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Agrimarketing : November December 2009
50 Agri Marketing November/December 2009 NEW THINKING IN AG FINANCE by Scott Diehl, Senior Business Development Manager, Adayana Price volatility, tight capital, fluctuating global demand for U.S. products and a need for more relationship-oriented business models are defining a new scenario for agricultural lending. "I have never seen such extreme volatility in such a short amount of time, wreaking havoc on the capital markets," says Elizabeth Hund, Senior Vice President of U.S. Bank's Food and Agribusiness Industries, Denver, CO. "In the recent past, producers had access to low-cost capital with loose covenants for three-to-five years. Today, capital is typically available for one-to-three years, considerably higher priced, with much more restrictive covenants." Our nation's credit crisis, characterized by frozen credit markets and collaterized debt obligations, has affected more than homeowners and those with sub-prime mortgages. Lenders around the world are looking to de-leverage their assets. Fewer dollars are available, making it more challenging for agriculturalists to find loans, and they can be more expensive when they are found. Additionally, pressures on the commodity markets have made it difficult for producers to mitigate risk and thrive. Premium corn prices a year ago brought challenges for livestock producers who experienced increased input expenses without receiving higher payments for their commodities. LENDERS STILL BULLISH While some lenders have pulled back from agriculture, those who know the industry well may strengthen their industry focus. "You will see who is really dedicated to agriculture," says Daryl Oldvader, CEO of FCS Financial, Jefferson City, MO. "Lenders will focus on the key commercial producer, however, some livestock producers may be challenged to find the levels of credit that they have enjoyed in the past." Despite the economy, Hund says U.S. Bank has a positive outlook on agriculture. "All the things that drove the industry before this recession are still in place. There will be a growing demand for protein, and the U.S. is still the most efficient producer." Like most business change, much of the change in agricultural lending is "customer-driven." As farms get larger, they are more sophisticated and demanding, and smaller farms are more specialized with specific needs, so ag lenders are reshaping their business models, just as producers are. "The bar clearly has been raised," says Oldvader. "Most of the changes we see with top producers are permanent. They expect us to treat their business differently." Lenders and other organizations are employing customer segmentation to offer specific services to specific target audiences based upon solid research of customer needs and expectations. And, customers are being contacted in the manner and timeframe that best fits their preferences. Consequently, lenders and others are implementing much more sophisticated customer databases that include information on customer history, as well as psychographic information. NEW TOOLS AND APPROACHES Lenders are becoming more adept with new tools, including risk miti- gation, crop insurance, and technol- ogy to provide customers with easy access to information. "Traditionally, agricultural lenders have been very product-focused, looking at money as a commodity," says Larry Sidwell, Sr. Vice President of John Deere Credit's Ag Financial Services, Johnston, IA. "But now we must become more service-based as a trusted advisor with whom producers can rely to improve their business results ." "Volatility is the key issue, so we are offering more crop insurance, as it is a critical need for most producers," says Neil Olsen, Executive Vice President of Farm Credit Services of America, Omaha, NE. "Online banking is becoming an expected tool, particularly with a more tech-savvy next generation." He points to his organization's AgDirect tool that enables equipment dealers to speed sales with same-day financing. The internet has brought immediacy to the lender/customer relationship. Ag suppliers who want to assist customers in purchase loans expect one day turnaround to help guarantee their sale. RELATIONSHIPS COUNT Even with all the volatility in agriculture and the lending business, some things remain the same. "It's still about relationships," Olsen said. "We invest a lot of time and effort on employee engagement, because a highly engaged, expert work force leads to better customer experiences and ultimately to better, sustainable financial performance." Many lenders Adayana works with are going back to the basics in reaffirming their brands and what those brands stand for in the eyes of the customer. Lender employees from the receptionist to the customer relationship managers are being trained in brand values, customer relations counsel and consultative selling. Lenders we have recently talked with are both optimistic and realistic when it comes to predicting cus- tomer retention and growth. While the number of lenders may be decreasing along with the number of potential agricultural customers, the power of the relationship is growing rapidly. It's no longer sitting behind a desk waiting for potential cus- tomers to come in the door. It is aggressive market research, key audience targeting and on-brand message delivery and execution that will ensure lender success today. AM Adayana works with organizations to build effective winning strategies. For more information, go to www.adayana.com.
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