Farms are proving to be more fertile than ever - not for farmers, but for the banks that have carved out a lucrative niche in managing them.
Agricultural banks are among the companies filling the shoes of owners who leave the farm - and are boosting fee income doing it.
If absentee farm ownership continues its 15-year rise, banks could gain even more of the farm management fees that last year totaled about $300 million nationwide, according to the American Society of Professional Farm Managers and Rural Appraisers.
Bolstered by its focusing on the niche, a subsidiary of $1.7 billion- asset Firstbank of Illinois Co., Springfield, already is one of the 25 largest independent farm managers in the country, according to data in Agri Finance magazine. The subsidiary, FFG Agrivest, manages about 125,000 acres of farmland.
Today, nearly half of all farmland in the country is held by absentee owners, according to Bill Helming, a Shawnee, Kan., bank consultant.
"It has been a steady increase, particularly over the last 10 to 15 years, and will likely continue to increase over the next 10 years," he said. That's because farmers' average age continues to climb, while fewer children take over their land, he said. Land also gets sold because of estate taxes.
Farm managers "do the same basic thing a real estate property manager does," said Larry A. Burton, Firstbank's executive vice president.
Many banks do small amounts of farm management through their trust departments, including services such as selecting tenants, marketing grain and livestock, paying bills and collecting income.
But most bank companies that manage more acres than Firstbank are part of large regionals, including Banc One Corp. and Norwest Corp.
Smaller community banks are not significantly involved in this niche, said S. Wayne Linder, a senior consultant with Young & Associates, Kent, Ohio.
But size isn't the issue, he said. Banks need the proper expertise, technology, and sales mentality.
"I think it's an excellent move if you staff it properly and market it properly," Mr. Linder said. "It would be no different ... from offering financial services."
Tim Beaton, senior vice president and trust group manager of Community First National Bank of Fargo, N.D., which manages about 36,000 acres of farmland, expects the niche to grow at his bank and its holding company, $2 billion-asset Community First Bankshares, whose banks manage about 150,000 total acres of farmland.
"We think it's going to be a bigger part of our business going forward," he said.
Last year farm management fees generated about $70,000 at the Fargo bank, or about 5% of total trust revenues, he said.
Illinois' Firstbank last year moved its farm management accounts out of the trust departments of its three main agriculture banks, creating FFG Agrivest, a division of a new financial services subsidiary.
Farm management has grown about 10% a year for the last five years, Mr. Burton said.
"It's a very successful business for us," he said. "The margins are very healthy."
FFG Agrivest's total revenues represent about 8% of Firstbank's total noninterest income, he said. Most of the earnings come from farm management, but also include fees from real estate sales and appraisals.
For the second quarter, Firstbank's total noninterest income rose 10% over last year to $5.1 million. Total earnings rose 5.3% to $6.1 million.
FFG Agrivest has 13 professional farm managers who manage about 446 farms and ranches in Illinois.
About 90% of the acres under management are crop land and 8% are pasture land. Most of the farmland that Community First manages also is crop land.
Mr. Beaton said that putting the bank company in a position to own livestock - which are more hands-on - could generate problems.
He said he once considered managing dairy operations. However, "I had no desire for someone to call me and say, 'Dad died, your cows need milking,"' he said.
Because bank companies that manage farmland often are agriculture lenders, conflicts of interest could arise if the bank company manages the land and also lends money to the tenant who farms it.
"There potentially could be a situation where the farm management firm might not go to quite the extent of getting the best tenant or getting the best deal because they don't want to alienate the tenant" the bank lends to, Mr. Helming said.
If the tenant isn't performing well, "That would put us in a bad position if you had to fire the tenant and the tenant had a big loan with us," said Mr. Burton.
But bank companies in farm management said they had not experienced conflicts. "We've never had a problem with that," Mr. Burton said.
Firstbank, with just 5% of total loans in agriculture at its eight banks, does not loan money to most of the tenants on farms it manages, Mr. Burton said.
Still, its three central Illinois banks that do significant farm lending don't have problems finding credits, he said.