EDITOR’S NOTE: Cotton Farming recently met with Mississippi producer Ray Makamson and representatives of First South Farm Credit (Steve Rochelle, Glenn Taylor, Sells Newman and John Barnard) to discuss the importance of the producer-ag lender relationship. The following is a recap of that interview at Makamsom’s farm office in Greenwood.
Facts About First South Farm Credit
• Corporate office in Ridgeland, Miss.
• Company began in 1933.
• Customer base now extends to Mississippi, Alabama and Louisiana.
• Farm Credit System’s largest ag production lender in Miss., La. and Ala., with cotton being one of its significant commodities.
• Production loans cover cotton, rice, corn, peanuts, soybeans, sugarcane and catfish.
What are the challenges that confront producers in getting a crop loan approved?
Glenn Taylor – With the high cost of farming, one of the most important things we can have is a history with the farmer. This is particularly important with the new technology that has come along, as well as the higher capital expenditures on the farm.
Steve Rochelle – Farming is always going to occur in cycles. As a lender, we want to keep ourselves in a position so that we can be with that farmer even during during the down cycles. We position ourselves every year to
How important is the relationship between the producer and ag lender?
Steve Rochelle – If a brand new farmer comes through the door, he’ll obviously need more documentation than a regular customer of ours. I would say that at least 90 percent of our farmers have been with First South for many years. It’s important to have a working relationship with your customers. It helps everyone.
Are there additional steps a producer can take to make the entire process run even more smoothly?
Glenn Taylor – It’s pretty cut and dried what a producer needs when he comes to visit us. He needs a financial statement, the profit-and-loss sheet and a yield history of the farm. Those are the main components of the paperwork necessary in a crop loan.
Steve Rochelle – What we also need is an accrual income statement to reflect income and expenses for the appropriate current and prior years. That way we can know that the farmer paid everything that he owed and had a certain amount of money left over. If you don’t do that, you can’t really
gain an accurate picture of the farmer’s situation.
Are farmers more comfortable now in sharing all of their financial records with a lender?
Steve Rochelle – It wasn’t a case of the farmer not wanting to give us that information. He just didn’t know what to give us. When they dealt with their tax accountants, they had never been asked for this kind of information. This is our approach because we want to make sure there is enough money in the loan to carry the farmer through the entire crop season.
Sells Newman – The ongoing communication between the producer and lender is crucial. You don’t want to wait until the end of the year for all of the information. It needs to be shared with the ag lender in a timely way.
What are the main criteria to make sure a crop can cash flow?
Glenn Taylor – We take a farmer’s three-year yield history in addition to what he will plant. Then we add in his actual expenses for the last two or three years. That’s how we come up with a figure on what it will take for him to raise those crops. We also do a projection on his costs without government assistance. I can’t emphasize enough how important the government farm program is in making a cotton crop cash flow.
How important is the contract between a farmer and the government in a new Farm Bill?
Sells Newman – Farmers make their future plans based on a Farm Bill. Lenders do the same thing. It’s a contract between the farmer and government and is very important to the producer and ag lender. That’s why it’s also so crucial that ag leaders help educate a new Congress or Administration about this.
What kind of relationship exists between banks and ag lenders?
Sells Newman – In our territory, there is a good relationship between commercial bankers and First South, and the more lenders we involve in production agriculture, the better it is for the farmer. Ultimately, it gives the farmer more options, and that’s a win-win for everybody. Since all lenders have different lending philosophies, the farmer benefits from many more credit alternatives.
How do record high cotton prices affect how a crop loan is processed?
Glenn Taylor – We certainly take the current price environment into consideration. And we look at the potential that exists for profitability. We also know that a cotton crop has a major impact on the local economy because it turns over so many times. In cotton, you have oil mills, gins, warehouses, dealers, seed companies and chemical companies. The other crops aren’t like that. It also makes a difference when a farmer can make money on an 80- or 90-cent crop.
Does the producer always know what the ag lender needs?
Glenn Taylor – When a producer has been doing business with us for a long time, he knows exactly what we expect of him. The main things are cash flow, capital expenditures, as well as short and long-term impact. When Ray Makamson comes into our office, he has already put his numbers down on paper and knows what we want.
How important is it for ag lenders to have a relationship with industry organizations?
Steve Rochelle – First South is very fortunate to be located in an area where we can have a good relationship with organizations such as Delta Council and the National Cotton Council. They help us educate our lenders and producers on farm policy and its ultimate impact on all of
What about the need for a “comfort zone” between ag lenders and producers?
Glenn Taylor – I think Ray (Makamson) is comfortable and will tell us anything about his farm operation. That comes after many years of doing business together. It takes time to build a relationship like this, but it pays off because Ray knows that we are a partner with him through good and bad times. The 2009 crop year is an example of that. All Mid-South farmers dealt with the heavy rains and difficult situations surrounding that crop. How-ever, in the long run, those kinds of experiences can actually strengthen a relationship with a farmer.
John Barnard – I think Ray would probably agree that a farmer should never be afraid to talk to his ag lender. You need to be able to share information if both sides are going to do business.
Is there a message here for ag lenders and producers across the Cotton Belt?
Glenn Taylor – Have the kind of relationship where you can help the farmer with that financial decision. I’d like to think I’m an extension of Ray’s farming operation. I’m hopefully helping with a very important part of the business just like his other farm workers.
Ray Makamson – I can’t say enough about First South and the relationship I’ve had with them for many years. It also helps that this company is diversified in a lot of commodities and is very well informed about farm programs. The staff makes it their business to stay updated on what’s going on. If they don’t have the answer, they know who to call to get the answer. I feel extremely comfortable with the relationship I have with these folks.
For more information about First South Farm Credit, interested parties can go to www.FirstSouthLand.com.