USDA Farm Loan Tools: An Option for Contract Livestock Production Growth

USDA Farm Loan Tools: An Option for Contract Livestock Production Growth

Story Provided by Farm Service Agency | Photos Provided by AFAN | Published in Pork Talk July/August 2017 Issue
Zach Oquist, with Greg Ibach, Director of the Nebraska Department of Agriculture

Three years ago, 21-year-old Zach Oquist was back on the family farm near Stromsburg, raising crops after spending two years at Chadron State College playing football and studying physical therapy. He knew at the time that he wanted to continue to farm, though, and he knew he wanted to be his own boss. So, he started to look for additional avenues to diversify and grow his income.

I didn’t want to work for anybody, and I told my Dad I wanted to do it on my own, Zach said.

Zach’s father, who has always raised hogs, had just signed a contract with an integrator to custom-feed pigs to market weight. Zach said he started to do some research into contract hog production and decided it was the rightmove for him as well. He proceeded to find a piece of ground for his barn.

For financing, he stopped in at a local bank. While they were extremely helpful and encouraging, Zach said, they also said they couldn’t finance a loan of the size he needed on their own.

That is where the USDA Nebraska Farm Service Agency (FSA) entered the picture. As a federal government agency, the Nebraska FSA has a role in helping farmers and ranchers grow and thrive in the state, working hand-in-hand with the local lending community along the way. Zach said he was able to secure a Direct Farm Ownership loan with the Nebraska FSA and an FSA Guaranteed Farm Ownership loan with his local bank.

The FSA offers a host of valuable farm loan programs. But as Nebraska FSA Farm Loan Chief Mark Wilke describes them, the Direct and Guaranteed Farm Ownership Loan programs often are the best tools for producers who are looking to finance facilities associated with contract livestock production.

Nebraska FSA Farm Loan Chief Mark Wilke

We consider ourselves as partners, both for the producers and the local lenders, Wilke said. We can help producers gain the capital they need to build through the direct and guaranteed loan programs, while providing local lenders assurance on the loans they are making to producers through the guaranteed program. It’s a win-win.

Todd Johnson, the assistant vice president of Citizens State Bank in Friend, said over the past couple of years he has seen more producers looking at contract livestock production as a way to diversify their income. Some of those folks, he said, are new to livestock production, so there is some uncertainty for the bank.

Even though they have been in and around farming all their lives, this would be new to them, so there is a certain amount of risk, Johnson said. It depends on the situation, but most of the time we see prospective borrowers without enough equity to make a down payment. The guaranteed loan program is crucial to us to help with collateral.

Now 24 years old, Zach said he doesn’t know whether he’d have been able to put up the hog barn three years ago without the FSA’s direct and guaranteed loans he received.

They (FSA) sure made it a lot easier. I’d have had to jump through additional hoops to get funding from another source, he said.

The FSA loan application process itself was easy as well, Zach said. Of course there is paperwork. It wasn’t too hard though. I was 21 when I did it, fresh out of college.

Wilke said FSA farm loan staff generally will start a conversation with potential customers by asking them whether they already have a lender and have already talked to a livestock integrator. Neither is a requirement to have ahead of time, but it provides a good launching point for the conversation, he said. FSA staff also will cover basic eligibility, such as whether the customer has an acceptable credit history and has participated in the business of operating a farm. Other items to talk about include whether a site has been identified, what the livestock integrator’s contract terms look like and how those terms might affect cash flow/feasibility.

Bankers, too, are willing to help customers think through all their options. Johnson, with Citizens State Bank, said they want their borrowers to have a solid plan. My advice would be that first and foremost, you should have a business plan and have it be as detailed as you can get it, he said.

Johnson said there will always be wrinkles and unplanned expenses that pop up, but a good business plan acknowledges that potential and will help the producer meet those challenges and adapt through the tough times.

Wilke notes that those interested in contract livestock production shouldn’t be intimidated by the questions loan staff may ask.

The first step is really just to have a conversation, he said. The overall goal is to help the producer be successful and grow Nebraska agriculture.

There is tremendous pride from the agricultural community as Zach begins raising and caring for pigs

Nebraska FSA Farm Loan Facts at a Glance for Livestock Production Opportunities:

Direct Farm Ownership: $300,000 max; rate based on agency borrowing cost; term up to 40 years; used to purchase a farm, construct buildings or other capital improvements, pay closing costs

Guaranteed Farm Ownership: $1,399,000 max; rate determined by lender; term up to 40 years; used for same purposes as Direct Farm Ownership, except also may be used to refinance debt

Direct Operating: $300,000 max; rate based on agency borrowing cost; term from one to seven years; used to purchase livestock, poultry, equipment, feed, seed, farm chemicals and supplies

Guaranteed Operating: $1,399,000 max; rate determined by lender; term from one to seven years; used for same purposes as Direct Operating

(For a summary listing of all FSA farm loan programming, visit: https://www.fsa.usda.gov/news-room/fact-sheets/ and look for Farm Loan Information Chart under the Loans section.)

Nebraska FSA has 71 office locations across the state, 23 of which are farm loan centers. Interested producers should contact the farm loan staff at any of these 23 locations to discuss their financing needs and obtain additional information about FSA loan programs. To find a location near you, go to: https://offices.usda.gov/.