Loan Packaging Terms for Beginning Minority Farmers Under More Objective Lender’s Loan Evaluation Models

Loan Packaging Terms for Beginning Minority Farmers Under More Objective Lender’s Loan Evaluation Models

After decades of litigation and settlements of lawsuits alleging discriminatory lending decisions, lenders have learned valuable lessons to increasingly “objectify” their loan decision-making procedures.  The resulting “more objective” loan evaluation models consider borrowers’ business profitability, liquidity, solvency, and repayment capability – in addition to credit histories and collateral arrangements, among other considerations.   

One may ask if these “objective, more transparent” decision models have increased minority farmers’ access to credit.  The reality is that farm businesses operated by certain ethnic groups are typically smaller, less profitable, and with liquidity concerns – thus not always faring well in those lenders’ models.

Even if certain minority farmers get their loan applications approved, they must still negotiate another hurdle – the packaging of their loan terms.  Table 1 presents a compilation of information on the approved loans for beginning farmer clients of the Farm Service Agency (FSA) from 2004 to 2014.

The most favorable loan package for any borrower should combine a relatively lower interest rate and longer loan maturity, which would result in lower periodic loan amortization amounts.  The trends in Table 1 indicate that Hispanic and Black farmers received higher interest rates than the rest of the approved borrowers.  The average loan term for Hispanic borrowers, however, was longer (and comparable to White borrowers’ terms), hence could have tempered the unfavorable high interest rate effect.  In contrast, Black farmers were prescribed the shortest average repayment term, which may pose a potential liquidity concern when combined with higher interest rates.

From the lenders’ perspective, loan terms are additional tools for credit risk management.  Specifically, borrowers’ credit risks are factored into loan packaging decisions, so lenders are inclined to prescribe higher interest rates and shorter loan maturities to borrowers with higher credit risk profiles.  When this rationale is factored into the interpretation of lending statistics and trends, then it becomes clearer that the more urgent priority in addressing minority farming issues is to implement effective reforms geared towards helping smaller minority farms overcome persistent hurdles that threaten their economic and financial viability.    Only then will these farmers gain better credit access and command the most favorable lending terms when their loan applications are approved.

Table 1.  Comparative Lending Terms Packaged for Approved FSA Loans of Beginning Farm Borrowers from different racial/ethnic groups

FSA lending termsWhiteBlack or African AmericanAmerican IndianAsianHispanic or Latino
Obligated loan ($’000)104.5752.0097.3669.7176.00
Interest rate (%)2.923.273.072.783.91
Loan maturity (year)17.4814.9219.3512.9018.64

Source: Ghimire, J., C.L. Escalante, R. Ghimire, and C. Dodson. “Do Farm Service Agency Borrowers’ Double Minority Labels Lead to More Unfavorable Loan Packaging Terms?”  Agricultural Finance Review.  80,5 (2020): 633-646.

Escalante, Cesar L.. “Loan Packaging Terms for Beginning Minority Farmers Under More Objective Lenders’ Loan Evaluation Models“. Southern Ag Today 2(44.3). October 26, 2022. Permalink

Adding Value to Feeder Calves

Adding Value to Feeder Calves

As spring-born calves across the country reach the end of their stay at their farm or ranch of origin, it is important to consider management options like implanting, weaning, castrating bull calves, and dehorning that add value on sale day. Each choice requires an investment of time, facilities, and some education, but when used appropriately, each option tends to yield a positive return on investment, ROI. 

Whether you have weaned or are in the post-weaning phase, implanting calves has one of, if not the highest ROI of any production tool in the business. Implants contain growth stimulants that increase muscle growth and result in higher weaning weights and sale weights. Consider a popular implant priced at $40.78 for 24 doses or $1.70 per dose. The product is marketed to increase weaning weight by 20-35 lbs. That means each additional pound costs roughly $0.06 to produce, and today those additional pounds are worth anywhere from $1.70 to $2.15/lb. Some producers will reach out to us and suggest they are missing the premium for NHTC calves if they implant; if you are not in a verified, likely audited program that produces calves bound for either the EU or Whole Foods, those calves are unlikely to see any premiums at sale, and they are implanted the minute they set foot in the feed lot. Remember, even if you’ve already weaned calves, implants can be utilized post-weaning.

On that note, weaning is another management choice that adds significant value to calves at sale. However, the investment in weaning is certainly greater than that required when implanting. The table below reports sale values for weaned steer calves and their un-weaned peers in different weight ranges. With only one exception, the value of weaned calves exceeds that of un-weaned calves. In one case, the premium for weaned calves was 20 cents per pound or roughly $94 per head. The average difference in weaned and un-weaned calf prices varies by weight class but averages $8.33 per hundredweight across the report. This sample suggests that weaning increases the value of each calf by roughly 4.6%. 

Medium & Large #1 and #2 Steer Values for the week of 10/3/2022 – 10/7/2022 ($/CWT)

Dehorning and castrating bull calves both add value as well. Data on each management decision is reported less frequently through AMS, but expect both management choices to yield a positive ROI. A few data points from Texas collected over the last month suggest a $0.19 per pound discount for bulls compared to steers and a $0.03 per pound discount for horned calves. 

Consider the aggregate difference in a few management decisions presented here. Last week at the Oklahoma National Stockyards, a weaned steer calf that was implanted and sold at a weight of 450 lbs. brought roughly $787.50. A similar quality un-weaned bull calf that was un-implanted and therefore weighed only 420 lbs. may have brought only $627.80; a total discount of $159 per head compared to the calf from the producer that applied some management tools. 

We want to keep animal welfare at the forefront of our decision-making, even before financial gains, so always read and follow the product label. It is also true that the misapplication of these tools can result in a financial loss. If implanting calves, castrating bulls, dehorning, or weaning is new to your business, be sure to reach out to your county Extension agent, Extension Animal Science Specialists, or at least experienced producers you trust. The experience and knowledge these groups will bring to your operation will help prevent a financial misstep and will help you maintain the well-being of your cattle. 


Benavidez, Justin. “Adding Value to Feeder Calves“. Southern Ag Today 2(43.3). October 19, 2022. Permalink

Short-Term Contingency Plans for Southern Producers

Short-Term Contingency Plans for Southern Producers

A farm manager wears many hats and deals with a lot of different businesses and tasks in running a farm. Business planning and succession is its own topic (and an important one), but sometimes there are short-term scenarios when farm managers or key personnel are away from the farm because of personal matters, sickness, vacation, or even unexpectedly passing away. These are stressful events, even more so when business and farm obligations start to pile up. Having a comprehensive plan in one place provides a critical resource to anyone needing to step in and temporarily continue these tasks. 

We have listed several resources below that are available for use. Consider them prompts and outlines to think through what is needed. Your family, local Extension agent, and other trusted confidants are good resources to help you develop your plan. Once it is complete, make copies and clearly communicate where those are located. A good short-term contingency plan should detail accounts, contacts, obligations, and critical information a farm manager deals with. Some examples of the information detailed would be: (1) tracts of land with corresponding surveys or maps of the property (2) livestock feed/availability, veterinarians, and grazing plans for cattle (3) the location of keys, business documents, and contact information for advisors or partners to the farm.

Several points to consider:

Information related to the farm can frequently change and in a short period of time the information could be out of date. Plans should be reviewed after significant changes on the farm, or at a minimum, reviewed annually.  Tax filing time, when you are already reviewing business information, may be a good opportunity to schedule a contingency plan review. Having bad or outdated information could be as detrimental as having no information at all.

Some information can be highly sensitive such as bank accounts, passwords, and other confidential data.  This information can be critical to communicate because a family member trying to figure out passwords, or resetting accounts could be a long, frustrating process. There are safe & secure options to digitally store sensitive information or physical lists may be kept in a secure location.

Having multiple copies of the plan is advised and distributing those to any relevant personnel.  In addition, one central copy could help ensure availability. Depending on your relationship with each, consider informing your banker, lawyer, neighbor, etc. of your operation’s contingency plans. 

Short-term planning is part of a larger discussion of operational risk and transition planning. Having a strategy to transfer relationships and responsibilities according to an owner’s wishes should not be ignored. Succession planning resources are often available through your local Extension office. We encourage you to reach out to a trusted advisor. Adequate short and long-term planning can help farms sustain their operation into the future.

Credit: University of Missouri Extension – Short-Term Operating Plan https://extension.missouri.edu/media/wysiwyg/Extensiondata/Pub/pdf/manuals/m00202.pdf

Resources:

  1. Short-Term Operating Plan for farms and ranches https://extension.missouri.edu/media/wysiwyg/Extensiondata/Pub/pdf/manuals/m00202.pdf. Primarily hand-written worksheet used to document important aspects of the business
  2. AgPlan https://agplan.umn.edu Business planning website run through the Center for Farm Financial Management. It is free to use AgPlan, and once logged in you would select ‘Short-Term Operating Plan.’ 
  3. Code Red “Contingency Planning for Your Family and Farm Operation” https://ag.purdue.edu/department/agecon/fambiz/_docs/leadership-succession-planning/code-red.pdf Microsoft Excel workbook can be printed, shared virtually, or distributed through thumb-drives.

Burkett, Kevin, and Scott Mickey. “Short-Term Contingency Plans for Southern Producers“. Southern Ag Today 2(42.3). October 12, 2022. Permalink

Carbon Program Opportunities for Woodland Owners in the Southeast

Carbon Program Opportunities for Woodland Owners in the Southeast

Forest-based carbon programs are gaining momentum and offer opportunities for woodland owners in the Southeast to receive payment for sequestering carbon. While many carbon programs in agriculture have focused on generating carbon credits in row crop production, most verified carbon credits in global registries were generated from forest-based carbon projects. However, family forest owners have had limited access to such programs until now. Across the Southeast, there is an average of 16.5 million acres of forest land per state, of which an average of 85% is privately owned. Figures 1 and 2 illustrate total forest land and the percent privately owned for each state in the Southeast. Offering carbon programs to family forest owners provides ample opportunities to generate carbon credits from previously untapped resources. Two forest-based carbon programs of interest to woodland owners are The Natural Capital Exchange (NCX) and the Family Forest Carbon Program (FFCP). NCX and FFCP programs differ in a number of ways, including contract length and forest management approaches. For example, NCX offers a one-year harvest deferment contract, while FFCP is a long-term contract that pays for implementing forest management practices. Before enrolling, it is crucial to understand the differences between the two programs. Visit their respective websites for more information. Furthermore, ask questions, read the fine print, and consult with a lawyer to ensure the carbon program is right for you.  

Figure 1. Total forest land by state in the Southeast

Source: USDA Forest Service

Figure 2. Percent of forest land privately owned by state in the Southeast 

Source: USDA Forest Service

Shockley, Jordan. “Carbon Program Opportunities for Woodland Owners in the Southeast“. Southern Ag Today 2(41.3). October 5, 2022. Permalink

Peer Advisory Groups

Peer Advisory Groups

Agricultural producers use various resources to continue learning and implementing new practices and technologies. Peer advisory groups are an essential tool for progressive and business-minded farmers or ranchers who seek continuous growth and improvement of their ag businesses.

Like most family businesses, agricultural managers make most business decisions alone. The lack of challenging and diverse ideas often means that producers miss business opportunities or fail to implement beneficial changes for their operations. A peer advisory group serves as a reciprocal advisory board that helps farm businesses generate knowledge and improve management strategies that can impact their operation. 

A peer advisory group is formed by ranchers and farmers willing to share their experiences and make the most of each member’s talents to solve problems and make business decisions. They constantly exchange information, knowledge, ideas, experiences, and opinions. Each group usually consists of 8-12 producers who periodically meet on each member’s operation. This group size helps maintain the intimacy and trust necessary to obtain the best results from each group member.

There are several peer group systems with methodologies for agricultural producers to achieve their goals. Argentina’s CREA groups are among the oldest and most experienced peer group associations (Regional Consortiums of Agricultural Experimentation). This association has more than 2,000 members and 60 years of using and perfecting the peer group methodology. CREA members have continuously improved their productivity and are at the forefront of new technologies and management practices. Thanks to the business management mindset generated within these groups, its members are among the top 20% of their country. 

Although not as popular as in Argentina, a few agricultural companies use this methodology in the U.S. and several private consulting companies offer these services. Through the leadership of the Texas A&M AgriLife Extension Service and funding from Southern Risk Management Education, a peer advisory group has been developed with ranchers from North Texas and Oklahoma, using a similar methodology as CREA groups. This peer advisory group focuses on the production risk associated with new production systems and the business’s economic, financial, and organizational aspects.

Abello, Francisco “Pancho”. “Peer Advisory Groups“. Southern Ag Today 2(40.3). September 28, 2022. Permalink

Cover Crop Seed Availability Hinders Cover Crop Adoption by Agricultural Producers

Cover Crop Seed Availability Hinders Cover Crop Adoption by Agricultural Producers

As more aggressive action has been taken to confront the climate crisis under the Biden Administration, environmental sustainability issues have become more relevant. Interest in the value of cover crops as a means to preserve and improve cropland has continually increased. Cover crop use has once again been on the rise (2017 Census of Agriculture) as our producers continually seek a balance between environmental and financial sustainability. Among the challenges reported by producers, cover crop seed availability is an issue. Many producers have also said cover crop seed costs are too high and that the additional cost of planting and managing a cover crop stymies cover crop adoption.

The University of Georgia Cooperative Extension Service conducted a cover crop survey with cotton, corn, and peanut producers throughout Georgia, Alabama, and Florida, from January 28, 2021, to March 31, 2021. Figure 1 illustrates the cost of cover crop seed based on the number of species in the cover crop blend. The average seed cost of single specie cover crops was $23.53 per acre, and for multi-species cover crops, it was $25.88 per acre. Most producers using cover crop monoculture indicate their seed cost ranges from $10 to $19 per acre. For mixed cover crops, there is more of a spread in the responses, with the $20-$29 range being the most common.  

To solve the challenge of the availability of cover crop seed, some producers reported that they harvested their cover crop seed to either sell it or plant it the following year. However, most farmers were not harvesting their cover crop seed. A few possible explanations for not harvesting and selling seed could be machinery related, time, seed germination, or understanding the value of the seed if they were to sell. Another possibility for not keeping seed is that they have chosen either not to plant a cover crop the following year or to plant a different type. One last explanation could be that farmers participating in a cost-share program could not harvest the cover crop. Most conservation cost-share programs won’t allow producers to harvest seed to sell or save for seed. 

A cover crop is relatively expensive to plant. Most farmers who responded to our survey in these three states do not currently graze or harvest their cover crop, which would help to offset some of that expense. It is important for farmers to find and adopt the most beneficial cropping practices, which may include cover crops. As more producers become interested in planting cover crops, emerging local business opportunities may materialize for specialized seed companies to identify and stock the cover crop seed mixes that are of interest.   

Figure 1. Number of producers reporting specified ranges of cover crop seed cost per acre for single specie cover crops and multi-species cover crops for cotton, peanut, and corn producers in Georgia, Alabama, and Florida. Total respondents are 40. 

References and Resources:

USDA National Agricultural Statistics Service, 2017 Census of Agriculture. Complete data available at www.nass.usda.gov/AgCensus.