OLIVIA, Minn. — As Minnesota’s first ‘winter storm’ was blanketing fields with 6 to 8 inches of snow, F&M Bank President Erik Peterson was graciously willing to share a few minutes of his time on Oct. 22.
Peterson, 40, is into his third year as bank president. He grew up as a farm kid with his father, Rabbi, and grandfather Paul, raising corn, soybeans, and pig farming on their farmstead just north of Olivia. Peterson majored in mechanical engineering at North Dakota State University. Upon graduating, Emerson Electric out of St. Louis offered him a position and a Master’s degree opportunity at the University of Minnesota. Soon Peterson was flying to China and other Asian countries making business deals on behalf of Emerson Electric. After 14 years with Emerson, Peterson decided Minnesota agriculture and working in a bustling new bank in his hometown should be the next chapter in his life.
The Land: Was Crop Year 2020 a good year?
Peterson: We would have liked for the weather to cooperate a little bit longer here at the end, but it was a nice growing season. Yields are really good. Sugar beet crop so big that it’s maxing out the plant’s processing capacity. And great quality with over 17 percent sugar content. This is a welcome improvement after several years in the red for those producers.
Soybean and corn yields really good — even specialty crops like our edible navy beans were above average. Our sweet corn farmers faced some slowdowns because our canneries couldn’t always keep up with daily harvest from grower fields.
The Land: So the big question, how were yields on Petersen farms this year?
Peterson: They did fine. It’s all out of the field so that’s good! Now we’re wrapping up tillage and getting manure incorporated for next year’s corn crop. Vertical tillage has become popular — especially with more weather challenges each fall. Yesterday our Salford tillage equipment was working with several inches of snow on the ground. It gives you a little more window to work in tough conditions; it does a great job breaking down crop residue; and can build soil health by keeping more structure in place.
The Land: Is this season making your farm customers more financially healthy?
Peterson: Well, we won’t be seeing things quite as dire (meaning horrible) as they have the past couple of years. Good yields have helped; safety nets provided through USDA are important; and I give credit to farmers doing a good job keeping expenses in check. So overall, things are looking more reasonable than past years.
The Land: Is debt load an increasing reality in farm finances?
Peterson: Overall farm debt is on the rise, but we’re expecting it to cycle. Like most banks supporting agriculture, we take a long-term view across the ups and downs. Yes, some operations dug a bit of a hole in prior years. 2020 might backfill some debt, but there’s still work to do.”
The Land: Some economists say money is a ‘bargain’ these days with interest rates on a downward trend. What are your thoughts?
Peterson: Guidance from the FED (Federal Reserve Board) tells us short-term interest rates are not expected to change for potentially a few years. That should keep variable rate operating loan costs down. Long-term money, for land or buildings, looks pretty optimistic right now also. Bonds are a primary money source and those rates are staying low; but they’re tougher to predict. There’s a lot of uncertainty around inflation and where it might go, but the FED recently indicated that when it starts to creep up, they’ll let it run longer than they have in the past before they pump the brake … creating a likely delay or lag for when they would increase benchmark interest rates.
The Land: What are these rates today?
Peterson: They’re historically low. On home loans for example, we saw the 15-year rates as low as low to mid-2s. Land deals are pretty variable, but typically start with a 4. Yes, I recall my Granddad Paul trying to work with interest rates in the 20-22 percent range in the ‘80s. Almost impossible to believe today!
But now with these moderate rates on land it will be interesting to see the effect on land values. Over time, we see land values trend up when interest rates go down and vice versa. With lower rates, buyers might afford a little more in the budget and sellers might be asking for more. We’re already seeing this in residential housing. As rates go down there’s more people buying; and that’s part of the reason home prices are trending up these days.
The Land: Is it fair to say consumers — including farmers — have more money to put to work these days?
Peterson: I would say consumers face a mixed bag right now. Some real challenges facing many households while others are trying to find better return on their assets — especially those on a fixed income. The stock market has enjoyed a good run, but tough to weigh where it will go. Plus, safe investments, like money markets, have such low returns these days that people are looking for other ways to generate returns on their assets.
The Land: Now that China is rebuilding their swine industry, is the U.S. swine industry likely to continue in financial turmoil? (The Peterson family also operates a 4,000-hog grow out program which produces about 12,000 pigs yearly.)
Peterson: Yes, the hog market has been very turbulent. It’s tough to say what’s ahead, but for hog operations with some integration and hedging, they’ll be okay. We’re optimistic for the long term. China continues to grow. They have huge populations with increasing earnings. That tends to change diet preference to higher-end protein sources. And there’s only so much useable land in China so they’ll always need outside help. It’s just a question from where. They know it’s in their best interest to have multiple sources for the same product. So even as China rebuilds their internal supply chain for pork, many expect we’ll still see solid overall exports of U.S. farm products to China.
The Land: Do you advise your farm customers on marketing — particularly on hedging?
Peterson: A good question. It’s really up to our customers. We offer an opinion when asked and let our farmers run their operations. Like many ag banks, if a customer wants to get bigger into hedging to manage their marketing risk, we’ll break out a separate account to keep a clean financial structure. We don’t want to see their hedging account being muddied up with their operating money.”
The Land: With record crop yields around here, did growers have adequate bin space?
Peterson: Apparently so. We’re not seeing outdoor corn piles. Plus virtually all corn went directly from the combine into storage, bypassing the dryers. Being able to avoid the cost, the labor, and the time of having to dry your grain before storage is a substantial saving. One farmer joked his savings on propane this year can make his annual payment on his new dryer. Good sense of humor. Also, teams at the local elevators did an excellent job of moving grain as needed — both on exports out and new grain in. Nothing was overloaded like last year.
The Land: With more and more money needed by farmers to run their operations each year, is the banking industry continuing as a dependable financial source?
Peterson: Yes, we’re very much aware of farming getting more capital intense which also applies to we lenders. We’re fortunate to have common ownership with a few other larger banks in rural Minnesota, so we keep our local rural focus; but have the financial banking in our network to do larger projects. The current interest rate environment is helping too. Many operations are taking the opportunity to refinance and restructure their debt which helps their cash flow.
The Land: In situations such as wanting bigger equipment, or renting more land, or simply wanting to start farming … what’s the advice?
Peterson: We are a community bank so our major mission is to help grow and support our community. And if we have a financing request we can’t make work, we have no problem going out to other institutions. FSA often is that good helping hand for young and beginning farmers. Expansion might make sense, but not always. Each operation is unique. And yes, every banker has some challenging discussions. Unfortunately in some situations, “no” is the better answer — but only if we have explored every logical option available … either within our bank or with other financial sources. Sometimes an analytical, neutral opinion might not be the answer an owner wants to hear; but it can be important they hear and consider their options.
The Land: Slip on your Chamber of Commerce cap. Why should any farmer or business entity want to join with this Olivia community?
Peterson: This area continues to be a seedbed of success stories. We need to keep our entrepreneurial spirit to maintain our thriving community. At F&M we take pride in our building here in Olivia; formed years ago by farmers and business owners of the area, each with ties to the seed industry dating back to Trojan Seed some 60 years ago. Once you get that charisma working, it seems each generation feels a responsibility to keep it going and advancing to the next level. There’s a precedent of innovation from Renville County. Hemp farming may be next. The Seehusens and their team at PrairiePRO are paving a new path in the complex, growing world of industrial hemp.
The Land: And any new learning from your 2020 farming experience?
Peterson: (Chuckling) Of course. Plenty of mistakes and lessons learned again this year. I recall my Granddad saying, “Learn something new every day, but never forget to keep on learning.”
Every farmer likes the challenge of trying to improve each year, but agriculture is unique from other businesses as you only get one chance a year. In my lifetime (God willing) I’ll get maybe 30-40 chances to try and apply the lessons learned and that’s it. Game over! This is why agriculture is a many-splendored ambition … often at the whim of Mother Nature … but often incredibly rewarding too!
The Land: Could 2021 be almost as good as 2020?
Peterson: We hope so, or even better. U.S. agriculture is becoming a desirable business partner for more and more people worldwide and we hope our trade channels and pricing continue to improve. Current grain markets have experienced a nice bounce; and with a weaker dollar, we’re still competitive on the global market. Some producers are putting a price floor on part of the production for next year. With the good Lord favoring us with another comparable growing season, 2021 can be a prosperous year also — but with less October snow!