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Using field data to offer customized bank loans

Agronomists have been using field data to help farmers make better agronomic decisions, now a farmer’s banker can use that same data to make better decisions around lending.

Farmers Edge, a company that provides a digital farm management platform, have partnered with credit unions in Manitoba to allow lenders to offer customized loans based off each grower’s unique field data. The model will allow bankers to consider progressive farming practices and operation performance – not just equity and yields – when crafting financing options.

Customers of a partnering credit union and Farmers Edge will be able to make use of this new approach to lending. For credit union customers not currently using Farmers Edge’s FarmCommand platform, they may be referred to the platform. Adopting the digital platform will allow their loan officer to have better visibility of the operation they’re working with, if the producer chooses to share that data when discussing financing.

The credit unions and financial institutions involved did not provide any comments to the media.

FarmCommand is a field-level risk management platform that integrates data from on-farm weather stations, telematic devices, in-field sensors and daily satellite imagery. It also allows a grower to compare their operation with other operations in the area. However, the data is anonymous and aggregated so it’s no different from comparing your yield to a provincial yield average but on a more local level. The platform costs, depending on which plan is selected, anywhere from $1.50 to $6.00 per acre.

“What the banks want to know is, how do the farms I’m lending to stack up? Where do these farmers stack on yields, on profitability?” explains Wade Barnes, CEO and co-founder of Farmers Edge. Barnes says it’s no different than farmers gathering at a coffee shop to compare practices, especially when the practice could make an impact on the bottom line.

“For the banks, a real opportunity is that if you can suddenly show you have your ‘A’ farmers, your ‘B’ farmers, and your ‘C’ farmers, and if you can move the C’s and B’s to an A, suddenly the risk on your portfolio goes way down,” Barnes says.

“In order to get an operating line, you have to have crop insurance. And I think that the crop insurance product is built for an average, it’s not built for the A’s [farmers], it’s probably not built for the B’s, but for the B-‘s. And if you’re an A farmer, and it doesn’t work for you, you don’t have much choice but to accept that crop insurance to get a bank loan. And in this day and age, that [process] is ripe for disruption,” Barnes says.

Investing in good operators

Barnes said choosing to use the platform is still up to the grower but it allows for a different relationship with a lender.

For example, if a producer approaches their bank asking for a loan for a new planter so they can finish planting during an optimum seeding week, the bank might hesitate. Given today’s lending conditions and uncertainty in the agriculture industry due to ongoing trade issues, the bank might view a big investment as a risky request. However, if the grower can show through data that planting within a certain week has been proven to increase yields by 30 per cent in their area, then there’s some evidence that there’s a return on investment. The banker, then, would be more likely to offer a loan or increase the operating line. While the data can help support, producers know that there are still elements out of their control.

In the U.S., Barnes says he sees banks pulling back their lending and this is putting farmers in a tight spot where they can’t execute on some decisions. If banks can see how an operation stacks up to their area, the financing can be more tailored to an individual grower.

“If you get better lending, you can get better insurance, and farmers are just going to do better,” Barnes says.

Farmers Edge is currently working with credit unions in Manitoba but hopes to eventually expand into other provinces.

Benefits to young farmers

A field data driven approach will allow younger farmers with lower amounts of equity to be considered on more equal levels.

Most loans are currently based on how much equity a producer has, how much farmland they own, how much farm equipment they can sell, and to some extent, a farm’s reputation in the community. “Banks and credit unions don’t really know if the farmer is a good farmer,” Barnes says. “There’s a significant amount of pressure on the younger farmers that are best in class operators, but nobody really cares whether they’re a good operator or not. They care about how they sit on the balance sheet.”

The field data will allow a banker to know that a farmer is making all the right decisions and they’re the “best in class.” Barnes explains that the new approach will give banks and credit unions the ability to provide credit differently than what they’re normally comfortable with.

So for next generation farmers who can’t afford to buy the farm, but they’re great operators, their performance can make an impact on their financial management. Focusing on operation performance, not just yields, allows for a more holistic approach.

“It’s no different than what happens in sports today. Sports teams make decisions based on analytics, not only how many goals a player scores,” Barnes says.

Data protection

No one has access to a producer’s data except for the producer within this platform-credit union partnership.

“Now the biggest thing for the grower is: it’s their data, their information, and it’s their decision who they choose to work with,” Barnes explains.

FarmCommand data is anonymous and aggregated, so when you compare within your area you are not viewing any individual information. A grower would be able to see how their data stacks up with producers in the area, but their banker won’t see it unless the grower chooses to share the benchmarking data.