Podcast Episode 63

A Banker’s Perspective on Water Management

With Guests:
  • Jacob Jenniges of Integrity Bank Plus, Branch President
  • Karl Guetter, Farmer and Agricultural Segment Lead of Prinsco

What does financial health look like in agriculture? Jamie sits down to talk ag lending with Jacob Jenniges, Integrity Bank Branch President, and Karl Guetter, Prinsco’s Agricultural Segment Lead and farmer. What are the current trends, and how can farmers get the most out of what they already have? From land prices to investments that will never depreciate, tax planning, and building wealth in rural America, Jamie, Jacob, and Karl hash it out in this episode.

Episode 63 | 46 min
Well-drained land is worth more, let’s remember that. If you put drainage on your ground, you improve the value of that ground. So if your goal is to leave that farm to your kids, then you help them... That’s an investment that never goes away, ever.
— Jake Jenniges

Guest Bios

Jacob Jenniges

Jacob Jenniges is the branch president of Integrity Bank Plus in Walnut Grove, MN. He has been with the bank for 15 years and is an active member of the BankIn Minnesota Ag Committee. Jacob is knowledgeable about numerous agriculture loan programs offered by the USDA, Farmer Mac, RFA and Ag BMP. He currently services a loan portfolio that ranges from $20 million to $23 million dollars.

Karl Guetter

Karl Guetter is Prinsco’s Agricultural Segment Lead and an active farmer in South Central Minnesota.

Jamie (00:02):
This is The Water Table.

Speaker 1 (00:05):
A chance to hear the agricultural side of these issues.

Jamie (00:09):
A place for people to go find information and education.

Speaker 2 (00:13):
Water management is just going to become even more critical into the future.

Jamie (00:17):
How misunderstood what we do is.

Speaker 1 (00:22):
I would encourage people to open their minds and listen to this dialogue.

Jamie (00:31):
Well, welcome back to The Water Table podcast. Today, I have a couple guests with me. I’ve Karl Guetter from Prinsco. He is the agricultural segment lead. And Jake Jenniges from Integrity Bank Plus in Walnut Grove in Wabasso, Minnesota. And we just want to visit for a little while about agricultural lending and what Jake has seen out in the market. He deals with the agricultural community every day and wanted to talk about that and how it relates to drainage. So welcome to the podcast guys.

Karl Guetter (01:02):
Thank you.

Jake Jenniges (01:03):
Thanks Jamie.

Jamie (01:04):
So Karl, I know you’ve been with me before, and you’re pretty invested in agriculture and in this whole drainage thing. And we’ve been talking a lot about getting a lender on and how we think that’s one little piece we’ve missed over time here. And you’ve worked with Jake personally and have known him, even rural area growing up together. And so happy that you were able to convince Jake to come on here late in the fall, his busy time. But let’s just chat a little bit about what you guys are seeing in this market. Been talking a lot this fall just about how remarkable it really was of a year from, I’ve used words like schizophrenic and everything else around just crazy wet in the spring and difficult and challenged to get it in and then to where every single day was perfect really and great growing season, great heat units. And then really, the crop came out early.

And here we’re recording this mid-November, but gotten some snow. It’s gotten cold. And I just thought a couple days ago, if we would’ve had three weeks stretch in the summer of 70 degrees, the crop probably isn’t out yet right now. And if that would’ve happened and now we’re getting snow and cold, and what kind of challenges would’ve occurred then? We’ll never know. But that’s how I want to connect this, was back to what is the importance of drainage and how do you, as a lender, talk to your customers? And let’s just get into that conversation a little bit. Talk about the financial health of farmers as today and just mention how the year went. But where are we sitting with financial health?

Jake Jenniges (02:57):
Jamie, I don’t know. Like I said earlier when we were talking before we came on, this is going to be my 15th year this next year being an Ag lender. And this is easily the most liquid, I think, the producers I work with have ever been. A lot of cash, a lot of money they received from the government during the COVID time. Let’s keep that in mind. That’s important to understand. PPP loans, some idle loans, CFAP. There’s lots of acronyms we could throw out there that were just basically a deposit in everyone’s checking account. So that’s a big part of it still. That being said, historic markets this year, if you got it right, you could potentially have sold your ’21 crop and your ’22 crop for maybe the best you might ever get in your life. So very liquid, lots of cash.

Definitely a situation, I think, where guys are looking to invest that money the right way. I think at this point in my career, this is the third time I’ve seen prices like this, the third time it’s gone up for me and my time. I’ve learned that lenders turn into more advisors at this point than anything. How do you spend your money? What’s the best investment? What’s the most important? Important to understand everyone’s situation in their life determines that. Some guys can use the money to do some tiling, upgrade equipment. Some guys, their wife wants a new house. That’s just what it is for everyone, so they have to determine that on their own. And very liquid, not difficult to be a Ag lender right now as far as getting the repayment. That being said, I think we all know that there’s going to come a time, feels like there might be a perfect storm brewing in Ag lending for me.

We got interest rates that are going high, going up. Maybe someone my age, Karl’s age or younger, highest interest rates they’ll have ever experienced in their farming life. There’s a big mental hurdle there they have to get past the older guys. They still think seven, eight percent’s good because at some point in their life, they probably paid 18. It’s not the case for the younger generation. And that being said, those are the people borrowing the money. The older generation has cash. They don’t potentially need to borrow the money. So it’s going to be that with the potential. Obviously, inputs are going up. Inputs are ever increasing as long as the price stays high, everyone works to get what they can out of that situation. So I’ve been trying to help the borrowers. My customers understand that the way you invest your money now will determine how your operation performs when the inputs are too high for what you can get.

Karl Guetter (05:39):
So I’m curious, Jake, as guys come in your office. Jamie mentioned earlier that we’ve got to harvest out early, maybe a little bit left in your southern part of your territory you cover, but for the most part it’s done. As these guys are coming in, they’re talking to you about tax planning, they’re talking to you about what they’re going to spend money on, obviously. How has that changed over the past five, 10 years? You’ve been in the business about 15 years. About how does it change in what they’re asking for? Do you see trends at the end of each year? Sometimes guys go to, like you said, towards new equipment, sometimes it’s drainage, right?

Jake Jenniges (06:12):
Well, I definitely think over my time here, drainage has become one of the top of the list that people want to invest in. And as a lender who has seen that be, arguably never the wrong decision, to be completely honest, unless you don’t have the money. But then that’s my job to tell them they shouldn’t do it, right? But if you have the funds to invest in that, I always think that’s the right call. Drainage is one of the only long term income producing decisions that a farmer can make that can basically last their entire career. And I would argue in my opinion.

And whether corn is worth $3 or $7 guys, you still want to get as much as you can. I don’t think there’s any doubt about that, right? And drainage is top of the list of things that can get you more of what you have to sell. So yes Karl, I agree. Right now, the land price is tough. Tough for a young farmer, especially. Old farmers maybe don’t want to be in that game anymore either to come in and say that they want to invest in some $14,000 per acre land.

Karl Guetter (07:17):
It’s almost become untouchable.

Jake Jenniges (07:19):
It’s almost become untouchable. I completely agree. There’s still some family deals out there I’ve done. But that being said, we really try to focus on, and I know that’s going to be a focus for us this year, is how can we get as much as we can out of what we have instead of adding more drainage. Number one on the list for that stuff. Equipment can do that too. You get some better equipment, you plant it better, you harvest it better. All that stuff is really important. But drainage is a one thing also. What do we have in a Ag world to control weather? What do we have for that? We have crop insurance. I would argue is one. And then drainage I think is probably the second thing. I don’t know what else we can do to try to control the weather. That’s because that’s the biggest variable that we always deal with.

Obviously, government’s a little bit in there too, but still we have weather, we have tile and we have crop insurance. So you can control what you price your grain for. Now, you can’t control what the price is but you can control the decision. You can control when you plant it, how much you plant, the population. You can control your fertilizer rates. You can control all that but you cannot control whether or not it rains too much or not enough. So I’ve always felt like drainage was the one way you can mitigate that ultimate risk of weather just a little bit.

Karl Guetter (08:37):
Talking about $14,000 land, and we’ve all probably seen this social media post last week, or maybe it was earlier this week about the $30,000 acre stuff that sold in Iowa. Pretty soon, they’re going to have to start selling this stuff by the square foot. But talking about $14,000+ land, how does a agricultural lending bank like yourselves, there’s got to be a lot of cash, right? Because you’re only going to lend so much money for $14,000 land. Do you guys factor in drainage done as far as the amount of security you’re going to require on that purchase?

Jake Jenniges (09:07):
So what happened in the 80s, and I can’t talk much about the 80s because I was five years old when the Twins won the first world series. But that being said in the 80s, the banks learned right there. A lot of people were upside down in the land deals. That was a big thing in the 80s. I’ve been warned by that a lot of the old lenders when I first… I’m actually in the part of my career lending where I’m the oldest young guy. I’ve been there 15 years. Now, there’s some guys younger than me. The guys who were always warning me when I was the youngest guy, they’re not there anymore. They’ve retired and moved on. But they were warning, was always about land deals because that’s where they got everyone in trouble.

So a lot of institutions, they have a per acre limit that they’ll borrow, Karl. It’s not really a loan to value thing. So you can borrow a per acre. You can help that out by having cash. Got to have some cash or you can use the equity you currently have in land. You may have free and clear to make those loans. The question everyone has to ask themselves is do I want to put a mortgage on this section that I have, own, so that I can get another piece? Because you can spread that out, that risk out over additional acres, you can do that. But the risk you’re taking is interesting.

So like I said before, I would feel like I’ve made real estate mortgage refinances for people to tile 300 acres at one time, and those people didn’t buy land with their equity. They improved what they had, and they’ve been successful. Every bank orders an appraisal, right, Karl? To your point about the value of the land. When you have a per acre limit right now of way under $14,000, it doesn’t necessarily matter what the loan to value is because you can’t get there. So a lot of cash. That’s why I think you see the investing people are pushing that a little bit. I think at a lot of sales from what I’ve been hearing.

Just two days ago I was in Mankato for, I’m a big part of the bank in Minnesota, is the community bank association for the state. So I’m on the aid committee there and we have a bunch of lenders came and we talked about it, about land and stuff and they all said the same thing. It’s just really hard for especially a young farmer to have any equity or cash to do that. So improving what you have right now, I would argue is the way to go. And for some people, improving what they have is drainage. Like I said before, for some people it’s getting that one piece of tillage equipment you need to make it better in the spring. So everyone’s different. Everyone’s different. Yeah.

Jamie (11:39):
I want to just touch back on, you talked about, and I’ve used that a lot. My career is whether it’s $7 corn or $3 corn, both need drainage and both are… It’s [inaudible 00:11:51] both times. And that’s an interesting argument because you’re putting more bushels in the bin either way. But $3 corn over our careers has always been somewhere in that range is the break even. Now it’s probably five, five and a half with the imports-

Jake Jenniges (12:07):
Yeah, I think it’s closer to that.

Jamie (12:08):
But talking about the historical $3 level, I’ve always encouraged people, yeah, you might not think you can afford it right now, but this break even is staying in business or not. And if that extra 20, 30% in the bins is what helps you stay in business, that’s as important as making more money when it was $7.

Karl Guetter (12:35):
I don’t think there’s any doubt that well drained land is worth more too. Let’s remember that. You put some drainage on your ground, you improve the value of that ground. So if your goal is to leave the farm to your kid, you help them. And let’s keep that in mind. That’s an investment that never goes away, ever. I can invest in some equipment that will depreciate, that will depreciate and it won’t be there someday potentially or worth as much. I don’t think that the value of drainage ever goes away.

Jamie (13:06):
Right. Right. And the value in what the land is worth for appraisal or for resale, but then also, you’re paying for it every year in your increased yield. So, yeah. We talked about that over the years. Just a lot too around what I do and what Karl does at Prinsco when we’re manufacturing and selling pipe, it’s a rewarding job to have. We don’t work for a toy manufacturer that sells a toy in the Christmas time and by March 1st that’s broke anyway.

Karl Guetter (13:42):
Yeah. If it makes it that long. That’s pretty good.

Jamie (13:46):
But what we do is we sell stuff that builds wealth in rural-

Karl Guetter (13:49):
Right? Absolutely.

Jamie (13:49):
And we all three live in rural areas. I just think you live in even more rural but-

Karl Guetter (13:56):
… More rural.

Jamie (13:58):
But it builds wealth in rural America, which when we’ve all grown up in rural America, that’s an important thing that we’re all passionate about, is how do we continue to leave what we have, not only our farms but our communities better. Better than-

Jake Jenniges (14:14):
Absolutely right. Right. The average size farm is ever increasing. I don’t feel like that’s probably a positive for small towns. Less farmers means less families, means less kids in the school, means less people, less people equals less. It’s unfortunate, but that’s just the way it is. So to keep the smaller farms, I would argue right now they’re thriving but profitable so they can keep it in the family. Moving on to the next generation, which is the idea. Drainage is a good way to do that because the more you get, the more you have just like we talked about before. Just last year I was at a closing where a gentleman bought… I made the loan for a family that it was the grandma was in the room, her son, his son and that the borrower brought his kids. So there’s four generations in the room to buy an acreage that have been in the family for 100 years. That’s kind what you’re talking about I think, Jamie a little bit. Very rewarding. Very rewarding.

Jamie (15:17):
Yeah. Yeah. Just probably an off the cuff question for both of you guys, but South central Minnesota, what is the average size farm these days, just in your opinion?

Karl Guetter (15:28):
Oh well, that’s a tough one. You almost would’ve to break it down into smaller geographic areas because in Minnesota, in my opinion, Jake, you can tell me if you think it’s different, but in Minnesota there’s areas where you could probably, and maybe it’s as small as a half a county or a county, where you could probably say that number is still only 1200 acres. You could go to another area four counties away and it might double, right? So I think it’s tough, but if I had to say southern Minnesota, southwest, let’s say southwest Minnesota, I would say 16 to 1800 acres would still be the average.

Jake Jenniges (16:00):
I think that’s probably right. I think that’s fair. But Karl’s right, we have patches where I’m from that the family still live on all the farm sites, three different generations of families, they’re all farming together. And what’s the average size of that farm? Do you count all the acres together? Because they’re doing it together but they’re not all getting the income off of it. A lot of small farms I think, can benefit from working together just like anything else that’s smaller. If you want to compete with something that’s bigger, join forces, have been trying to say that for the last five to 10 years, good way to stay relevant is to share. Sometimes sharing’s hard to do in 2022 in America, but to share a combine doesn’t seem to be that hard for farmers. That’s really interesting. And they are competing but not really. Because they all want to see each other be successful, the smaller ones, in my opinion. But Karl’s right, I think it’s definitely 1500 acres I would say is the average size.

Karl Guetter (17:01):
Talk about working together and drainage from my experience over the last 20 some odd years is probably the hardest thing for guys to work together on. I’ve been part of many conversations and many debates, been through many meetings where one guy’s mad at the other one, right? Whiskey’s her drink and water’s her fight. That used to be the old wise tale. Do you ever get involved in those situations at the bank?

Jake Jenniges (17:24):
So I’ve heard about them, my involvement of that would be the guy sitting across the desk complaining and me listening. I would say that would be about my involvement with that. But I’ve seen it too. I’ve seen it too where people are just unwilling to allow someone to hook up. Right? I don’t understand it, but yeah, it’s a good point Karl.

Karl Guetter (17:50):
You still see that a lot?

Jake Jenniges (17:52):

Karl Guetter (17:52):

Jamie (17:53):
Yeah, it’s funny, I knew that was real when, I like to read fiction novels by a guy named John Sanford who, he writes these prey novels and they’re murder mystery, things that all happen in Minnesota, mostly in Twin Cities. But several years ago I opened up one of those and in the first 10 pages you’re reading and there’s South of Mankato, there’s a murder and you’re reading about it and the first clue that he gets is that there were two farmers fighting over a drainage main, hence they thought the one farmer killed the other guy. It ended up not being that. But the point is, here’s an author from Minneapolis that used that because he knew it resonated with, people already know this. It’s not something that people… When it comes to drainage rights outlet who has the authority or the easement rights to things because it makes what we’re talking about, if you don’t have that ability, your land’s worth less.

Jake Jenniges (18:55):
Yeah, absolutely right. Absolutely. Which means that then it’s also going to make you less money for as long as they’re unwilling to do it.

Jamie (19:03):
Do you see any attitude changes the last couple of years as land has really skyrocketed in value that people do funny things when they realize the value of something is a lot more than they were. So, at the bank level, are you helping consult people when they’re maybe not thinking clearly around…

Jake Jenniges (19:31):
Talking about land sales, Jamie?

Jamie (19:33):
Yeah, yeah. Or just how…

Jake Jenniges (19:35):
Well I felt like two or three years ago, four years ago maybe land was what, $6,000 an acre we’ll say. Which still is a lot. I’m not trying to belittle that by any means, but it really slowed down. Land sales had really slowed down. The next generation of people inheriting the land had just come off of $10,000 an acre land. The idea of, I’m going to hang onto this till it gets higher, did go away for a little bit. But now we’ve seen a lot of more land sales now since the price has gone up and there appears to continue to be willing buyers. I say this all the time, how can land be worth $14,000? And my answer always is, because someone wants to pay for it $14,000. I mean why can you sell brand new pickup for 80? It’s because someone wrote the check.

So until that attitude changes, and that isn’t going to change Jamie until corn’s not worse, until corn and soil… The value of our crop and even cattle is really good money making around, so that stuff goes down. We’re not going to see that change, the attitude of paying that much money. The investing people, a lot of people still had a lot of cash. You wouldn’t think they did after all that. But there was still cash out there. And like I said earlier, COVID got people some cash they didn’t expect. And what do you do with unexpected money normally? I got a basketball hoop for my kids but I didn’t buy land. But you know what I mean? You do something that you normally wouldn’t do. It’s very common when you have money you didn’t think you were going to get.

I do see that. It’s going to come to a halt, right? It’s got to happen and it will, there’ll be a time where it’s not worth as much as it is now. But what I’ve experienced that three times now, I’ve seen it go up and down, every time the floor is a little bit more right? I mean that’s happening to me. I think at one point the floor was $500 and then next time it was $1,500 an acre and then so forth and so on. The three times I’ve seen it, every time the floor is a little bit higher. So it will come to the point where the floor is going to be, I don’t know, $10,000 an acre. I think I really believe that in my career at the bank I’ll see that, where that’s just going to be a really good deal.

Jamie (21:59):
Yeah, that’s a good point. I think you’re right. Certainly personally, I haven’t been as close to it as either of you guys, but just seeing over the last 20 years is, I’ve paid attention and it, there’s been those cycles, but every time you’re not buying land for that low cycle 20 years ago, ever.

Jake Jenniges (22:19):
You could say the same of most inputs to be honest, right? You could say the same I think for seed genetics, fertilizer, things like that. The major inputs. I think you could say in my career, I’ve seen it, right? I used to put on my cash flow projections, when I started at the bank I put 160 bushels an acre and for some guys you were stretching it. Now if you don’t put 200, I would argue you’re stretching it because genetics have shown in dry and wet weather they can still perform.

Jamie (22:45):
Yeah. And now we got the challenge of inflation, which makes that hypersensitive around-

Jake Jenniges (22:51):
That’s for sure.

Jamie (22:52):
Yeah. So, interesting. Go ahead Karl.

Karl Guetter (22:57):
Jumping back into the lending side of the business and you mentioned earlier the conversations you have with farmers, to go back to drainage, are there tools that bankers need, lenders need to help them give better guidance to the growers around when they should and shouldn’t pull the trigger on spending money on?

Jake Jenniges (23:20):
That’s a really good question, Karl. I’ve never felt like it was my responsibility as a lender to understand the person’s farm, if that makes sense. I feel like that’s the farmer’s responsibility. It’s my responsibility to work the numbers and to help the farmer decide if it’s the right financial decision for him or her. Understanding drainage is important so you can have the conversations with the farmers, that’s important. It’s also important so you can understand the appraisals that you get that show if it’s good land, if it’s not good land, things like that.

That being said, I can’t think of anything that, off the top of my head, that could be provided for a lender because the lender’s not so focused, my main focus is going to be on the numbers. Can you afford the payment? Can you afford to spend the cash? If you spend this cash on this, where will you be 12 months from now? Things like that. I don’t think there’s any information that someone could provide me that would ever make me think putting in drainage would be a bad idea. How about that? I just don’t think because I’ve never seen it. I’ve never seen it not be the right decision.

Karl Guetter (24:28):

Jake Jenniges (24:29):
Because unless it’s put incorrectly, how could? It’s going to make you money.

Karl Guetter (24:36):
We just always think about that from our side of the desk because we live and breathe and think about it day in and day out. And sometimes, even in areas of Minnesota where you’d think God, everybody knows about drainage, you’ll still run to a person or a pocket of people that really aren’t really well versed on the topic yet. And it always surprises me.

Jake Jenniges (24:57):
I think [inaudible 00:24:58] drainage’s a big deal, right? Heavy ground, pretty heavy black dirt. I wouldn’t call it necessary because it’s not. Because plenty of people still grow their crop without it. But it’s to the point now where people have just seen and or heard the success of pointing it in where the understanding of it is, for the most part, I think in my time, 15 years at the bank, it’s changed dramatically. The understanding of the producers, it’s always on the tip of their tongue when they have cash, which isn’t every year. It isn’t every year. It sure is now, but it might not be two years from now. When cash is prevalent in farms is a great time to put drainage in. You can pay some cash down, you can lower that payment if you have to. There’s two ways to collateralize a loan at the bank.

You can make an unsecured loan, don’t get me wrong. But if you’re talking about a good drainage project, potentially, a bank isn’t going to unsecure that money. So you can use real estate, so you can stretch that payment out. You can get it if you want to. You can amortize that over 30 years if you really want to, if that’s what you have to do to make the payment work. I guess maybe that might make sense. But you can also use, if you have a good equipment line and you don’t have a lot against it, you can use that to collateralize a loan. But institutions are making those loans for five to seven years.

So if you’re talking about a good drainage project, five to seven year repayment that can get up there pretty high. So I guess back to my point of having the cash, now is a good time, right? Now is a good time to not have to have a payment for 30 years but still be able to do the project. But you have to choose to invest your cash in it a little bit. A good time I said, never in my life… I almost added a zero to a lot of the guys this year. It’s really, really something.

Jamie (26:43):
The other thing that just with this land price going up and we just don’t talk about it very much, it’s probably things people understand, but drainage was important to do when land was worth three or 4,000 bucks an acre. Now it’s worth 10 or $12,000. You’re getting the same return. But from the standpoint you’re getting roughly the same amount of bushel increase per acre, that doesn’t change. But if you could afford to do it when it was three or $4,000 an acre, you almost have to do it now.

Jake Jenniges (27:16):
Yeah. I think that there’s no doubt about it, but you have to get as much as you can. But also, if you have the cash, you have to improve your balance sheet the right way.

Jamie (27:24):
And I know when I pay attention to the farm sales in our area fairly close and just because I’m curious and interested and sometimes, you’ll get a farmer that’ll buy the property and won’t do a drainage project right away because maybe the farm fit really good with their operation. It was really close to everything they had or it joined, maybe they farmed the whole section now, whatever that is. But every time an investor buys that farm, it’s within 12 months they’re tiling, they’re doing a project and it’s because they see the value that they’re putting into that, they absolutely have to get the most back from it that they can in their investment.

Jake Jenniges (28:12):
I don’t think there’s any doubt about that. They’re trying to get the best return they can. What’s their return? Cash rent, right? Most producers are smart enough to pay as little as they can, I guess, is the right way to say it. So if you don’t have the best quality ground, so that’s what they’re doing. They also have the cash to do it. Keep that in mind, which is really, really important.

Jamie (28:37):

Karl Guetter (28:38):
Well you as a producer, you can’t risk anymore paying big dollars or more than you should for a piece of property just so you can get the opportunity to farm it. Because you got to think about the risk side on the other side, the APH, right? Your crop insurance, what that’s going to do. Bushels, funnel all the way down. That’s our game as a producer. We produce bushels.

Jake Jenniges (29:01):
Yeah, I don’t think that there’s any… Hopefully, the most lenders out there are making sure that the producers understand how it affects their entire operation. And I’m not talking about just buying land, I’m talking about cash rent land at the wrong number too, right? I mean there’s going to be some of that out there. At the meeting I was at on Tuesday, the gentleman who was talking about real estate, he thought it was going to be the average for the state, about 350 an acre on cash rent with a lot of numbers in the 400s.

Very similar to what happened the last time. Commodities were like this. Very similar. It’ll be interesting to see how long that stays up there when the commodity markets start going down. But it’s really important. It’s really important to understand, like Karl said, if you’re going to pay that much, you better make sure you’re going to get the bushels off of it and make sure that you can at a minimum, afford to repay and hopefully, make some money off those acres too.

Karl Guetter (29:58):
So switching directions a little bit right away from drainage little to Integrity Bank Plus. So you said you’re the oldest young guy?

Jake Jenniges (30:05):
Yeah. In lenders and I’m talking about in Ag lending in Minnesota. I feel like I’m right in the middle right now in my career.

Karl Guetter (30:13):
So I’ve worked with you guys at Integrity Bank since you had the old guys in and now you got the young crew there. And I was just curious, as I was thinking about our visit today, most companies, Prinsco, everyone else that deals in rural Minnesota or maybe across the entire country, struggles with employees, getting good young people. When I was thinking about your office, they’re all young almost.

Jake Jenniges (30:36):
Yeah, yeah. We’re lucky. We’ve done a really good job of actively finding people, I think was one thing. You also got to understand that the expectations of someone my age or younger at work are different. You can still be a productive employee if you have to leave because your kid’s sick or if you have to go coach your kid at basketball, Karl. I mean we talk about that all the time, allowing people to do that. I have also learned this, people my age or younger want to feel appreciated. They like when you tell them a good job. Looking in the mirror knowing you did a good job. I don’t know if that’s enough for the generation, my age or younger. It’s a little different. They’re different.

We’ve also done a good job with the bank though. We’ve updated it. We’ve tried to keep up to date on the products the bank can offer that the younger generation can understand. Take some pride in understanding, maybe other institutions in the area aren’t offering them. Try to not necessarily be the first person in line, but at the front of the line for things like that. Yeah, I’ve had the same staff in Walnut Grove now for five years, same six people. And it’s putting on a warm blanket every time you walk in the door. Everyone knows what they’re doing. It makes it easier. It makes it easier to go in there.

And the employment problem in our country, I would argue, I don’t know. It’s hard to read. I don’t see it going away. I don’t know what can happen for it to go away. Inflation is a bad thing for that part of it, I would argue too. Rates are going way up. The Fed is trying to stop this inflation, they’re going to go up again in December, at least 50 basis points. To my understanding, the Fed has said they might take them up again on January and February. We’ll see what the holiday sales are. That’ll have a lot to do with it. That’ll have a lot to do with the Fed. But I have a bad feeling that at some point here, people are going to start laying people off. I don’t see how that can happen. Because if Fed’s going to put a halt to all this stuff, they have to, else… I paid $7 for a head of lettuce the other day. Well, I should have ate the tacos without it.

Jamie (32:46):
I was thinking I needed more greens in my diet, but maybe not.

Jake Jenniges (32:52):
How about you guys? How about your inventory for the pipe and stuff, have you found that to be a challenger in this time or…

Karl Guetter (33:04):
On the pipe side of it was tight at certain times. It was tight in certain places. I was talking to one of our customers this morning just talking through how the fall has gone because in the north now, we’re slowing down.

Jake Jenniges (33:15):
Right. That makes sense.

Karl Guetter (33:16):
North where it’s even colder they’re seeing six, seven inches of frost already. But we were a little fortunate just because the crop didn’t all come out the same time now in areas.

Jake Jenniges (33:25):
Oh okay. Staggered a little bit.

Karl Guetter (33:27):
So we were able to, for the most part, keep up. Obviously, now that things are slowing down, in the north, our inventories will grow and stuff. But the plant managers did a fabulous job just ramping up or staffing up as we came into the busy season. So I don’t want to say it was easy.

Jake Jenniges (33:45):
Yeah, sure.

Karl Guetter (33:46):
But it felt almost easy in a lot of place. The guys did a good job. Fabulous.

Jake Jenniges (33:51):
Good. I know that I felt like this year I saw more drainage being installed while the crop was in the ground than I had in a lot of years past. Does that make sense to you? Or maybe they were just doing it on the fields I drove by every day. I don’t know.

Karl Guetter (34:06):
No, I think that’s accurate, for a couple of different reasons. For one, in parts of the country we had some prevent plant, but that’s not really in your neck of the woods. But even in your neck of the woods, I think producers, they know the value. We just talked about that for the last 20 minutes or at least most do. And they realize there’s only so many contractors.

Jake Jenniges (34:28):
Good point.

Karl Guetter (34:29):
So if they’re going to get the job done, they have to give a little. Right? And that’s been happening, I would say more and more specifically on mains. And then I would say, I saw more drainage on vegetable crops this year than I have in the past few. A lot of peas came out and tile went in. A lot of sweet corn came out and tile went in. So yeah, I would say summer installs was up again this year, and I think that’ll continue to some degree.

Jake Jenniges (34:56):

Jamie (34:56):
I think also just a dryer summer, being able to get into some areas that they thought if this thing turns and we get pretty wet again, it’s going to be tough to get into these areas that are nasty. So that’s part of it, I think too. This where, let’s go through the crop here because we have the opportunity right now, but they’re also weighing that against $7 corn, so…

Jake Jenniges (35:19):
It’s right. You’re right. And that’s why I asked the question.

Jamie (35:22):
And some of your area too I think, was probably of most of Minnesota had some of the more marginal crops just due to it, got that dry and we had a little drought down there.

Jake Jenniges (35:35):

Jamie (35:35):
They probably looking at it saying the crop isn’t that good anyway. Whereas some of these other areas and up in here in Western Minnesota where there was 220, 230 bushel corn probably didn’t see as much of that.

Jake Jenniges (35:49):
I think it’s also important to understand, Jamie, that a lot of people had cash that if they didn’t have the crop, they were still going to afford their bills and/or they had already paid for a lot of them. So it was easier maybe to make that decision to say, you know what, I can probably do this right now. I don’t know. Do they offer discounts to do that in the summer? Do the installers offer those companies? Do you get a discount to do that so that they can keep working or is that not a thing?

Karl Guetter (36:17):
I’m not sure I can answer that.

Jake Jenniges (36:17):
That’s fair.

Karl Guetter (36:18):
I think probably in places they do, but in general, I wouldn’t.

Jake Jenniges (36:22):
But I mean as far as I’m concerned, they could look at their balance sheet and say, “Hey, if I run over a little bit of my corn, I’m paying. I’m going to pay. So it don’t matter. So I’m going to get this done right now.” Because we said before, you need as much as you can get. I just don’t think that can be stressed enough to any producers to understand that the more you have, the better chance they have to pay.

Karl Guetter (36:47):
And the tax side of that. Right? Sometimes point you don’t know if you’re going to need the expense.

Jake Jenniges (36:51):
That’s right.

Karl Guetter (36:52):
Until after harvest. This year, even with the crop insurance spring price set, you knew.

Jake Jenniges (37:00):
And I think too, if you incur that expense that gives you options for your crop when you have it in the bin too. Expenses already been incurred. So you can choose to sell or not sell, choose to defer the money or not defer the money. It helps with the tax planning. Tax planning, big deal this year. Big deal. It’s a big deal every year. But we’re talking about having a crop last year that people sold historically, this year’s crop has got the potential to get sold historically, again. Yeah, tax planning, big deal.

Jamie (37:32):
Just curious, listening to you guys talk and years ago, going back to land values a little bit, but years ago, it seemed like the land would sell the highest right after harvest because people knew that’s where… They knew what kind of year they had, they could take a little bit more risk or if they had a good year. Is that continued or have we evolved beyond that from the standpoint of just how farmers think and how lenders lend? Any comments on that?

Karl Guetter (38:04):
I don’t have any data obviously. And I think it’d be interesting to track that to see if that still takes place. It doesn’t seem like it. In my mind, I think information travels so well today. You know where farm sales are all over the state. We know when they’re going to happen in Iowa, and we see the results of them in Iowa and then wherever else they sell. And information travels so well, people buy out of their geographic areas more today than what they did in the past. So I don’t think it’s just your local guys around you had a good crop, so therefore they will pay more. You see a 1031 exchange deal go down and someone has spend some money, he or she. And they’re going to go wherever they have to do it. So my gut would tell me no, but I’m not sure.

Jake Jenniges (38:53):
I think Karl’s right. I think part of it too is let’s think about the sellers here. They have tax implications for selling that land too. So the time they sell the land is really important. The number of people who do appraisals has diminished dramatically since I started at the bank. It should be a popular job, but it’s not because what you have to go through to get that license has changed that. So I think you’ve seen some earlier sales maybe to make sure people get it in the year they want to get it in for the seller’s tax implications. I know I’ve seen that the last three or four deals I’ve done, it’s been really big interested. The seller’s taxes. The seller’s taxes. This has to get done so the seller can tax plan. But when you’re talking about selling land for… I mean the numbers that people are buying them at, a lot of difference, a lot of benefit to being able to maybe spread it out between two years for taxes. I’m not an accountant, but I know that that is a big deal, big part of it.

Jamie (39:48):
And you think of, you’d mentioned earlier that you can go back 10 years, we had high land prices and we took that dip and land sales dried up, for lack of a better word. But in thinking through that, I don’t remember what year, if that was ’16 or when that was, but we had a big tax scare too of the tax policy changing and that did drive some land sales people wanting to… So, all those things, you can’t look out that far and know what’s going to happen in the future. But if that didn’t happen, there would’ve been even less sales.

Jake Jenniges (40:27):
Land sales are good. I understand that they’re good, but I mean the generation of ownership of land in this country is changing. The baby boomers, they’re going away, for a lack of a better way to explain it. The next generation is getting that land. A small percentage of that generation lives in our area, I would argue. My concern, and I’ve said this for the last 10 years, is that when the generation passes on, they leave it to their kids. Their kids aren’t from here. The relationship part of that cash rent that producer had with those farm owners, it has the potential just to be over and small farmers need relationship, lead relationships with their co-ops bank, with their, whoever it is, cash renters obviously, is a really important too.

So I’ll be honest, I do have a little concern with, can these acres stay in the hands of, what I would argue would be, at the community bank I work at, the people that will deal with us and what does that do to the communities and what does that do to all that? I hope I’m wrong, I really do. But the land ownership is changing hands, also driving some land sales. Some people can look at that and say, “Well, I’d rather have my money now than get $10,000 a year for cash rent.” They can make that decision as soon as they own it and more of them are owning it.

Jamie (41:56):
Yeah. It’s interesting what came to my mind as I was just listening to you talking around why do we live in rural America and what do we love about where we live in rural America? And I think we could throw out comments and we’d all agree, it’s where we grew up. We like small towns, we don’t want the hustle and bustle, all those things. But I think we probably would all agree, I certainly for me, one of the biggest, if not the biggest is the relationships. And that’s what you’re talking about, is the relationships that these farmers that farm the ground have with this retired farmer that they’ve maybe rented that land for 20 years. And the relationships, it’s what I enjoy about Prinsco and our agricultural side is, how we go to market and it’s just a really intensely close relationship with the farmer in some cases or with a drainage contractor. And you don’t get that in a big city.

It’s because of where we live, is we’re community based and where all of us, not just Prinsco, we’re community based and we want to have part of our enjoyment in life or what makes life full is having those relationships with our neighbors and with our, in some cases competitors and farming operations. But it’s still-

Jake Jenniges (42:58):
It’s understandable.

Jamie (43:21):
It’s true.

Jake Jenniges (43:22):
I have plenty of good relationships with competing banks and their bankers, right?

Jamie (43:28):
And you work together in some-

Jake Jenniges (43:31):
Absolutely. Absolutely. But yes, I mean agriculture at some point, was built on trust. I don’t know how it couldn’t have been. And that’s just how it has to continue that way. If not, there’ll be five farmers in the whole country, then what are we going to do? So yeah, vital, important relationships, really, really. As a lender, probably the best part of my job other than the few golf events we get to go to in the summer. And now this podcast, I added that to the list.

Jamie (43:59):
Well good. You’re always welcome.

Jake Jenniges (44:02):
The relationship part of it, it is definitely the best part of the [inaudible 00:44:07].

Jamie (44:07):
Super rewarding and-

Jake Jenniges (44:08):
Yeah, it is, very rewarding. Very rewarding.

Jamie (44:11):
People are the biggest joy and create the most challenges at times.

Jake Jenniges (44:17):
That’s fair. That’s a good point. That’s a good point.

Jamie (44:18):
But it’s understanding that. That’s good. So guys, thanks for joining me today. Any last words? Anything you want to share that we didn’t get to or want to leave us with?

Jake Jenniges (44:30):
I just want to thank you for this, it was really good. I think it’s important for producers to understand that if you have money, you got to spend it the right way right now because you don’t know when you’re going to have it again. In my experience at the bank, that’s what I’ve learned. Repaying and tough times is just as important as how you spend your money when you have it. So if you can spend your money to invest, if you can spend your money to make more money, if you can spend your money to make your wife happy, that’s up to you. You get to decide that because you took the risk to get the money.

Jamie (45:03):
I think what you’re saying though, in a different way is high prices are the cure for high prices.

Jake Jenniges (45:08):
That’s exactly what’s… It’s going to happen, I guess is what I’m saying. So be ready. Well, also guys, go Viking.

Karl Guetter (45:14):
Go Vikings.

Jake Jenniges (45:15):
That’s all I got.

Karl Guetter (45:15):
Yeah. Yeah.

Jamie (45:15):
Oh yeah, we could talk about that for a while too. But this episode isn’t airing for a little while yet. We all are long suffering Vikings fans. So, we are not going to… I think we’ll just leave that one alone [inaudible 00:45:33] and we’ll just hope that we’re still talking about them February.

Jake Jenniges (45:37):
That’d be nice. Yeah, that’d be something.

Jamie (45:40):
Jake Jenniges, Karl Guetter, thanks for joining me here on The Water Table.

Jake Jenniges (45:40):
Thank you.

Karl Guetter (45:43):
All right Jamie. Thank you.

Jake Jenniges (45:44):
Thanks Jamie.

Jamie (45:48):
Thanks for joining us today on The Water Table. You can find us at watertable.ag. Find us on Facebook. You can find us on Twitter, and you can also find the podcast on any of your favorite podcast platforms.