Farm economy conversation: a lender's perspective

Chris: And it all comes down to this.

Ben

Pagel: Two on, two out, bottom of the ninth.

Chris: The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch! Welcome everybody to another episode of the Ag View Pitch, and today we're going to have a conversation on lending. And today we have Ben Pagel with Northeast Security Bank in Northeast Iowa, and Welcome, Ben. Tell us a little bit about yourself and then we'll get into the conversation.

Ben

Pagel: Okay. Thank you, Chris. It's good to be here. Yeah, Northeast Security Bank is— we have 7 locations throughout northeast Iowa, kind of a long corridor. We start up at Decorah, we go to Fredericksburg, and then Sumner, Fairbank, Independence, Urbana, and Dysart. So we are about a $325 million bank. Primarily an ag bank. We do commercial and consumer-related lending as well, but about 60% of our portfolio is ag and ag-related. So we're a big promoter of agriculture in Northeast Iowa.

Chris: That's good to hear because I know just in talking to some of our clients and getting around the country, there's some banks that are starting to decide maybe they don't want to be involved in agriculture. In the industry of agriculture. And so it's really important, I think, as producers that we not only have the bank looking at us as farmers, but also turn around the other way and look at the bank from a producer's perspective and say, okay, how committed is this bank to agriculture? So that's good to hear the commitment to agriculture.

Ben

Pagel: Yeah, we've always been involved in agriculture. A lot of our lenders either come from a farm background or maybe they're involved some way in their family operation. And we just feel that that's our niche and that's what we're going to continue to work at and try to help our local producers be as successful as they possibly can be.

Chris: Appreciate that. So one of the things you said, you talked about Dyers, Iowa. Well, that's in an area where the derecho went through, and I wasn't going to start there, but I think After hearing you say that area, and then we think about a few of the growers that we work with through that zone where we had, you know, over 100-mile-an-hour winds go through and a ton of devastation, talk a little bit about what you've seen in that area, and we'll get to the lending side of that here in a minute.

Ben

Pagel: Yeah, I took a drive, I think it was the day after that storm hit, and it's devastating with the crop damage and the material damage to buildings and homes. And it's just, you know, unbelievable what that can happen and the devastation. So I think what we can do is try to offer help, any kind of assistance we can to our neighbors and our friends. And we'll wait and see what the, you know, The president was here not too long ago talking about some kind of package that they're working on for relief. We'll see what that does. But, you know, long-term, when you lose one year's income, which a lot of people are going to lose, I realize there are a lot of people had insurance, but, you know, insurance still is not like getting a full year's income or a full crop.

Chris: It doesn't make you whole.

Ben

Pagel: Exactly. It's an important part. But, you know, there's going to be some restructuring and redoing of some loans and looking at do we stretch it long-term or intermediate over a 5 or 10-year period, or do you go to a 20 or 30-year period and just try to give some relief so that these people can get back on their feet, back to doing what they do. So, yeah, it'll be interesting to see what the government comes out with and what other kind of state programs there are as far as help. To help these producers get back on their feet.

Chris: So from a lending perspective, one of your primary things that you can do to help is, is just more of the restructuring of the, of the loans and that type of thing?

Ben

Pagel: Yeah, I think you have to keep your, your eyes open on what, what's out there, but I'm sure that there'll be some kind of a program through, through FSA or maybe SBA that'll help rebuild some of the infrastructure on a farm. Obviously machine sheds and, and grain bin grain setups were tore apart, and so there's going to be some programs there. Right now the, uh, the FSA has a, you know, very cheap interest on infrastructure for grain setups, and, and I don't know if they'll reduce those rates. They can't hardly go much lower than they are today, right? But They may extend the terms on those. I mean, for example, maybe they'll offer interest only for the first 3 years or something like that. So I think there's a lot of options. Obviously, you take every situation one, you know, as it comes individually.

But I think, you know, most lenders are going to be, you know, say, what do we need to do to help this situation?

Chris: One of the things you and I talked about offline a little bit here, Was on, and with respect to insurance, and, you know, a lot of times I think, you know, we, as we work with clients and stuff, you know, that's something that we bring up a lot is just making sure that we don't have gaps in coverage to the, you know, to the extent we can fill those in, and then also being sufficiently covered, right? And so, you know, we were just talking about an example of a, grain, grain setup that was maybe built 10, 15 years ago that was $600,000, and now if you were to replace that, you're looking at maybe $1.3 million or something.

Ben

Pagel: Yeah, I think that you brought up a very good point when we're offline, and that's one thing that a lot, a lot of producers need to do is look at what it, what it would cost to replace my entire setup, you know, and, and It's, you're right, it's a lot more expensive than it was 10 or 15 years ago. And so one of our customers actually sells grain bins and dryers and seems like they go up, you know, every year pretty good because of the cost of material and labor, et cetera. So that's a really, really good point. The electrical side of it is another good point. Those costs continue to go up. So looking at your overall insurance policy and what you have things insured for, that's really important. A really good point, something that we all need to be aware of.

Chris: Yeah, so from a lender's perspective, what are some of the expectations that you guys have, you know, from farmers in terms of that type of coverage? Or maybe a better way to put the question is, you know, what could other people that were blessed to not have to not be in the middle of that derecho, what can they learn? You know, what can other people learn from what what some of the experiences are that we're starting to see now?

Ben

Pagel: Well, from an insurance point of view, the first thing you should do is pull out your policy and say, what is my actual coverage? Get a hold of your— and if you're having trouble understanding it or understanding what my coverage is, go and take your policy and then go talk to your agent and say, what do I have? Because it's an eye-opener for all of us to say, boy, maybe we need to look at increasing our coverage.

Chris: Coverage.

Ben

Pagel: The other thing you could do is call, uh, you know, one of your local Grain Bin dealers and say, if I had to replace everything, what would that cost in today's dollars? I think that'll give you a really good perspective.

Chris: Yeah, that's a good point. That, that'd be a great way to, to get a handle on what level of coverage should I have, you know, whether it's a building or, or grain facilities or whatever.

Ben

Pagel: Yeah, and it's no different than on your, your machine sheds and your line of equipment, you You know, used equipment has become very expensive. New equipment's really expensive. We all know that. But do we carry enough insurance on those things? It's a good wake-up call for all of us to really look at our property coverage and make sure we have enough in the right spots. Yeah.

Chris: And I'm going to definitely follow up with some insurance people and what they've learned in this area, but they tend to be a little busy right now. So I think it's going to be a little while before I'm able to— to get a hold of some people to have some of those conversations. But, uh, so let's, let's shift gears here just a little bit. And one of the things I had mentioned to you I kind of like to talk about is just the issues that we're all dealing with right now in agriculture, you know. So it started out with, with a long time ago, all the way back to 2012. We had really high prices, which was good for about a year, and then, you know, high prices sometimes are actually not a good thing. You know, it's led to probably the longest time in history that we've had commodity prices low, low, low for years and years and years, and it's impacted working capital and some things.

What are some of the issues that you see? But more importantly, with those issues, what are some of the solutions and some of the things that guys are doing to fix those issues along the way? So you know, one or two issues. And, you know, what are some things that guys listening can, can say, oh yeah, I probably should be doing that in my operation as well to, to deal with an issue? Because we've got COVID, you know, going on, and ethanol causing, you know, challenges in the corn market and all kinds of things. And with the ratio and just different things happening, probably one of the biggest issues that, that I see out there right now is frustration.

Ben

Pagel: You know, we've had— you're right, 7, 8 years ago we had very nice working capital margins. Everything seemed to work, worked well. You know, while we've had some really good crop years since 2013 as far as yields, I think the frustrating part to a lot of farmers and some of our producers is I'm growing more yields more bushels per acre than I did 10 years ago, and I'm still struggling to pay the bills. And so there's a lot of frustration out there. And so probably the, the, the biggest issue is there's— the last 3 years especially have been basically price-wise breakeven, you know. Everybody's just kind of treading water and paying the bills, and you can do that only so long. And where there's no fun in that at all. And it is frustrating.

But one of the things I think that maybe separates some people that are a little bit ahead of the rest is they have a cash flow that becomes kind of a living cash flow. It's your living budget, OK? So one of the things when we have bank regulators come in, they backtest a lot of our systems. And one of the examiners brought up to me, do you ever take out somebody's cash flow from a year ago and backtest it? In other words, look at their sales, look at their revenue from corn or soybeans, and did it match or come close to what that cash flow projected maybe in 2018 or '19? And so, and really pay attention to that. Do the same, you know, not only on the income side, do it on the expense side. But some of our better producers, they have their cash flow.

They either, they prepare it themselves or they come into the bank and the loan officer sits down with them and they work through it together. But they keep it on our system and they call up and say, if I sell 10,000 today at $3.35 or $3.40, punch that number in and how does that impact my bottom line cash flow?. And we'll do that for them. A lot of them do it themselves because they have their own computers. But those guys that constantly look at it and say, maybe play what if, what if I sell 25,000 at this price, how does that impact? And so that's where it's kind of like our budget at the bank. You know, once we get through the first 2 or 3 months of the year and we know we're pretty close what we projected on expenses and income, You know, we look at it every month. How are we doing, right? I mean, are we off? Are we over, you know, 5%? Are we under 5%?

And I think a lot of farmers, if they started doing that, especially on the cost side, is saying, am I close to budget? I think that would take some pressure off because, okay, I'm close to where I think I want to be, and maybe that would help with the frustration.

Chris: And part of that, if I understand you right, is also, you know, as that being an issue, is having your forecast, but then truth-checking that forecast too, right? Going back and saying, okay, this is, this is where I figured I'd be, you know, at this point in the year. Where am I at this point in the year, and where do I need to be? And if I make sales for X amount versus, versus Y amount, what's that do to the bottom line?

Ben

Pagel: So, yeah, exactly. And the other thing is, you know, marketing, it can be tough. Um, you know, I, uh, I was talking to someone who, a producer who did an average market contract where he went through his local grain merchandiser elevator and they took like the average, they averaged the corn price from March through the end of July or 1st of August every day and said whatever that does, whatever that price is, that's what you're gonna get on 10,000 bushels. And so that producer did that, took— he took one of those contracts and then he tried to outmarket the average. Yeah. And it doesn't happen that often. So, well, maybe you want to take 10 or 15% and try it like that and then see if you can beat it, because ultimately marketing seems to be the hardest part.

Chris: Yeah, there's not a lot of popularity in some of those accumulators, but those, those, um, those opportunities that are given to you by the processor or the elevator or whatever, it's not that you necessarily want to do a lot of that, but if you don't do a little bit of it and if you can't beat that, then there's probably a problem there. Exactly. You know, so are you pulling the trigger when you should or not? And it's, it's not that, you know, I don't think that we all want to try to hit the highest price, but we need to figure out where our margin is and where's our margin target, you know. You know, it's one of the things that we always try to encourage our clients to do is to not set a price target, but set a margin target.

So know where that cost line is that covers everything, that covers that family living, that return to management number, all those overhead costs, machinery, equipment, everything. Okay, well, whatever that number is, if you can get over that number, you gotta look in the mirror and say, why am I not pulling the trigger? And, you know, one other thing too, and I'll get your take on this is, that we've been bringing up that's been sort of an issue this year is we haven't been to a price level where we could make a sale on anything that was in the margin, right? Exactly. So, okay, so one of the things we did is I put together a tool, and if anybody wants this as I explain it, we'll send it to you. So email us if you'd like this tool.

But we basically put a tool together where you put 10, 10 different variables into it, and we A couple of the variables are other income, so it's premiums, it's aid payments, so PLC, PPP, CFAP, these other payments that have come in. And so whether you're marketing '19 crop or you're marketing '20 crop, there is other income there, and that other income needs to be calculated on in terms of a per bushel price, not just be thinking about, well, I've got $100,000 worth of other income in, in the cash flow. Well, that doesn't mean anything. What, what is that in terms of per bushel? Is that 20 cents a bushel? Is it 10 cents a bushel? That needs to be added to that price that when you make your sale for $3.30, and if it's 10 cents, you're selling for $3.40, not $3.30.

Ben

Pagel: Exactly.

Chris: And so that, that calculation or that, that tool that we have, I think, has turned the light switch on for a few people of, okay, maybe we can make this work at $3.40 or $3.50 with some of this other aid funding that has come our way. And so, you know, I'm not advocating making sales at any price, you know, especially at these levels. But on the same token, I'm advocating if you can figure out exactly where that cost is, and especially once we get to harvest and we can say, okay, the corn's yielding 190 or it's yielding 220 or whatever it is, and the soybeans are coming in at 50 or 60 or whatever the number is, what is our cost of production at those yield levels? You know, what's the revenue that came in from other sources via aid or premiums or whatever, custom work, other things that can be added back into that price so that we have a profitability on the bottom line?

So, um, you got me on a soapbox there, sorry.

Ben

Pagel: But you're good, you're good. Uh, no, I totally agree with that.

Chris: Yeah, I'm supposed to be the one asking questions and I'm rattling, but You know, that, that is, is a huge issue for sure.

Ben

Pagel: Well, it is. And, and, you know, I've had several producers tell me that while government aid has helped the last 2 or 3 years, they'd just soon be able to sell it for what the market really wants. And, uh, you know, right now we're in a situation, supply and demand, that we have an overabundance of supply. And until that is corrected You know, the markets are going to be— the market's job is to buy the grain as cheap as it can. Exactly. And so until that happens, you know, until demand picks up or we have a supply issue, um, it's gonna— we're gonna be in this, like I call it earlier, treading water area where it's just not— it's frustrating because you're really not making any money, right? You're paying the bills. And I think another issue with a lot of ag producers is, you know, the cost of living. Cost of living doesn't get any cheaper every year.

Chris: Health care.

Ben

Pagel: Health care costs continue to rise. Repair costs on machinery and equipment continue to increase. And, you know, and you look at all that, property taxes go up almost every year and insurance premiums go up. And it's just frustrating because we can't, I mean, maybe we can, but I mean, we can't count on 10 bushel per acre corn yield every year and every year to offset some of that.

Chris: So what I'm hearing then— so I don't want to put words in your mouth, but what I'm hearing is, is crunch your numbers. Well, does that help the frustration, or what's the solution?

Ben

Pagel: So it's, you know, you know, I guess, uh, there's stress out there every— you know, and people— different people have different ways to deal with stress. Yeah. Um, but one of the most important things you can do is You know, it's kind of like the person who balances checkbook versus doesn't balance his checkbook. The guy that doesn't balance it, he just never really knows where he's at. And the guy that does, he goes to bed every night knowing I got $1,500 in my account. I know my bills are paid. Yeah. And the other thing is you need to talk. You know, a lot of times stressful situations, people neglect to rely on other people. Um, you know, there's people out there that care. They have concern, and one of the best things you can do is talk about it with somebody in a confidential manner and get it off your chest. Right. And get some ideas.

The other thing you can do is exercise, go for a walk. A lot of times my wife and I in the evenings will go for a walk in town, and that's a great time to talk and clear your mind of what's happened during the day or the week and just get things cleaned out upstairs. It's kind of funny, a lot of people see me walking, they say, "Hey, you're trying to lose weight?" And I said, "Does it look like I'm losing weight?" So, but it's probably more of a mind thing, you know, is just to reduce some stress and feel better. But, you know, it is a stressful time in agriculture right now. There's no doubt about it.

Chris: One of the things I liked about what you said there too is, you know, talk to somebody. And I always tell people, The most important thing as producers that we can do, and you can back me up on this, I think, is, is talk to the lender. You know, even, even when things are going good or when things are going bad, um, I think, you know, having a conversation with the lender maybe once a month. I mean, how often do you want to be contacted by somebody? Maybe you don't want to be called that much. I don't know.

Ben

Pagel: Every situation is different. Yeah, but, uh You know, uh, we have a great lending staff. There's a lot of good lenders out there, and, uh, we, we enjoy hearing from them. Uh, I have a lot of people that'll call me and say, hey, I want your opinion. And I'll say, okay, well, my opinion is worth what I charge, and that's nothing. So, but seriously, uh, I know when I want to make a, a, a big decision in my life, I'll bounce it off at 2 or 3 people, one of them obviously being my wife or my children, but a couple close, uh, friends, or maybe some of the people that I work with, because you like to— I like to get, uh, different perspectives, you know, and just, just see what other people think. Um, and that's— there's— that's very healthy. That's a good thing to, you know, because a lot of people will bring in a different angle and an idea that I didn't think of.

And so the more you can use people around you, the better off you are.

Chris: Yeah, that's for sure. So one of the last things I want to talk about here, when we talked the last time, we spent some time talking about refinancing and restructuring loans and kind of where the interest rates were at. Talk to me a little bit about where you think, you know, rates can't go much lower.

Ben

Pagel: No, rates aren't going to go a lot lower.

Chris: Right, right.

Ben

Pagel: It definitely is. As we go into harvest, and once you get done with harvest and get your, your production numbers done and you fill out your financial statement or your balance sheet, uh, definitely is a time to look at an opportunity to refinance, whether it's land debt or machinery debt.

Chris: Um, how often can guys refinance though too? Because the other thing is, is, you know, we've seen a lot of farm operations that have refinanced, and then, you know, the idea is not to have to refinance again. But, you know, how does that look if, if a farm operation has a decent debt-to-asset ratio, they've refinanced once and maybe didn't bite off enough, or didn't— you know, how's that look?

Ben

Pagel: It's one thing to restructure, do a refinance because you need to restructure maybe some short-term or intermediate debt over long term to help your cash flow, right? But it's also probably It's another thing, a good business decision. If I have 5.5% locked in and I can lock it in for 3.5% or save 200 basis points, uh, that's a business decision. If I made the decision that I'm going to have debt and make— and have to use debt as a tool to help my operation, you need to— it's just like buying seed or chemicals or fertilizer. You need to try and buy them as best you can, as cheap as you can, or Right. And so that's no different. Um, you've got to look at that angle for your operation. Where, which, where can I save money? And you got to look at every, everything you're doing.

Chris: So as we move toward harvest and guys are in the combines and running the dryers and running around trucks and everything, thinking about the year-end and stuff, um, what are maybe 2 or 3 key things that farmers should do or have in mind or prepare for the bank so that when year-end comes, they're ready to roll with the bank?

Ben

Pagel: What's, what's coming? Well, I think, I think the first thing you do is you need to have an accurate inventory list and an accurate marketing list. Okay, here's what I produced, here's what I have sold, here's what I need to get sold, here's where I'm going to end up. Okay. And then, uh, so if you have that information, and a lot of our producers will call and and just say, hey, talk to their loan officer and say, hey, this is what I produced for corn bushels and just want you to know, and this is what I did for soybean bushels. And so that information we have and we can already update into their financial platform as far as their cash flow. But the other thing is just ask questions, you know, what if I bought this piece of equipment? Am I better off to leave it, I'll finance it through the dealer, or Should we add it to my existing debt?

How, you know, how, how is that new payment going to affect my overall cash flow? And same way on the land debt. If you have land debt, you know, if you can drop 100 basis points or 150 basis points, what does that add to my bottom line? So those are all questions you have to ask yourself and ask your lender and communicate with your lender that, hey, I think I need to do this so that, so there's no surprise.

Chris: What about the balance sheet as it relates to this stuff too? So you talked about inventory on grain and things. One of the things that we see occasionally, a little less of this as time's gone on, people are getting a little better at it, but having the machinery and equipment and some of the assets stated accurately on the balance sheet, specifically machinery is where we tend to see some issues from time to time where, you know, if you actually do an appraisal of the equipment and have an equipment dealer come in and give you, okay, what would, if you took that tractor and drove it into the dealer and threw the keys on the desk, what would they write you a check for versus what number's actually on the balance sheet? What's your idea on that?

'Cause it's not hard for us when we go out and work with operations from time to time to find, you know, an overstated value on equipment. And it's— and, and when people have, you know, $500,000, $2 million, $3 million worth of equipment, it's not hard to find $500,000 or $700,000 worth of overstated value. What's your thought on that?

Ben

Pagel: Yeah, I think, you know, everybody's— most farmers are very proud of their equipment line. And they should be. And today most of them take really good care of it. But there is enough, there's enough. I don't think you have to have someone come in and appraise it every year. There's, we have access via the internet that you can pull up a website and get prices and you can say that looks about like my tractor, that's about my hours. You can get pretty close as far as what.

Chris: So from a, from a lending perspective, most banks are going to be fairly forgiving plus or minus.

Ben

Pagel: Yeah, I'd say plus or minus 10%. Okay.

Chris: You know, I mean, but that's what I was wondering.

Ben

Pagel: Obviously, if you have a brand new tractor that you bought a brand new tractor 5 or 6 years ago and you're still listing it on your balance sheet at the price you paid, that's probably not real.

Chris: Well, and the other way around too. If you're putting it on there for the tax value, it's going to be zero in about 3 years or 5 years. You know, I mean, so To me, you know, and that's where, you know, what we try to, to get our clients to do is just to get to a real value every single year. So I mean, we're probably a little bit overkill on, on that, but that's how we get to the rate to figure out, you know, okay, what's your cost on a per acre basis for the equipment rather than— and with all due respect to universities, but those university numbers on machinery and equipment are averages of 200 other people And I guarantee you your farm is different than those other 200 or whatever. So we like to get those numbers dialed in so that, that way, you know, it's really close.

But I was curious, you know, from a lending perspective, you know, what, what kind of leeway do you think a lot of banks would tolerate?

Ben

Pagel: So yeah, I think a lot of banks will look at it. I mean, we actually, uh, if we, we think values are too low 'Cause we have some customers that come in and they'll say, you know, let's just keep them weighed out. We'll go to a website and match them up and say, okay, realistically he's 25% undervalued on his equipment. Same way with somebody who comes in and says, well, I wash it and wax it 3 times a year and I'm—

Chris: And it's the best equipment in the county.

Ben

Pagel: It's the best equipment, yeah, in the county. But at the same time, you know, we go out and do the same thing and maybe he's 20— that farmer is 20% overvalued. So, you know, we're not going to make them change it, but we also make note of it that we realize where we're at on that. Yep.

Chris: Hey, I told you the last question, but apparently I lied. I'm going to ask one other one here, um, that I just thought of on, on land rents. A lot of times, uh, people are interested in, you know, what are you seeing for land rents? What are they doing? Um, what's your perspective on land rents in, in the area that you, that you work in? What are you seeing or hearing?

Ben

Pagel: It's been really quiet this year. Really haven't, uh, heard much. Uh, haven't really had any producer— I've had a— we've had a couple of producers call and say, what do you hear? And not much.

Chris: So not a lot of changes this year. It's kind of what we're seeing too.

Ben

Pagel: Yeah, we're seeing the same thing. Yeah, yeah, just not a lot of change. Uh, you know, the prices stay lower, they probably do need to adjust the rents. Yeah. Um, but you know Right now it's been really quiet.

Chris: Yeah, and it's hard for a farmer, but we, we've seen a couple of cases where the farmers have actually terminated the lease, especially on some of these that are higher than they should be, and hoping to renegotiate at some point in time here, which kind of opens the door to let the markets kind of do what they're going to do here, you know, post-harvest for a little bit, and then negotiate, you know, dial that rent in a little bit closer, maybe that January, February time frame. Kind of dial a number. And it's not that they don't plan on farming it again, but it's just, hey, can we renegotiate this lease at a later time when we're both smarter, from the landowner's perspective and the farmer?

Ben

Pagel: I understand why September 1st was, was the day 50 years ago, because there was a lot of, you know, rental arrangements that were a lot different with livestock and gave people a chance to find another place. But September 1st really is, is not ideal.

Chris: It's tough.

Ben

Pagel: It's not ideal. And If you have a landlord that's willing to renegotiate that date with you, that's probably better. Yeah. Um, but, uh, I don't know, it's, it's been really quiet. The same on the, uh, the price of, uh, farm real estate. I would have thought with commodity prices, you know, we spent a good part of the summer with corn below— cash corn below $3 for local bids. And, uh, land values, there's been just so few and limited sales that they continue to hold in there really well. I'm actually surprised, pleasantly surprised. We— I'm glad they're holding in very well.

Chris: Um, yeah, I still think on the, on the land value side of things, there's just— there's not very much for sale. So there— and there is a fair amount of demand, I think, sitting on the sidelines. Boy, if this stuff went just a little bit lower, we would, you know— so there's just the demand, I think.

Ben

Pagel: I think on the demand side, you know, I think there's investors that are looking at ag real estate again because obviously you hit it earlier. Interest rates plummeted during the— at the start of the COVID virus, and we went into the pandemic recession, as we call it. And so, I mean, you know, the stock market has performed amazingly well. It's got a lot of people nervous that maybe it's gone— come back too fast, too quick. But if you don't have the, the nerves for the stock market, there's really nothing in the bond market or, or even for like a bank CD or savings account that appeals. And yet land values, um, still probably realistically 3% return.

Chris: Yeah, yeah, it's a phenomenon.

Ben

Pagel: It's funny to say that 3% return is good, but it's just probably as good as it's been in the last 10 years realistically, as far as consistency.

Chris: Yeah, yeah. Yeah, and that's the thing, land values at a 3% cap rate is a good number. Yeah, you know, it's just, it just is what it is. And, you know, land value, you know, you go over the last, what, 30 years, we've seen about a 6.5% increase in values over a 30-year period. So you tack that on if you ever sell it, you know, the idea is probably not to ever sell it for most people, but sure.

Ben

Pagel: Yeah, that's exactly right.

Chris: 3% is kind of the deal. So, um, hey, I appreciate it. I'm going to ask you the last thing, last, last, last thing here. Is, is there anything that I haven't brought up or any questions I haven't asked you as far as just some of the, you know, the things we've talked about?

Ben

Pagel: But anything that, that, you know, I think, uh, probably a couple, you know, we touched on earlier on insurance, and I think one of the areas that producers probably need to look at, because farming is such a capital-intensive business, uh, life insurance. And we, we try to talk to our customers about life insurance, but, and, you know, life insurance is not real appealing. And, and, uh, and the reason is because nobody's ever going to die.

Chris: Yeah, right.

Ben

Pagel: You know, but, uh, it can throw a real monkey wrench into an operation. Yes. If, if there's not enough, and if you're in your 30s or 40s, it's still relatively cheap. And so I would encourage people to not only look at their property policies, but look at your life insurance. Might be a good way to add some term— a term rider onto your universal life or your whole life policy for not a big cost and really increase your coverage because The last thing you want to do is leave your wife or your children with some debt and how do we get out of this? If the life insurance takes care of it, then at least that part's covered or capital gains tax should they have to sell some of the land or the equipment.

Chris: Well, and you know, the other thing to complicate matters even more is when there are siblings farming together and something happens to one sibling, now the other sibling's farming with the spouse. Of the other one. And if there's insufficient coverage there, all of a sudden, like you said, you're, you're selling a farm, or what are you doing to buy that other person out? Because it's highly unlikely that other person is going to want to farm.

Or the same thing we tell a lot of people in the midst of transition: you've got the senior generation that needs X amount of dollars to live, and you know, you have the next generation in there that's 40 years old that's running the farm, and all of a sudden something happens You know, and it doesn't have to just be death, but for that example, they, they pass away, all of a sudden the, the value of the farm and the, and the machine that generates the revenue is all of a sudden gone. And if you can have a term life insurance policy on, say, somebody that's 40 or even 50 years old, you're not talking that big a dollar amount, you know, for even a million dollars of coverage if you had a 10-year or 20-year term life. You know, I don't sell crop insurance, but I'm selling it now, I guess, here.

Ben

Pagel: But yeah, though, the— that's absolutely one of the things that we get a fair amount of pushback on if we bring it up, and people just don't like to talk about it because, like I said, nobody ever really plans on dying. Yeah, it's not— it's not if, it's when. Exactly. And it's something that really is maybe a lot of times overlooked in a complete farm package, right? When you're looking at, you know, your finances and your property insurance and your crop insurance, what do we have for life insurance? Look at your retirement package. What do we have for retirement assets? Life insurance needs to be part of that discussion. So I just encourage people to really think about that as well.

Chris: Yeah, appreciate that. Yeah, we always throw out the 4 Ds when we're working with a client: death, divorce, disaster, and disability. And those are the ones that can really mess an operation up.

Ben

Pagel: Well, they really can. And, you know, just like you brought up earlier in the podcast, disaster, you know, with— we just saw one, just saw that and all the destruction it brought. And again, death could be part of it. And with— in the middle of a pandemic with the COVID we've seen, I think, as a nation, we're up to what, 175,000 approximately deaths now. And so you just, you just never know what can strike. I mean, January 1st when you're setting New Year's resolutions, I don't think living through a pandemic was in any of our minds.

Chris: If anybody knew how this year was going to be, we would have asked for '21 instead of '20.

Ben

Pagel: Exactly. And yet I would say for the most part, looks like, you know, Northeast Iowa, there's still a pretty good crop. We've lived through it, we've adjusted, you know, we've done things maybe differently than we have in the past, which is not bad. And we'll get through it. Yep. We'll have something, I'll have something to talk to my grandkids about. Exactly. But you know, it's, we'll get through this test too. You know, life is a series of tests and how well you handle each event.

Chris: My statement always is, we don't become better producers when corn's $7 and beans are in the teens. We become better producers when we're dealing with some of the challenges we've had to deal with this year because we become better business people. We figure out what's important, which is family, but then we also figure out how to manage the financials, you know, when we have to.

Ben

Pagel: So there's a lot of— and I agree with you, there's a lot of truth to that. You become better business, much better business people when, when you really have to manage those assets.

Chris: Exactly.

Ben

Pagel: I just think everybody out there, like I indicated earlier with the frustration, we, we just like that one more year of $7 corn and $18 beans.

Chris: That'd be nice. That'd be nice.

Ben

Pagel: But anyway.

Chris: So hey Ben, thanks a lot. Again, Ben Pagel with Northeast Security Bank and been a great conversation. I appreciate your time and we'll probably hit you up again sometime. Maybe get you out in the combine and get a report from the field.

Ben

Pagel: All right, that sounds good, Chris.

Chris: Thank you. All right, hey, thanks a lot. And thanks everybody for listening and we will catch you again next time on the Ag View Pitch.