One day in 1980, Dave Hinman offered the keys for his hog operation to his lender. His lender was suggesting that he totally liquidate his operation. Hinman's not-so-subtle suggestion was that his lender should plan to do the chores that night.
"I had my banker on a pedestal as my financial advisor and thought he was looking out for my best interest," says Hinman. "I finally realized he was not looking out for me; he was looking out to cover his hind-end during a rough time."
In fact, Hinman's hog operation has grown from less than 20 sows when he started farming in 1976 (after some years teaching vocational agriculture) to an 800-sow, farrow-to-finish operation called Jen-Rae Pork Farm, St. Ansgar, IA.
Hinman has changed lenders a couple of times, but has never put another on a pedestal. "Instead," he says, "I now look at them as an 'equal' and part of my team."
Recently, Hinman and his lender have had some dirt-under-the-fingernails experience to test their commitment. Both are emerging healthier.
"We just got done spending $750,000 to upgrade our farrowing and gestation facilities with all shower-in, shower-out, all biosecurity," he explains. Soon after, signals started popping up telling Hinman it was time to depopulate and repopulate.
The plan meant no market hogs sold from January to June. In a time when his long-term plan called for full production - selling 300 market hogs/week - he was now projecting a $200,000 to $250,000 loss of cash flow.
That's where the power of a strong relationship with a lender shines, according to Hinman.
"A good lender is one who is an advocate for you in that banking arena," says Hinman. "He's the guy I have to rely on to take a bad situation, like repopulation, to a bank board, stand up for me, argue my case, and win."
The Iowa producer describes his lender's reaction to the repopulation idea this way: "It's not going to make you look good in the short run. But you need to do it to be competitive for the next 10 years."
He will loan what it takes to make up the lost cash flow and provide Hinman with a plan for the loan to be paid off over the next two years.
Being Hinman's lender probably isn't the easiest job you could ever have. He demands a lot from his lender - and of himself. This list of lender criteria was gleaned from his comments:
* It is absolutely essential that the chemistry between you and your lending officer is impeccable. "We both have to be on the same page in what we are doing, in both the production and financial arenas," he says.
* The best lending officers not only have a farm background, but they have a knowledge of farming that goes deep enough to know that nature can throw you a curve ball and that things beyond your control can cause problems.
* "I like to see the loan officer be an aggressive, hard-working lender," Hinman says.
* He wants his lenders to have a sincere desire to nudge, to help make critical decisions based on a study of the records and projections. "The idea is to make this as viable a financial entity as we can, for both me and his bank, so that everybody gains," he adds.
* A lender must understand the hog business today - worldwide.
* A lender needs to be able to help us make educated decisions. "We study a change first, present it to the banker and he studies it. He brings back his figures and ideas, we study it together and try to make an intelligent decision," he explains.
You have to be able to talk this good lender's language, says Hinman. And, you have to give them all the necessary information they need, because they have bank examiners looking over their shoulders.
"We learned we had to do monthly profit and loss statements and quarterly net worth statements," says Hinman. "By 1990, when we were borrowing to put up finishing buildings, we had five years of track records.
"It was amazing the caliber of lender we were able to attract to our operation," he explains. "They weren't just willing to provide all our financing, they wanted to!"
Finally, Hinman adds, "I used to teach that 'man' was the most important part of management. I now feel that 'man' is the most important part of the financing equation, both from the borrower and the lender sides."--L
The old picture of a glass-eyed banker looking down at you from his high-backed, leather chair is an image from the past for today's modern pork producers. Today, it's a friendlier atmosphere; more like a partnership of helping each other.
In the first place, the loan officer is likely to come to you rather than you going to him.
Second, he probably wants your business as much as you want the money he can provide.
At Farm Credit Services of Southern Minnesota, in fact, the loan officer is called a 'financial services executive' because that better fits the description of what he/she does and what he/she is, says Don Farm, vice president of commercial lending. He supervises eight financial services executives.
"We take care of nearly all the client needs right in their offices on the farm," Farm explains. "My guys are in their own office only about one day a week."
Technology makes that possible. All of them are armed with laptop computers, car phones, beepers, pagers and anything else that will keep them in touch easily. They have voice mail on their office phones and car phones.
"We make sure their clients know those phone numbers so they can access the financial services executives anytime they need to," Farm says.
It's a five-hour drive from one end of the territory to the other. Home base is in the middle - at Mankato.
"With fax machines, computers, and e-mail, being available whenever needed, we don't need to be on the client's doorstep," he says. "With all the tools available, we can be there quick one way or another, anytime we need to be."
"We spend a lot of time working to be industry insiders," Farm says. "The financial services executives go to major pork conferences, to veterinary clinics and to whatever meetings they need to in order to learn about the industry so that, when they meet with a client, they understand the industry and what is going on in it.
"When producers talk 'pigspeak,' we understand what they're saying," he adds.
The financial services executives also serve as integrators. "We try to know all the people our clients may want to, or need to, talk with and work with. If they are looking for finishing barns, for example, we help put them together with finish barn programs and help them find potential contractors."
With a database of about 9,000 producers, Farm explains that they can do a lot of peer group comparisons - with complete confidentiality.
In a week - or even a single day - Farm says a loan officer may be talking with clients about their future plans and how they can stay competitive. That may include feed mill analysis, contract grower agreements, packer contracts and so on, he adds.
"Our guys have the advantage of seeing a lot of operations," he says. "If we see somebody doing something a little different, we ask a lot of questions about it. The more we see, the more we learn, the better job we can do for our clients."
Those are the keys, he believes, to being the kind of lender pork producers of the 1990s need to move strongly into the next century.