Ask a Banker | Ranch Like a Banker
Seven things one banker wishes you would do
By Katrina Huffstutler
Agricultural lenders have a unique perspective when it comes to farming and ranching operations. They have seen it all and know what works — and what doesn’t. What helps the bottom line and what hinders it. If you have ever wished you could pick a banker’s brain, we did it for you for this month’s installment of “Ask a Banker.” Van Baize, Texas and Southwestern Cattle Raisers Association (TSCRA) director and recently retired branch president for Wellington State Bank in Bowie, shared some of his top tips for cattlemen.
1. Be aware of increasing bank regulatory issues.
Baize says bank examiners are requiring additional financial and cash flow documentation today, more than they did even a year or 2 ago. In turn, producers are being asked to provide additional financial and cash flow information to the banks.
“I’ve had customers say, ‘But I didn’t have to do this a year ago. Why are you asking me for it now?’ But it’s not that their loan officer is requiring it — often it’s just one more thing that’s required of the financial institution by the government,” Baize says.
The best way to know what’s going on (and what you’ll need to get a loan), Baize says, is to stay in touch with your lender year-round, not just when you need him.
“Of course, they could also frequently visit the Office of the Comptroller of Currency website, but it is a lot easier to just give your banker a call and ask what’s new,” he says.
2. Know where you are…
Like any business, a ranching operation requires good records to be successful. Baize says cattlemen should maintain financials that include:
- A detailed list of current assets, including inventory of livestock, equipment, real estate, investments, life insurance policies and grain or feed inventory.
- Intermediate assets of equipment or investments and long-term assets of real estate.
- Liabilities broken down into what is due in the next 12 months (current liabilities), what is due in the next two to five years (intermediate liabilities) and what is due in the next 7 to 30 years (long-term liabilities). The scheduled monthly or annual payments also need to be detailed for each.
3. …And where you need to be.
Do you know how much it costs to operate? How much you need to bring in to be profitable? Baize says knowledge is power.
“It’s important to decide on a profitable level to market your product that you can be happy with,” he says. “It is human nature to enter a market (buy cattle) with optimism, watch it as the market goes higher and have a thrill on how smart we were. It goes even higher and we have the feeling of euphoria. Then it turns down and we have the feeling of anxiety, then denial, depression and the feeling of, ‘I’ll never do this again.’ It starts a rally and we have hope again, then relief and optimism return. Attending a TSCRA program on marketing can give you some insight on the potential rewards and risk levels that can help you avoid all the drama. Both you and your banker will sleep better at night.”
4. Get ready for 2018.
On a hot August day, January may feel like light years away. However, Baize says that late summer and early fall is the perfect time to develop a plan for the following year.
“We realize things may change, but you need to have a general plan,” Baize says. “If you don’t know where you are going, how will you ever get there?”
This is often a good time to consider reducing or expanding your herd, or possibly marketing your cattle in a different manner.
“It may be time to make a change,” Baize says. “For example, maybe you would benefit from some type of forward contracting.”
He says while many are reluctant to use the futures and options, it’s usually because they do not understand basis or are just uncomfortable trying something new.
“They either need to learn how to use it, or they can opt to do a cash contract instead,” Baize says.
For those looking for less of a gamble, many video auction companies and other brokers will cash contract your cattle, and they take on the risk of the base exchange on the futures.
5. But also start thinking farther down the road.
The cattle industry is aging, with a majority of producers in the 65- to 75-year-old range. What will happen when so many retire, or pass on, at the same time?
For many, it’s time to start estate planning, Baize says. That could mean different things for each operation, either reducing or increasing numbers, and either deciding who will take over the business and when, or preparing to sell it. Part of that process, he adds, should include visiting with their lender.
“They need to come in to their banker and say, ‘Here’s what we’re looking at doing,’ whether it’s increasing their numbers or downsizing. The banker can start doing his due diligence to accommodate them,” he says.
“In some ways, the banker and the producer are partners in an operation,” Baize says. “This is one of those cases. Both parties need to be aware of any changes or anything that’s going to be happening.”
6. Get schooled.
Remember the adage about learning something new every day? Baize strongly encourages it.
“Producers should really take advantage of the educational opportunities offered by TSCRA, Extension and other organizations,” he says. “The industry is changing fast, and your management techniques must stay on the cutting edge if you want to be profitable. Whether it’s a program on weed control or stocking rates or vaccines or implant use, go learn about it, and take that back to your own ranch.”
7. Take action.
He says it’s also important to stay up-to-date on regulatory issues that can impact your cattle operation or estate, and then do something about them when possible.
“Producers need to be more proactive to prevent burdensome regulations instead of complaining about them after they are in place,” he says. “There is strength in numbers, and together with TSCRA we can have a strong voice in Austin and Washington to affect the measures that could hurt our bottom line.” ❚
“Ranch Like a Banker” is excerpted from the August 2017 issue of The Cattleman magazine.