New homes are chomping up farmland in suburban fringe areas, eroding the number of farm customers of agriculture lenders.
Banks in such areas don't anticipate losing agriculture customers altogether, but they're hustling for new types of customers in a bid to develop other growth areas for loans.
In many areas, including regions just outside growing metropolitan areas and more rural regions targeted for their back-to-the-basics lifestyle, land is worth several times more for residential real estate than it is as farmland. And that's hard for farmers to pass up.
"We've seen some of the small ranches in the mountain settings bring three to four times what they were worth on an ag basis," said Clay Landry, assistant vice president of $30 million-asset Yellowstone Bank, Columbus, Mont.
"How can you justify running cows on a piece of property that's worth $2,500 to $4,000 bucks an acre?"
Some farmers sell out altogether, while others sell off portions and continue with smaller operations - and smaller lending needs.
"It's a type of a wake-up call," said Dave Wyttenbach, vice president of Bank of New Glarus, Wis. "We have to recognize what's going on around us and respond. And if that means we have to change our specialties and our niches, that's what we have to do."
New Glarus, about 25 miles from the state's capital, Madison, has begun to see the effects of people who move into the area to commute into Madison, in part because of less restrictive zoning in the county.
"I would compare this whole process to someone having a very calm pond," Mr. Wyttenbach said. "Someone drops a rock in it, and the ripples go out further and further."
Perry Forst, executive vice president of $26 million-asset Citizens State Bank of Norwood, Minn., first noticed the ripples about a decade ago, in his market about 40 miles from Minneapolis and St. Paul.
Today, prices for hobby - or part-time - farms have been jacked way up. "Land is selling for way more than its agriculture worth just because of supply and demand," Mr. Forst said.
However, Citizens State has been able to maintain its farm loan volume despite declining farm customers in its market. That's because farmers even closer to the Twin Cities seek the bank out for agriculture expertise they can't get closer to the city.
"We've lost some customers," he said. But "we're picking up business that's coming out to us."
The changing land use can help farmers who need to reduce debt by liquidating part of their farm and improving cash flows.
Some lenders also are reaping new home-loan related business from the growth. "There's no question that we've picked up a lot of new residential loans and the services that go along with those," Mr. Wyttenbach said.
But in Montana, where the call of the wild - not spreading suburbia - has attracted scores of new non-farm residents in recent years, they often don't come knocking at the bank, Mr. Landry said.
"The guys coming in don't need loans," he said. The bank has tried making up for lost farm business with other commercial and residential real estate loans, he said.
The downsides, however, are significant. High land prices mean that farmers often cannot afford to buy available land to expand their own operations, Mr. Forst said.
And the loss of the farmers is bound to hurt other bank customers as well, Mr. Wyttenbach said. "A farm business will do more for a community," he said, than someone commuting to a job in the city.