How to Compete with Farm Credit—and Win

By Brian Nixon

In most circles, the words “knock, knock” are considered a set-up for a mildly amusing bit of humor. In rural America, however, they represent the sound of intense competition, specifically from tax-advantaged Farm Credit System lenders. “They are knocking on doors all the time,” says TJ Wilson, market president for Morrill & Janes Bank and Trust Company, based in Hiawatha, Kan.

How ag and rural banks can respond to Farm Credit System competition was a key focus at the 2015 ABA National Agricultural Bankers Conference in Kansas City, Mo. While ABA and the banking industry and allied groups are highlighting examples of unfair Farm Credit System competition and mission overreach with efforts like ReformFarmCredit.org, ag bankers provided examples of how their institutions are fighting back—and maintaining and growing valuable customer relationships—in the face of a tilted competitive playing field.

One strategy: be flexible and use an array of Farmer Mac products to provide competitive rates and manage risks. (ABA, through its Corporation for American Banking subsidiary, endorses Farmer Mac’s secondary market programs, and members enjoy preferred rates.) David Buman, a former Farmer Mac employee who is now SVP at TS Ag Finance in Treynor, Iowa, provided examples of how his bank, which is new to Farmer Mac, is working with ag borrowers. Key to competing with the FCS is keeping an always-sharpened pencil handy. “Some examples [of loans] you see are real skinny, but we need to get the business,” he says.

Wilson adds that the goal of his ag lending team is “to put the customer into a good product and a good position.” It means staying in front of the customer and being ready to provide the right product and service at the right time, he says.

Keith Knudsen, president of Security Bank of Laurel, Neb., says his bank has built valuable customer relationships by offering free financial analysis to producers in its market area.

Buman’s bank also tries to go the extra mile with its customers by offering loan closings on the farm. “Why do farmers need to come into the bank?” he asks. “Farmers do business with people they know and trust.”

A differentiated product line is also essential, bankers say. Wilson’s current strategy: “I like to lead with fixed-rate products.” Fixed-rate, longer-term ag loans are a product line in which Farmer Mac is seeing growing demand from its primary lenders, says Patrick Kerrigan, Farmer Mac’s director of business development.

Knudsen adds that the role of Farmer Mac is important in terms of ag and rural bankers’ ability to meet customer needs as the size of producers’ operations continues to grow. “Our producers have gotten bigger,” he says. “How do we finance these operators’ credit needs?”

Wilson says that loan demand at his bank remains strong, despite tough competition from FCS lenders. “The better producers are thinking ahead to put themselves in a position to grow,” he notes.