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AgStar announces earnings

By Janet Kubat Willette
jkubat@agrinews.com

Date Modified: 08/21/2013 7:48 AM

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GILFILLAN, Minn. — The balance sheets of crop farmers are strong, but continued strength depends on what happens with the crop now in the field, says Paul DeBriyn.

DeBriyn, president and CEO of AgStar Financial Services, stopped at Farmfest last week. The southeastern part of the state was set back by 18 inches of snow on May 2 and some crops in southwestern Minnesota are showing drought stress. In general, the crops on the east side of Interstate 35 are further behind and look worse than crops on the west side of I-35.

Dairy farming hasn't been as profitable this year as last, with profits in the $1 to $3 per hundredweight range, he said. Variability from farm-to-farm has increased. DeBriyn said more dairy farmers are locking in their margins using forward contracting.

Pork producers are also using contracting as a risk management tool, with most AgStar swine clients locking in their inputs and outputs through the first quarter or more of next year.

He referenced a quote from Mark Greenwood, an AgStar vice president, in Bloomberg.

"Some AgStar clients have already locked in prices for 2014 because they're seeing profits of about $15 a head, using risk management," Greenwood was quoted as saying in Bloomberg. "Farmers have increased hedging after losing an average of $25 a head from 2008 to 2009."

DeBriyn said the pork industry is boosted by strong exports and production kept in check by disease. PRRS and porcine epidemic diarrhea virus are impacting production.

The grain side is using forward contracting the least this year, which is a reversal of the past. DeBriyn suspects that reflects producers wariness of locking in prices only to get burned when prices increase at harvest. Producers who didn't lock in prices sold their crops for more money that producers who forward contracted.

Rising land prices seemed to fuel exuberance in the land market and DeBriyn said that appears to be cooling slightly. The most recent land sale price he heard was $9,000 an acre in Jackson County.

He encourages producers to keep an eye on interest rates if they are going to buy land. Ten-year treasury notes, which 30-year mortgages are based upon, are up 1 percent in the last year.

If buying land now, lock in costs, DeBriyn said. That way you know what your costs will be five, 10 or 15 years down the road.

Rates are also going to rise on the short-term side, but for now the Federal Reserve continues to pump money into the economy to keep short-term interest rates low.

AgStar Financial Services itself is having a banner year.

The company reported net after-tax earnings of $49.4 million for mid-year ending June 30, 2013, a increase of $933,000 over last year's first half performance.

"Increased earnings are the result of growth in loan volume in our home mortgage, rural capital network and correspondent banking sectors," DeBriyn said. "Additionally, we continue to make improvements in credit quality, which has contributed to our strong results this year."

The company's mid-year performance is nearly 15 percent higher than the projected level.

At the same time, client satisfaction and customer loyalty are at record levels, DeBriyn said.

AgStar Financial Services is based in Mankato and employs more than 600 people to serve clients in 69 counties in Minnesota and northwest Wisconsin.