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. Jon Schmaderer, president of Tri-County Bank, expressed in a recent 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 Schmaderer’s father, Donald Schmaderer, the chairman of Tri-County Bank, at the Sandhills Ranch Expo. 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. So, I followed up with an interview with his son to learn more about what producers can gain from our services as well as provide a banker’s perspective of cattle operations.
More than a lifestyle
Of course, we at Ward Laboratories 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 share that belief in our services.
Jon Schmaderer pointed out that the data we provide help 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," said Schmaderer. "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.”
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 and working the land and cattle and also spending time in the office creating and managing a plan will be successful at growing and sustaining their operations over time.
When times are tough
Over the past couple of years, cattlemen have been faced with difficult circumstances brought on by drought and inflation. To endure through these times, producers should have a plan, a backup plan and a disaster recovery plan. Remaining flexible when costs increase and having options is key during difficult times, all of which hinge on understanding your resources.
When it comes time to renew loans, expense management really comes into play. This year, 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 to persist through difficult economic circumstances. Schmaderer recommended 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,” said Schmaderer.
Further, when operations are going well and obstacles such as inflation and drought are not so prevalent, Schmaderer recommends strategic debt management and considering taxes. He said if you are paying taxes, it is a good thing, and it 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 are family-owned and operated. Similarly, Tri-County Bank is a fourth-generation family-operated community bank. 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 their 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 ag 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,” said Schmaderer.
To the younger generation, Schmaderer said, do not listen to the negativity. There are many opportunities for us here in 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. Ward would advise young producers similarly, having gone on record as encouraging young producers to add enterprises, grow and hire more people to revive rural communities.
Building a good relationship with your banker
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. Schmaderer said 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 will 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. 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 him or her to see the situations and circumstances you are describing. According to Schmaderer, bankers love to get out from behind their desks and get some boots-on-the-ground, firsthand information.
Schmaderer also said 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
In summary, for our ag 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. Lay out clear, detailed plans about how we can understand and utilize our resources. Then executing those plans will ensure our persistence in rural America well into the future.
As Schmaderer said, “There is more out there for us. We should take advantage of the resources that the world gives us today. That is the only way the next generation will still be out here.”
