Business Q & A

5 questions with agribusiness banker Bill Watson

Bill Watson is president of the agribusiness division of UMB Bank. (April 6, 2016)
Bill Watson is president of the agribusiness division of UMB Bank. (April 6, 2016) The Wichita Eagle

In a state where a big piece of the economy is tied to agriculture, Kansans often need to be up to speed on the health of the industry.

One man who is paid to keep track of the ag sector is Bill Watson, president of the agribusiness division of UMB Bank. Watson discussed key topics in the ag industry and what they might mean in the near future for farmers, ranchers, businesses and lenders.

Q: How is the health of the ag industry in Kansas right now?

A: The big thing we’re going through is a change in commodity prices. There’s been a change in the price for corn and soybeans, which has a real material effect on producers. Right now, corn is in the mid-$3 range (per bushel), where two or three years ago, it would have been in the $6.50- to $7-per-bushel range. That’s going to put a lot of pressure on cash flow for farmers and ranchers.

On the input side, expenses are going to need to come back, but nothing like those costs went up when corn went from $4 to $7. When that happened, fertilizer, nitrogen, seed – all that stuff – followed very quickly. When corn came back down, those other prices didn’t come down as quickly. Nitrogen costs have come down this year, and we know fuel has been (cheaper), but, overall, there will be pressure on people’s ability to make land payments and equipment payments … any kind of fixed-loan payment.

Q: How long do you see us being in this cycle?

A: I think we’ll continue to see it this year and perhaps into 2017. A big part of it has to do with a strong U.S. dollar; our corn, our beef, our soybeans – they’re more expensive than anyone else’s. That’s a real problem.

The world is also a crazy place. Whenever we see something like what we just saw (the March terrorist bombings in Brussels), there’s a flight to quality. People with cash come back to America, which keeps our dollar very strong. In addition, we also have large carryover stocks – the amount of corn and beans in the bin, nationally, is a high number. We’ve had good crop years back to back, and there isn’t that backdoor export path. This growing season looks to be pretty good, too, so it’s hard to see something that is going to bring commodity prices up.

Q: What about on the cattle side?

A: It’s a longer story on the cattle side. In 2012, we had the hottest and driest year that we’ve had on record in Kansas. What happened was a lot of people in the cattle business sold most of their animals because they either didn’t have feed or it was way too expensive. In 2013, we had the lowest national herd numbers since the 1950s, so we had all-time record-high cattle prices numbers in 2014 and early 2015. Since then, we’ve seen a big slide in cattle prices, which has just recently started to level off.

This just doesn’t seem to be a very good year for producers. That said, it’s not a disaster or a crisis yet. … Everybody’s not going to go bankrupt, but we’re in a tough stretch.

Overall, we’ve been in a pretty optimistic period for agriculture in the long term.

Q: What does all this mean for lenders out there?

A: For UMB, we try to develop our customer base from individuals who have been through cycles before – people who don’t bet the ranch on any one year. From the bank’s perspective, we’re well aware of the cyclicality of the market. You better be prepared for the long haul, and we are. We try to have conversations with our customers about marketing opportunities. If you look at last year, there was an opportunity in June and July where prices on both beans and corn moved up quite a bit – between 70 and 90 cents per bushel. If you had corn in the bin and you were watching, you could have sold it maybe for $4.30 per bushel instead of $3.50, which is a big difference.

Q: What’s your advice to farmers and ranchers this year?

A: This is not the year to be making deferrable expenses. There’s always something to be done to fix something up on a farm operation. Maybe this is the year to tackle those projects that cost a lot of labor instead of those that take a lot of cash. Then we just need to wait and see what these prices will do.

Also, there are bargains to be had in the farm equipment business. People are minding their pennies, so demand on equipment is down, and there is value to be found in used and almost-new farm equipment.

Bryan Horwath: 316-269-6708, @bryan_horwath

Bill Watson file

Employer: UMB Bank

Position: President, agribusiness division

Experience: More than 40 years lending to producers