Banking in agriculture [a banker’s perspective for Nebraska beef cattle operations]

What does a bank and a commercial laboratory have in common with your cattle operation?

The answer is family values. Dr. Ray Ward founded Ward Laboratories, Inc. on honesty, integrity, and the vision to rebuild and support rural communities. Mr. Jon Schmaderer, president of Tri-County Bank, expressed in an interview that their organization also shares a goal to support and grow rural communities through banking upholding values of integrity, transparency, and teamwork.

I spoke with Mr. Jon Schmaderer’s father, Mr. Donald Schmaderer, the chairman of Tri-County Bank, at the Sandhills Ranch Expo in 2023. He approached Ward Laboratories, Inc.’s booth and stated that he wished more producers would utilize our services. He expressed that it was his belief our services were of financial benefit over his years of banking in agriculture. So, I followed up with an interview with his son to learn more about banking in agriculture and what producers can gain from our services as well as provide a banker’s perspective of Nebraska cattle operations.

More than a lifestyle

            Of course, we at Ward Laboratories, Inc. believe that our services and consultation provide economic benefit to producers. Forage analysis can help cow-calf producers determine how much supplement to provide, thereby saving on feeding costs and ensuring animal requirements are met. Soil reports can help the hay producer apply the precise amount of fertilizer required. Reducing overfertilization saves the producer fertilizer costs and protects nearby waterways from nitrogen runoff. The leaders of Tri-County Bank, with their expertise and experience banking in agriculture, share that belief in our services.

Mr. Jon Schmaderer pointed out that the data we provide helps producers be more sustainable in their operations. Citing that if producers and bankers alike understand the resources they are working with, they can do more with less, improve their efficiency, and utilize those resources in the best possible way to be successful well into the future. From a lending perspective when a producer lays out a plan that includes understanding aspects of the soil, water, and forage resources it is more likely they are treating their operation as a business not just a lifestyle. Furthermore, when producers come with a detailed understanding of those resources, there is a correlation with how they treat and understand their financials.

            “We have to be here 100 years from now. Even though it’s not us, it’s going to be someone out there on the farm or ranch and someone out here in the community bank. The only way to continue to do this is to maximize what we have out there, and that’s understanding what you’re starting with.” – Jon Schmaderer, Tri-County Bank President.

In the cattle industry there is a wide variety of production methods. No two operations are exactly alike, and it is all dictated by the resources and ground available. According to Schmaderer, producers who have a healthy balance of living the lifestyle of going out working the land and cattle, with time spent in the office creating and managing a plan will be successful at growing and sustaining their operations overtime.

When times are tough

Over the past couple of years, Nebraska cattlemen have been faced with difficult circumstances brought on by drought and inflation. To endure through these times producers should have a plan, a back-up plan, and a disaster recovery plan. Remaining flexible when costs increase and having options is key during difficult times. All of which hinges on understanding your resources.

When it comes time to renew loans, expense management really comes into play. Hay and feed are big concerns for producers. The cost of feed in beef production can be as much as 70% of total production costs. Forages make up most of the beef cow diet. Having a forage report, along with an understanding of available supplemental feeds can help producers create a plan to stretch their feed resources through a drought.

Expense management is often more difficult when coupled with times of high inflation. Managing the debt load will allow producers to be more sustainable and persist through difficult economic circumstances. Schmaderer recommends that producers reinvest profits back into the business and avoid leveraging 100%. As a community bank Tri-County Bank, is there for producers to lend, but they do not approve a loan if they believe it will result in a bad position for the producer. Trust and understanding between the banker and the producer are key to making these decisions and surviving tough situations.

            “This is the first time in 20 years that we have had direct discussions with producers about managing higher interest cost.” – Jon Schmaderer, Tri-County Bank President.

Further, when operations are going well and obstacles such as inflation and drought are not so prevalent, Schmaderer recommends strategic debt management and to consider taxes. He says if you are paying taxes, it is a good thing and means you made money that year. Do not over leverage to avoid paying taxes. This goes hand in hand with debt management. Leverage can be a good thing when used in a positive and healthy way.

Family operations

Most beef operations in Nebraska are family owned and operated. Similarly, Tri-County Bank is a fourth-generation family operated community bank. Mr. Jon Schmaderer referenced his own family’s experience as advice for family operations. He recommends the older generation share their knowledge with the younger generation earlier rather than later. Communication is key to ensuring an enduring legacy is passed down to the next generation.

In his family, his parents involved him and his siblings in business at a young age. Further, they sat down and had the difficult succession planning conversation with bankers and lawyers. He stated that it certainly was not easy and relates to the emotional aspects of making these plans. However, after it was established for the bank, his mother had a stroke and was unable to communicate her intentions. This is why he recommends making these plans sooner rather than later. While it is a difficult process, it is important to the success and sustainability of your operation for generations to come.

“[In the cattle industry] we have successful people out there who are too busy being successful. They haven’t passed the torch. The ones that do it’s incredible. The ones that don’t it ends poorly.” – Jon Schmaderer, Tri-County Bank President.

To the younger generation, Mr. Schmaderer says do not listen to the negativity. There are many opportunities for us here in Nebraska agriculture. Those opportunities look different these days than they did in our grandparents’ generation. Through technology, more information, and resources you can take advantage of your unique operation. Dr. Ray Ward would advise young producers similarly having gone on the record as encouraging young producers to add enterprises, grow and hire more people to revive rural communities in Nebraska!

Building a good relationship with your banker

            When banking in agriculture, it is often advised to ‘build a good relationship with the banker.’ Yet seldom do we get some solid steps to help producers do just that. Mr. Schmaderer says that Tri-County Bank is a community bank, and they operate on relationship banking. He had some advice on how to build a great relationship with your banker:

1. Stay consistent.

If you are a return customer, it is more likely you will have a good relationship having built it over years of banking instead of utilizing a different bank for each loan.

2. Be honest.

Let your banker know when times are tough. Do not try to hide a situation because you believe it might mean they say ‘no.’ When they make those tough decisions, community bankers want to see you succeed.

3. Consider ideas from the banker.

You may have one idea of the type of loan or financing you need. However, your banker may have a better plan for you. Work together as a team to ensure the best possible outcomes.

4. Communicate frequently.

Share an update with your banker. Do not just stop in at renewal time. Let them know how things are going good or bad so they can help you make a better decision at renewal time.

5. Provide all the information.

Without a holistic view, the banker cannot provide the best recommendations to suit your needs. Mr. Schmaderer compared banking to going to the doctor. If you do not share all your symptoms, you may not get the correct diagnosis.

6. Invite your banker to see the operation.

Allowing your banker onsite improves communication, transparency, and allows them to see the situations and circumstances you are describing. According to Mr. Schmaderer, they love to get out from behind their desks and get some boots on the ground, firsthand information.

Mr. John Schmaderer says that the better your relationship with the banker, the more likely the banker will be to say yes and approve financing. Being a community and relational bank, they like to know how their work is impacting the agricultural operations they serve.

Concluding thoughts on banking in agriculture

In summary, for our cattle operations to be successful and sustainable well into the future, we need to understand our resources. Beyond that it will be key that we have open and honest communication with our family and business partners as we tackle the challenges ahead. Laying out clear detailed plans about how we can understand and utilize our resources is key when banking in agriculture. Then, executing those plans will ensure our persistence in rural Nebraska well into the future.

“I’m thankful to live and work in the greatest cattle production state in the world. So, we are very blessed for that. But, there is more out there for us. We should take advantage of resources that the world gives us today. That is the only way the next generation will still be out here.” – Jon Schmaderer, Tri-County Bank President.

Originally Published in Progressive Forage December 2023.