As the farm population ages, agricultural bankers are wondering where they'll find the young farmers they need to keep their communities - and banks - going.
"There are a lot of community banks that are 60, 70, 80% ag," said Jeff Plagge, president of $90 million-asset Waverly National Bank, Iowa. "The young farmer issue is a continual problem."
For many agricultural banks, it's a question of survival. Their communities are tied to the health of local farms, and they worry that a whole generation of farmers is nearing retirement without a pool of younger agricultural operators ready to move up.
"As we have fewer and fewer farmers, the economic vitality of the community diminishes," said Mike Duffy, an economics professor at Iowa State University, Ames.
In 1987, 45% of all U.S. farmers were 55 or older, while only 13% were under 35, according to Iowa State University Professor Paul Lasley.
Based on the number of new farmers in the decade before 1987, Prof. Lasley projected that 57% of the nation's farmers would be over 55 by 1997. By 2007, the proportion could rise to 71%,
By contrast, the percentage of farmers 35 or under would drop to a mere 6% by 2007, he wrote in Small Farm Advocate, a publication of the Center for Rural Affairs, Walthill, Neb.
Thus, farm lenders are working to help young and new farmers enter the business to ensure that someone will be there to keep the lifeblood of their communities going.
"From a finance standpoint, the bank has a big role to play in being willing to package something up that makes it workable for the beginning farmer" to buy and operate a farm, Mr. Plagge said.
Of course, the situation is complicated by regional quirks.
For instance, North Dakota bans corporate farming, leaving fewer alternatives for sellers.
"It is one less option, and that puts an awful lot of financial pressure on a younger generation trying to establish itself in farming," said Dale Roemmich, vice president of $50 million-asset Union State Bank, Hazen, N.D.
And with the cost of operating a farm on the rise, many young people find they don't have the cash to enter the business, said Prof. Duffy at Iowa State.
"What they have is labor and management, but not capital," he said.
A number of individuals and organizations interested in the farming community are looking for ways to help new participants enter the industry.
Many states, for example, have created agricultural bond programs that offer tax savings on farm transfers. Further, many organizations - including the former Farmers Home Administration and various state groups - have loan-guarantee or beginning-farmer incentive programs.
Lenders should "look at how they would want to groom beginning farm customers ... and how they might also be able to encourage and work with the retiring farm clients in that transfer process," said Joy Johnson, who heads a program at the Center for Rural Affairs that links beginning farmers with retiring ones.
Some bankers have become involved in programs like Ms. Johnson's to link retiring farmers who don't have heirs or whose children aren't interested in taking over the farm with younger buyers.
"Historically the son has come back to the farm," said Bill Schwitzer, agricultural representative at Community State Bank, Tipton, Iowa. "That trend has been broken. A lot of it is financial considerations. You talk to a lot of older farmers now who'll tell you they're not telling their kids to come back to the farm."
Even when the next generation hasn't abandoned farming, community bankers must examine each situation carefully, Mr. Duffy said.
"When the lenders work with people it has to be more than just numbers," he said. "They can't get into the decision-making role but they have to help."
He recently spoke with a banker who had a 60-year-old retiring farm couple who wanted to borrow $1 million for their son to enter and expand the business.
"They were looking for security and were doing just the opposite," Mr. Duffy said. "From a loan perspective, it was a good loan, but from a people perspective, it was a bad loan."
Ultimately, bankers can only do so much on a local level to ensure the future of farming, Mr. Roemmich said.
"When it comes down to it, locally it's just one real small segment of the whole picture," he said. "It is a national issue."
While rural bankers are haunted by the specter of a disappearing customer base, they also are asking themselves what services may be needed to serve their aging clientele and how a land sale could negatively affect those customers' finances, observers said.
For instance, what kind of estate planning services will be needed? How will capital gains taxes impact earnings from a land transfer?
Also, both retiree and new farmer finances could be affected if, as the seller helps the next generation during a transition period, both rely on a farm income that used to support just one family, Ms. Johnson said.
Ultimately, bankers can only do so much on a local level to ensure the future of farming, Mr. Roemmich said.
"When it comes down to it, locally it's just one real small segment of the whole picture," he said. "It is a national issue."
