Jeff Judy

Jeff's Thoughts - August 28, 2013

Of Farmers and Bankers

In this issue of Jeff's Thoughts,I once again welcome my colleague Tom Bengston. In this column, Tom takes us from learning about our customers to learning from our customers. More about Tom below.

During the 1980s, some farmers blamed their banker for their troubles. But the fact is, bankers and farmers share many similarities, they are dependent upon one another for success, and they can learn from each other.

The United States lost about a million small farms between 1980 and 2000. Similarly, we have lost about half the bank charters since the 1980s, mostly among smaller institutions. The same factors that drove 1980s-'90s consolidation in farming (rising costs and low prices) are driving consolidation in banking today (rising compliance costs and reduced income due to low interest rates and weak loan demand). Just as most of the assets in the banking industry are concentrated among the very largest banks, about 75 percent of farm production comes from 50,000 of the nation's 2 million farms.

Despite warnings from regulators about asset concentration, some of the most successful banks in the industry today are big time ag lenders. Established banks that know their rural customers play an essential and fruitful role in the production of our nation's food supply. And farmers, although currently enjoying the benefits of high commodity and land prices, continue to need bankers to provide both credit and counsel.

Through the ag crisis, many bankers worked with farmers to help them perfect their business model. They helped them develop marketing plans and cash flow projections that contributed to their sustainability. Thirty years later, it might be the banker who can learn from the farmer. Some of the things bankers will need to do to survive were the things good farmers did to survive beyond the 1980s.

Farmers who succeeded, for example, got smarter about their businesses. They analyzed the numbers more closely, made projections based on a variety of scenarios, and worked harder to understand all their options. This is what bankers need to do in order to grow into the next decade. Successful bankers will be those who have thoroughly stress-tested their loan and investment portfolios; they will also be the ones who completely understand the contents of their customer information files.

Farmers also figured out technology. They began to use automation, soil analysis, and even GPS to farm more effectively. Bankers have incredible technology available to help them streamline their operations and serve their customers more efficiently.

And finally, many farmers diversified their income. While interest income will always remain the primary source of revenue for banks, the really successful ones will likely find additional sources of income. Bankers who figure out unique and valued services to offer to their customers in addition to traditional credit build a much stronger foundation for success.

About Tom Bengston

Tom Bengtson is Managing Director of the Bank Holding Company Association, and publisher/editor of NorthWestern Financial Review magazine. Learn more at or Tom can be reached at