Subscribe
Share
Share
Embed
As a business and community focused bank working all day, every day with business leaders, we discuss what's effective in highly successful businesses today. Each episode features an interview discussing business practices on topics such as: company culture, fraud prevention, change management, economic data, wealth management tips, and more.
You can find more content like this on our website: https://www.nw.bank/newsroom/education/podcasts
Northwest Bank. Equal Housing Lender. Member FDIC.
Hello, and thank you for joining us for another episode of the Northwest Bank podcast. I'm your host, Luther Lampert. National Ag Week is celebrated this year from March 17th through 23rd, and with over 75,000,000 acres of farmland, Iowa and Nebraska are true agricultural powerhouses. As National Ag Week begins, we wanna recognize the unwavering commitment that farmers have to feeding our communities. In preparation for the week, I sat down with Eric Walhof, regional president with Northwest Bank, to discuss some of his expectations for the 2024 farming season.
Luther Lampert:Alright, Eric. Thanks for joining us today.
Eric Walhof:Hey. Good to be here.
Luther Lampert:1st, to kick things off, why don't you give us your background, not only your banking background, but your agricultural background as well.
Eric Walhof:Growing up on a farm in Southwest Minnesota near Edgerton, I grew up on a 50 cow dairy, and that dairy was not large enough to support, 2 children and parents and eventually spouses and grandchildren. And so we made the decision back when I was in high school that the farm would no longer, be supportive of that size of a family. During that time, if I needed spending money, I go out and I could work for our neighbors and relief milk for, those family farmers as they went away for a weekend or on a vacation. I also had the opportunity to work at one of the first farrow to finish hog, facilities around the Edgerton, Minnesota area and learned a lot being a dairy kid about farrowing and clipping teeth and working with hogs and, that whole aspect. Little did I know that many of those experiences would turn me into the agricultural banker that I am today.
Eric Walhof:As we moved over to Dort University to continue my education. I studied, business. Did not even think about becoming an agricultural banker at that time, but I would end up in human resources or marketing or sales or something like that. However, through an intern experience, I had the opportunity to do a agricultural internship at a bank in center and within 2 weeks I had followed and found my passion for the rest of my life. The ability to talk to a farmer, to know what they're going through on their operation to, add financials in a different viewpoint to it, I think is a great opportunity for us to build a relationship that'll last a lifetime.
Eric Walhof:I don't know all the answers. None of our bankers do. But we are just hopefully a clear head in an outside party that has some wisdom to share with you and to, have a relationship. In the future, I was able to move on to, some management and walking alongside other folks and mentoring. However, my passion and my start has always been agriculture, and it's, as a 49 year old, it's been something that I still can't believe that I've been provided this path and the opportunity to serve others in this way.
Luther Lampert:Eric, thanks for that. Great to hear the passion that you have for the work that you're doing. Now to look forward to the 2024 season, we're coming off what was for most of us a warm and dry winter. What impact is that gonna have on the 2024 season, and then what other challenges or opportunities do you see coming up for this upcoming season?
Eric Walhof:It is always a mixed bag, Luther, as we look out towards the future. Farming is something especially when we plant that seed in the spring, we are always taking risk. We are always looking forward in faith, that we'll get rain and the sunshine and what we need in order to nurture that seed and bruise the crop. But this year, specifically, it looks to be a little bit more of a challenge than it has the last 2 or 3 years. Specifically, grain prices are going to be lower as we head into the 2024 season.
Eric Walhof:Our crops are basically about 80¢, lower right now if we would port forward contract grain for the fall on the corn. And, probably about a buck and a half lower, if we would forward contract soybeans for fall of 2024 as compared to what we could do it a year ago at this time. Second, we have the spring 2024 crop prices are substantially lower than they were in 2023. That's prices set, in the month of February as we look towards harvest in 2024. And the spring price on the corn is $4.66 a bushel, and that's roughly, Ruth Luther, about 27% lower than what we had in 2023.
Eric Walhof:Also, the soybean price for the fall price would be $11.55 a bushel, and that's about 16% lower. And, as many of our followers know, many of our customers will buy a product that is 70 to 85% of that price. So it certainly is not going to cover the cost of production in 2024 as it did in 2023. Keeping on with crop insurance, what does that protect us against? Typically weather and price.
Eric Walhof:Our moisture levels are low. I just pulled up the US Drought Monitor today. It shows Northwest Iowa as abnormally dry. However, don't let that scare you off. It's better than we were in 2020 3.
Eric Walhof:At this point, we were blessed with good rains, this fall and going into Christmas. Many of us picked up a half inch to 2 inches and, that all soaked in as well. Who knows what our spring planting weather is going to be as of right now? It looks like we are going to have a a great season, mellow ground. However, if the old Farmers Almanac tale of 90 days after a fog, remains true.
Eric Walhof:It looks like we could have a pretty wet April. So we'll see once how that treats us. Other macro type things as I look out, Interest rates are always a concern. Right now, our operating rates, for the lines of credit for the farmers are probably going to be between 8 a half and 10%. It wasn't very long ago, back in 2020 that they were sitting right around 3a half to 4%.
Eric Walhof:So roughly doubled in price as of that time. Overall land prices have been really stable when we look at Ag real estate. Sioux County just set, close to another record coming in at 29,600 in February or March of 2024. And so high quality farm ground still continues to maintain its value even in light of lower output and pricing opportunities for this fall. People are looking at it as a long term approach to investing, and, they've been rewarded handsomely over the last couple decades with the increases in prices.
Eric Walhof:Machinery costs, as you know, looking at the dealer's lots and then websites and magazines continue to increase. Combines and forge cutters can range between 6, 700,000 up to a1000000, plus when you account for the machine and the, heads that you put on them in order to do the harvest. So they continue to rise planters, tractors, even manure spreaders are astounding at what the the prices are. So that continues to be a challenge to our cash flow as well. Overall on the livestock side, one of the all stars right now is the, the cattle economy.
Eric Walhof:Fat prices are near record highs. However, feeder prices are also at record highs. There's a lot of risk in there. However, the breeding herd continues to shrink and gives us opportunities to, do some hedging and potentially put a profit out there. However, that risk continues to increase as the prices increase as well.
Eric Walhof:The hog prices, are starting to show a little encouragement here in 2024 after a pretty brutal 2023. Iowa State put out some information. It looks like we lost approximately $30 per pig marketed in in 2023. And, we can't sustain that much longer as an industry. And so it is, encouraging to see some opportunities for profit in 2024.
Luther Lampert:So there's certainly a lot going on as we head into the season. There's some opportunity, definitely some challenges in the market. What conversations are you hearing our bankers having with our customers, as they prepare for the season?
Eric Walhof:That's a really good question, Luther. As one of my roles within Northwest Bank as a senior lender, that means that I get to walk alongside of our, lenders in 7 different communities and, here in Northwest Iowa. And I get to see a lot of balance sheets. Our lenders are working with, US farmers in the last couple months and going into the month of March and beginning of April here to collect balance sheets, profit and losses, to take a look back at what went went really well for us in 2023. What we could do better financially in 2023, and then what, where are we going to go in 2024?
Eric Walhof:At a macro level, once again, I think most of our great cash grain farmers probably saw a breakeven year, and part of that is due to 2022 carry over grain on the balance sheet. That probably wasn't marketed for quite as much as what we have listed on the balance sheet at the end of 2022. So right away, we were behind the 8 ball, when those prices dropped throughout our marketing year. So, the majority of our farmers probably broke even, lost a little bit of working capital, and I wanna take a second to explain working capital. Working capital is basically the cushion between things that you will grow and sell in a year, and then the debt that you have to pay against that, also known as your operating loan, and then the principal payments on your term, debt, which would be tractors and farm equipment and vehicles and farm real estate homes, those types of things.
Eric Walhof:So, you wanna have a substantial cushion in there. And most of our farm customers have had, several good years, So their operating notes weren't very full going into, 2023, and that cushion has been substantial. However, looking into 2024, we see that cushion starting to shrink just a little bit. Things are getting a little bit tighter. You can feel that on your pocketbook when the products that you produce aren't worth as nearly as much as they were in previous years, and all your other costs continue to escalate.
Eric Walhof:So, breakeven year, probably on the cash grain. The cattle feeders probably had a year. That's kind of a mixed bag as well when I look at that. It depends upon when you marketed your cattle. If you marketed, 6, 10, 12 times a year, you've had a pretty, average year.
Eric Walhof:If you happen to hit it just right and you marketed all your cattle in the fall, you had a really good year. So So it all depends upon what your operation did. But our, our lenders are just working alongside of people, remaining predictable, asking good questions, taking a look at how can we, eliminate some risk or at least manage some risk going into 2,024, and, seeking to increase our partnership with our borrowers.
Luther Lampert:And, Eric, as farmers are looking at their balance sheets and and they maybe have some concerns or wanna have some conversations, with a banker who can help them with that. What recommendation do you have for the Northwest Bank team? Why are you proud of the way that they go about their business?
Eric Walhof:Here at Northwest Bank and in agriculture in general, I think you have some really good agricultural lenders. The majority of the people that are working at Northwest Bank are tied back to the farm in some play some way. People grew up on dairy farms working with hogs, working with cattle. Many of our lenders own a hog nursery or a finisher or farm with a family member or actually get out and run combines and run a planter in the spring. That's who we are typically as ag kids in our background, and it's just fun to be on the other side of the desk being passionate and using our professional skills to work with our professional farmers, to be a great teammate for them.
Eric Walhof:So when I look at, Northwest Bank and our ag lenders, you have a wealth of information behind us, a wealth of experience behind us. We wanna be your trusted adviser, and we are just one part of a team that should, surround your operation as a farmer. And then part of that being part of that team would also include a CPA, a lawyer, your commodity broker, your wealth management adviser, people that you, and probably a good agricultural input person from a coop or from a seed sales business, people that you know and trust that will have crucial conversations with you, that will ask hard questions, and will allow you to think and to bounce ideas off that aren't worth watching out for themselves but are watching out for you as a customer. At Northwest Bank, we seek to be predictable. We know that there's gonna be ups and downs in agriculture agricultural economy.
Eric Walhof:We know that the prices are gonna increase. They're going to decrease. It's gonna be wet. It's going to be dry. We're gonna be average and above average.
Eric Walhof:And through all that time, you need somebody that's committed to walk alongside you in the good and in the bad. And that's what I'm most proud of with our Northwest bank bankers.
Luther Lampert:Eric, thanks for taking the time to chat with us today.
Eric Walhof:You're welcome. Have a great day.
Luther Lampert:Again, that was Eric Walhof, regional president with Northwest Bank, giving his thoughts on the 2024 farming season as we celebrate National Ag Week. And as Eric mentioned, many of our ag bankers are from rural Iowa and Nebraska. They grew up on farms. They have personal experience with the joys and challenges of farming as well as unsurpassed ag finance expertise. Our bankers are eager to use their unique combination of experience and skills to help your operations succeed.
Luther Lampert:Head to our website nw.bank to find out how you can start talking with 1 of our ag bankers today. Thanks again for listening. Keep checking the website for more episodes of the podcast. You can also find us on YouTube, Spotify, Google, and Apple Podcasts. Subscribe to get notifications every time we release a new episode.
Luther Lampert:It's the Northwest Bank podcast brought to you by Northwest Bank, member FDIC equal housing lender.