they had help from family or, or maybe they had been working for an individual for a number of years. That individual, you know, wanted to help them get started or whether you're just someone that, you know what, you enjoy agriculture and you want to start farming.

And so we're all going to be starting off at a different position, but we all have the ability to do those initial things of creating a good business, you know, outlook, creating a cash flow, keeping track of a nice strong balance sheet. And so we've got the ability to all do those. And I think by doing those, an operation can take a look at what they need to do on the diversification, crop rotation, and/or what is best for them to do. And that probably will make them successful in what they want to do and what they want to accomplish.

Shay

Foulk: No, that's great. I appreciate the insight into that. I have two more questions here as we kind of look to tie things up. The first one I'll ask you about is the Beginning Farmer Loan Program. And I know this looks different sometimes state to state, sometimes there's different federal programs that apply to this, but generally speaking, how can your lender be part of a strategic plan on taking advantage of some of these other things that are out there like the Beginning Farmer Loan Program?

Tevis

Mott: Definitely. I think that the Beginning Farmer Program is just an excellent, excellent program. You know, I know that here at Central Bank, we really enjoy working with a beginning farmer that is looking at utilizing the program. Not only does it, you know, if they get approved by the Beginning Farmer Program, not only is it pretty much a very, very strong reason for the Central Bank to approve the loan, but What it does for the operation is it provides capital at a very low interest rate that is fixed. And typically the beginning farmer is at 20-year fixed interest rate. So it gives them stability, and which is something that I think an operation needs to create in their— when they're borrowing is stability in that interest rate and knowing that The operation's risk is not going to change as interest rates fluctuate.

And so when they're able to get a portion, which would be the beginning farmer is 45% the USDA loan and then 5% goes in with the cash in by the beginning farmer. And then Central Bank would follow that up with 50% loan on our side. What that does is, like I said, it's fixing 45% of that loan and then of course then we take a look on Central Bank's side and we would determine what the best part for our loan would be for them, you know, what the best structure would be. And then together when you take a look at the— when you take a look at the two interest rates, whether it's now Central Bank and then the USDA loan side, When you blend those two rates, it is, it is giving a beginning farmer an opportunity to borrow money for an ag real estate purchase at a very, very good interest rate when you blend the two together that they most likely would not be able to have access to.

And it gives the operation the ability to grow in long-term assets through utilizing the program. Like I said, we've worked with a number of individuals as they've gotten started in farming to purchase that first farm utilizing this program. It's a little bit of additional paperwork for them, but in the end, all of them have been happy with utilizing the program. It's gone smoothly, and so I think that it's a great opportunity. And it's just a way for somebody to get started and make that first long-term purchase and long-term asset with little cash down. Typically on an ag real estate purchase, most lending institutions are probably looking at that 20 to 25% cash into the purchase, maybe even a little more. But with this program, it allows somebody to make a large purchase with only 5% down.

So, you know, that allows them to not have to have as much cash on hand to be able to make that purchase and get their feet wet on, on some real estate.

Shay

Foulk: Yeah, absolutely. And I think the paperwork and the time and the investigation that goes into that is, is worth every minute that you spend there.

Tevis

Mott: Oh, I would say yes. Yeah, when you take a look at the, like I said, the interest savings for the operation over the long haul, um, the interest savings and the time that you spend on that paperwork, um, I'm not sure that anybody makes that kind of, you know, money per hour just by putting in the time and the effort. It's a large savings over the life of the loan for the individual, definitely.

Shay

Foulk: Yeah. So last question that I have here, if you had, you know, it's a complex question, but if you had 1 minute to kind of talk a little bit about what we might be facing from an inflationary period we might be looking at down the road or just the volatility that we maybe are seeing right now, What recommendations would you make for a beginning farmer that's thinking about, you know, getting started or applying for a loan starting now versus waiting down the road? Or is that not as big of a concern in your mind? What are your thoughts there, Tevis?

Tevis

Mott: Yes, I think, um, don't let, um, the inflation, the volatility, um, the uncertainness in the ag industry hold you from from getting started. I think what it should drive you to do is it should drive you to be more focused on what is your goals in getting started with agriculture. Where do you want to get to? Where do you want to end up? It may take more time because as inflation does happen here and whether it's fertilizer prices or whether it's the cost of feed, anything, as those things go up, your ability to grow is probably going to be a little bit slower in your operation as you get started. But I still think that there are opportunities out there. If you're in the grain market and you're looking at starting to, you know, do some grain farming, I think that you need to look into people, you know, Shay, just as yourself, that are going to help individuals along the way.

And put all of those people into your circle as you begin farming. You know, whether it's somebody that's going to market your grain, somebody that's going to help you develop a strong cash flow and look at your operation at its nitpicks. Make sure that you take the time and focus on those things because what we don't realize as a farmer is The paperwork is the most important part of the job. It comes down to knowing the numbers. Doing the work is only half the battle. And so I think as a beginning farmer and in these times, I would definitely say, you know, don't sit back, don't wait, but maybe take a little less risk. Maybe, you know, make sure you talk to 1 or 2 or 3 lenders just to get their opinion. Maybe talk to 2 or 3 different marketers.

In the grain marketing side of things, make sure that you look out there and look at the different companies that are providing inputs and make sure that you find the one that fits you best. Or, you know, it's not always about price, but it's about what they're going to provide to your operation and how you see that as important to your operation. That can then make you more profitable in the end. And so I think it's just finding the strong group of people in every part of your operation, surrounding yourself with them, and making sure that their one goal for you and what they're providing to you is to make you successful. And I think that will make your operation successful. You know, it's not always— I come back to the banking side of it. It's not about the lowest interest rate.

I think that sometimes people look for specific things, whether it's lowest interest rate or lowest input costs, and they find them and they utilize them, but then they find out that maybe the person providing that input wasn't there or, you know, didn't get out there and look at their crops. Whether it's a seed guy and you buy your seed from them and then all of a sudden you see them out in your field and you didn't ask them to go check it out, but they're out there checking out your field to make sure that there's no insects or there's no funguses or anything that we need to spray for, we need to do, making sure you got good seed depth. You know, those kind of people and individuals are priceless to an operation.

And I think that as you look around and you see the people that have been successful, they are making sure that the ones that are in each compartment of their operation that they're providing strong support and information that they are able to go home and utilize that then pushes their operation forward. And so I think at the beginning farmer, I think just, you know, make sure you do your research, ask the questions, look to those that have been successful, and, you know, get started. Don't, don't wait Don't, don't, uh, don't think that this time of volatility and inflation is something to hold you back from. Just maybe don't, you know, don't go guns forward. I don't, don't really go into something strong right now. Maybe just sit back and get started slowly, but don't keep it from starting something that you really want to do.

Shay

Foulk: I think that's a great place to wrap up here. And Tevis, on a personal note, I just want to thank you for uh, not only the work that we've done together here, uh, personally, but also more importantly perhaps the, the perspective and the insight that you've given to beginning farmers listening to this podcast. Because I think these are important conversations, uh, you know, like you said, it's not as fun to go and do the $250 an hour job sitting in the office putting together a cash flow, uh, going through the paperwork of figuring out the beginning farmer loan program. Sometimes that stuff does not seem as interesting And it's some of the most important things that you can do.

And having a lender as part of your strategic resource team, you know, someone that cares about your operation, someone that's invested in your success, uh, will pay back 10 times over, uh, when, when you look at the business that you're looking to grow. So Tevis, just thank you so much for the time. And if anybody's interested in, you know, maybe asking you some questions, reaching out, learning more about Central Bank, how might they go about doing that?

Tevis

Mott: Yes, definitely. So Central Bank, you can obviously visit our website at centralbank-central-bank.com or give us a call at 815-875-3333. We've got a number of different ag lenders here. We've got 3 here at our Princeton location that would be happy to, you know, go over things with you, discuss something, take a look at your cash flow, your balance sheet, or just simply give you any insight of of where you could— what you could do to get started in, in, uh, ag and ag commercial or whatnot. So yeah, definitely. Great.

Shay

Foulk: Well, thanks, Tevis. Thank you so much for taking the time, and I look forward to staying in touch.

Tevis

Mott: Excellent. Thank you, Shay.

Shay

Foulk: And thank you everyone for listening to another episode of the Ag View Pitch and our Beginning Farmer Series, and we will catch you next time.