Blanchfield addresses ag policy impacts on banking industryWritten by Saige Albert
The ag industry, however, is seeing some changes, and Blanchfield detailed some of those changes in his presentation at the Agricultural Bankers Conference, held in Laramie in May.
Blanchfield mentioned the Dodd-Frank bill, a 2,700-page piece of legislation that was portrayed as insignificant to agriculture, noting that the bill will have significant and unknown impacts.
“‘We don’t need Dodd-Frank – it has nothing to do with us,’” said Blanchfield, quoting press statements. “It was reported that way – completely wrong.”
He clarified, noting that home mortgages and farm and small business loans would be affected by the legislation, and also likening the bill to the aftermath of the tsunami in Japan in 2011.
“I read in the paper that there is a floating island off the coast of Hawaii that is the size of Texas that is all the stuff that got washed out of Japan,” he explained. “That is what Dodd-Frank is like. So far, some stuff has washed up on the shore, but a whole, big, floating island of regulations is headed our way.”
The future of the industry will be affected by the legislation, added Blanchfield, adding that the legislation will also accelerate consolidation of family farms.
“We talk frequently about the decline of farmers and ranchers, and if I hang on another 20 years, I’ll be talking to myself,” Blanchfield said. “The fact of the matter is we are in a rapidly consolidating industry.”
“Right now, the cost of funds has never been lower,” commented Blanchfield, adding, “but at some point, interest rates are probably going to go up.”
With their tendencies to borrow short and lend long, he also noted that banks are beginning to look like the savings and loan institutions of the 1990s.
“The savings and loan industry is gone because that kind of financing isn’t very sound when interest rates go up,” he said.
He also noted, however, that the trends for large profits is moving from the Midwest toward the West coast.
“The debt-to-equity ratio has never been lower,” he said. “We are at $250 billion in total farm debt, and, adjusted for inflation, that number has seen no real increase in the last five to six years.”
At the same time, Blanchfield said that the 270,000 farmers across the country who see sales in excess of $250,000 each year hold 60 percent of the farm debt.
“This is a hyper-competitive market. Our industry – the banking industry – is so dependent on these people,” he added.
Alignment with policies
With a small sector of the population supporting ag lenders, Blanchfield also pointed out that farm policy is at a disconnect and has begun focusing on income limits and size limits.
“There was a time when crop prices triggered payments. Notice how that trigger is gone,” Blanchfield said, cautioning. “We are structuring farm policy today for the future based on unbelievable prosperity.”
“A lot of people want to get rid of farm programs that have been around since the Depression,” he added, “but remember, things were great in the 70s, but in the 80s, not so much.”
“Does this farm prosperity last forever?” Blanchfield asked. “No one really knows.”