Ag lending outlook for Wyoming positive, more flexible than across U.S.Written by Saige Albert
With exceptional commodity prices over the last five years, Platte Valley Bank Wheatland President Keith Geis says many operators saw higher margins and put capital back into their operations.
“In general, the outlook for ag lending is pretty good in Wyoming,” he says.
“We have seen commodity prices soften somewhat recently,” Geis explains. “Fortunately, the ag industry in our state is not highly leveraged, and it allows some flexibility in respect to how they structure debt and move forward with lower commodity prices.”
He notes, however, that the agriculture industry is in a significantly different position than the crash of the 1980s. In the ‘80s, he explained that much of the industry was highly leveraged, and as a result, the decline in commodity prices and devaluation of land were highly detrimental.
“We have not experienced the devaluation of land in the state of Wyoming,” Geis says. “In 2015, we actually had a positive increase in land value, unlike our sister states of Nebraska, South Dakota and Iowa, which all experienced a decline in value.”
Despite the reductions in commodity prices, interest rates have remained low.
“Interest rates continue to stay relatively low in respect to where they have been,” Geis adds. “The Fed moved the interest rate a quarter of one percent.”
By way of background, Geis explains that the Federal Reserve (Fed) was created Dec. 23, 1913 by Congress to provide the nation with a safer, more flexible and more stable monetary and financial system. The Fed regulates the U.S. monetary system and evaluates the financial health of the U.S. economy.
They provide certain financial services to the U.S. government, U.S. financial institutions and foreign official institutions, playing a major role in operating and overseeing the nation’s payments systems.
In addition, they determine the rate at which banks can borrow money.
“Banks that don’t have any excess capital around can go to the Fed to borrow money and lend it out because of loan demand,” he continues. “We borrow money from the Fed at a rate of 0.05 percent. As they raise that rate, the trickle-down cost of borrowed funds is passed on to the consumer.”
Banks in Wyoming have seen a slight increase show up in their markets related to increased interest rates.
“One-quarter of one percent is not going to be a breaking point for anyone by any means,” he notes.
“There are some items that producers can adjust to make up loan interest rate increases,” Geis continues. “We looked at crop information that was put out on Jan. 11, and it looks like some of the costs of production are starting to come down.”
As commodity prices rise, he notes that seed dealers, fertilizer salesmen and others all want a piece of the pie.
“Seed, fertilizer and fuel all have a propensity to move with the commodity prices,” Geis explains. “We usually see a 12-month lag time to react to a downward trend in prices. It looks like we may be seeing that a bit, which will provide some relief to the soft commodity prices right now.”
With many positives in ag lending for producers, Geis adds that the banking industry sees other challenges, particularly as they relate to regulations.
“Regulatory requirements continue to come out of the woodwork,” he says. Specifically, Geis highlights the Dodd-Frank Bill, which passed nearly five years ago.
“They continue to write rules, regulations and laws that are associated with that bill,” he says. We see those regulations come out of Washington, D.C.”
Regulations mean increased expenses, and Geis notes that the cost of doing business means that more compliance personnel are necessary to handle new regulations.
Other challenges that face agriculture, including EPA regulations, also affect the banking sector.