Financial Services | Keeping Kentucky Ag Well Rooted

By Lorie Hailey

John Peek, left, loan officer at the Stanford branch of Ag Credit, speaks with Patrick Higginbotham of Fayette County about Higginbotham’s horse boarding operation.
John Peek, left, loan officer at the Stanford branch of Ag Credit, speaks with Patrick Higginbotham of Fayette County about Higginbotham’s horse boarding operation.

In the 1980s, Georgetown, Ky., farmer Alvin Lyons faced a dilemma.

It was time to start his spring planting, but the commercial bank he had been using had repeatedly stalled his loan applications. The early ’80s were a tumultuous time for the ag market: Nationwide, farm income dropped from the equivalent of $80 billion in today’s dollars, to about $25 billion. Farm loans often were perceived as a risky investment. 

To get the funds he needed, Lyons turned to Central Kentucky Ag Credit, a cooperative lender established in 1934 with one purpose: to provide loans to farmers. He’s been a customer there ever since, and now serves as chairman of the co-op’s board of directors.

Ag Credit’s customer service, rates and agricultural expertise kept him coming back, but the co-op’s consistency is what remains most important, Lyons said.

“They’re there for ag all the time, not just when it’s a good market,” he said. “They’re there every year, not in and out of the market like some of the other (lending institutions).”

With 43 employees and an annual operating budget of $7 million, Ag Credit has nearly $450 million in assets – mostly loans – and serves 17 Kentucky counties: Anderson, Bourbon, Boyle, Clark, Fayette, Franklin, Garrard, Harrison, Jessamine, Lincoln, Madison, Marion, Mercer, Montgomery, Scott, Washington and Woodford. It is part of the federal Farm Credit System, established in 1916 to provide a reliable source of credit to the nation’s farmers.

At least four other Farm Credit System co-op lenders serve portions of Kentucky: River Valley Ag Credit operates in Western Kentucky and 12 counties in Tennessee; Farm Credit Mid-America serves Indiana, Ohio, Kentucky and Tennessee; CoBank, a national co-op that serves industries in rural America, has offices in Louisville; and Colorado-based FCC Services has a secondary headquarters in Louisville.

Ag Credit’s average loan is $90,000. Small loans usually get same-day approval while larger complex loans require several days to gather and analyze financial and property information.

Nationally the system now provides more than one-third of the credit needed by those who live and work in rural America. With more than $61 billion in loans to more than 500,000 borrowers, the Farm Credit System is the largest single producer of U.S. agricultural credit.

“We provide a strong, steady and reliable source of credit for agriculture. We are mandated to do it and we will be there through all the cycles,” said Jim Caldwell, Ag Credit president and CEO. “Agriculture is a very risky business because of all of the unknowns that affect the farmer, the weather being the first and foremost, but also things like the commodity cycle, government programs [going] in and out … even the strength of the dollar overseas impacts agriculture.”

Because Ag Credit exists to serve farmers despite agriculture’s cyclical nature, farmers have come to depend upon the lender in good times and in bad. The association provides small and large loans for equipment, farmland purchases, agriculture-related businesses, ag processing and marketing, livestock, and other farm-related needs. It serves the whole spectrum of farm operations, from the small part-time farmer who needs to buy a tractor, to a large farming operation that needs to purchase land for cattle ranching.

Ag Credit also lends to rural residents and agriculture-related businesses in its service area.

The co-op employs experienced rural property appraisers, and it provides free financial planning assistance to its members. It offers other financial services, such as revolving lines of credit, which is what Lyons uses for his nearly 2,000-acre diversified farm.

“A lot of banks offer revolving lines,” Lyons said, “but the agricultural expertise that you get at Ag Credit … no bank can offer that.”

Ag Credit is not the only farm lender in Kentucky, but what makes it unique is its cooperative structure and governance. Because it is a co-op, its 2,600 members share in the profits. Ag Credit calls it “patronage refunds,” and this year alone, the co-op will return nearly $3 million to its customer-farmers, an average of $1,100 each, Caldwell said.

“Of our profits, our board decides what we need for the future and then they’ll declare a patronage dividend. We’ve declared one for the past 20 years,” he said.

The co-op has issued more than $22 million in patronage refunds since the program began.

“It’s a very important part of what we do,” Lyons said. “When the association is successful and we make money, that goes back to the members. It’s a 100 percent cash payout.”

Ag Credit is governed by a board of directors comprised of five farmers elected by owner/members, and two outside appointed directors – Dr. Lionel Williamson, a retired professor at the University of Kentucky College of Agriculture, and Mary-Lynn Hinkel of the CPA firm Barr, Anderson & Roberts. Each board member has an equal say in the governing body of the association.

To be elected to the board, one must be a farmer and a customer of Ag Credit.

Ag ‘still solid’ in Central Kentucky

The association is active in the farming community, and continually searches for ways to better provide for Kentucky’s changing agricultural landscape. From the number and types of farms to the technology and machinery used on them, farming is much different in 2017 than it was just 20 or 30 years ago.

The number of farms in the commonwealth has dropped by about 30 percent since 1978, down to about 76,000 operations, but Kentucky still ranks sixth in the nation in the number of farms.

“There’s been a great deal of consolidation,” Lyons said. “There are not too many mid-size farms now. You either have a big farm or you farm more as a ‘hobby’ ” – meaning the household does not rely on agribusiness income to survive.

More than 57 percent of Kentucky’s farms had annual sales of less than $10,000 in 2014, according to the National Agricultural Statistics Service.

There are a lot of part-time farmers in Central Kentucky, but agriculture is “still pretty solid in our area,” Caldwell said.

Young and beginning farmers represent a growing segment of Ag Credit’s business. Young farmers are defined as age 35 and younger; beginning farmers are those with 10 or fewer years in farming, ranching or aquatic agriculture experience.

“It’s not as difficult to get started now as it was 10 years ago,” he said.

Good crop prices from 2008 to 2014 – when Kentucky farm cash receipts hit a record $6.5 billion – and lower land values after the stock market crashed in 2008 helped make it possible for more young farmers to buy land and get started, Caldwell said.

“Before the stock market crashed, you saw a lot of Central Kentucky farms being developed for home sites, and it was really hard for the farmers to get out there and buy land,” he said.

To make sure the co-op is meeting the needs of the young farmer, it recently established the Young Farmers Council to advise the board. The council has a member from each of the 17 counties. The council is assisting Ag Credit with a new educational initiative called Central Kentucky Ag Start, which will help beginner farmers and those interested in learning more about how to get started.

“The council is a great resource for us, and we rely heavily on them,” Caldwell said.

The association’s goal is to provide affordable, convenient and reliable financial services that cater to the unique needs of farmers and rural families, he said.

Ag Credit has branches in Lexington, Richmond, Paris, Lebanon, Danville and Stanford. In December, the co-op opened a new branch in Frankfort to better serve farmers and rural residents in Franklin and Anderson counties.


Lorie Hailey is a correspondent for The Lane Report. She can be reached at [email protected]

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