EXTREME WEATHER DEMANDS MORE-THOUGHTFUL FINANCING

In the first seven months of 2022, there have been nine weather-related natural disasters in the U.S. with losses exceeding $1 billion each. From moderate-to-severe drought impacting 70% of the country, to 90-mph windstorms ripping through several upper Midwest and Great Plains states, agricultural producers have braced their fields and livestock for unprecedented impacts.

The 2022 disasters build off 2020 and 2021 – recorded as the worst years on record for natural disaster devastation according to the National Oceanic and Atmospheric Administration.

For agriculture, natural disasters add uncontrollable risk to every operation. So, should producers be thinking about adverse impacts from extreme weather events during conversations with their lenders?

According to Conterra Vice President Relationship Manager Luke Schultz, the answer is “absolutely.”

“Conterra lends to producers in all 48 contiguous states where at any given time, at least one natural disaster is occurring,” says Manhattan, Kansas-based Schultz. “But that also means we offset risk by having loans across the country and not concentrated in one area.”

Anyone in agriculture knows mother nature often decides success. But thinking ahead and working with an experienced lender is another valuable tool in every producer’s toolbox. Schultz, who serves producers in the Great Plains region and parts of Texas, says producers worried about extreme weather events should look for specific favorable terms when it comes to their financing needs.

“I encourage producers to consider long-term fixed rate loans when they’re available,” says Schultz. “Even though interest rates have gone up and will likely continue to climb based on Fed hikes, there are still favorable rates out there that we can offer.”

Schultz says that although paying a loan off quickly is often advantageous, if a lender is offering longer payout terms, it’s okay to take advantage of that. Making your contract payoff terms with your lender as small as possible is advantageous if a bad year hits your operation. If a producer happens to be in that predicament now, downsizing or refinancing might be the most realistic option if a disaster has choked the operation.

In the Great Plains region, weather has varied tremendously. While some portions of Schultz’s territory are now in what is considered to be a “megadrought,” parts of Oklahoma, Eastern Kansas, Eastern Nebraska and Missouri have seen timely rain this season.

Meanwhile, producers in the Texas panhandle are severely impacted by devastating drought coupled with high winds. Frisco, Texas-based Matt Manuel – Conterra relationship manager for Texas, Oklahoma and surrounding areas – says insurance will be what gets those producers through this year, even as many still fight for a successful crop to take advantage of favorable market prices.

“From a lending perspective, we’re looking at what cost-cutting measures producers impacted by these weather events have taken to either be more profitable or run more efficiently,” says Manuel. “Saving money on a per-acre basis through irrigation efficiencies and strategic input application can often make the difference to a producer battling severe drought.”

Manuel tells Panhandle-based producers to get creative this year and keep up conversations with crop insurance agents and lenders.

“Weather is a wide pendulum swing every year, but what’s different about this year are the pricing opportunities we’ve seen these last nine months or even longer in some grains,” offers Schultz.

Favorable market conditions and a lender with perspective can offer relief to natural-disaster-stricken areas.

Another favorable term producers should be eyeing are interest-only programs in the first few years of the loan. Schultz, who has been serving the agricultural community for more than 20 years, says this offers some relief to producers battling unfavorable weather conditions.

“Even when times are tough, there’s still optimism,” he says. “These multi-generational farms will keep going because farmers have learned to innovate and succeed to get through rough patches. That optimism fuels those of us in agriculture.”

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