Farm Volatility is at an All Time High: How Technology Is Providing Field-level Solutions for the Agricultural Credit Industry
Agros Volatility IndexTM forecasts historic yield, market values, and revenue potential at the field level to assess investment risk for agricultural lending institutions across the globe.
MADISON, Wis. (August 20, 2019) - This year trying to calculate farm level gross revenue is anyone’s guess. With an unknown acreage of prevented planting claims, unpredictable global tariffs, rising commodity prices, and uncertain production, this season is shaping up to be a highly unusual year across the Midwest.
This uncertainty impacts more than just farmers. It is also passed onto those banking institutions who provide operating capital to growers and landowners. To navigate wisely, these agricultural institutions must explore new ways to understand market prices and grower risk. Many are turning to cutting edge technology to help them.
The solution is owned by Agrograph, a startup creating risk management solutions for the agricultural industry. Using the Agrograph Volatility IndexTM, a tool that compares risk across loan portfolios, agricultural lenders gain insight into customer fields to instantaneously forecast potential losses.
“It is a similar concept to Zillow, the real estate application that assigns pricing values for every home in a neighborhood,” said Jim O’Brien, co-founder of Agrograph. “Similar to Zillow, the Agrograph platform provides a visual analysis to guide decisions of lenders as they navigate risky investment decisions.”
The Agrograph model assigns a value to each parcel of land by comparing crop type and commodity values to a field’s current and historical performance. As a result, lenders calculate the earning potential of a field and determine if a field is producing at its peak. This type of granular insight gives an ag lender a window into the management score for a particular grower -- information that cannot be obtained just from a financial analysis of their books.
According to O’Brien’s business partner Mutlu Ozdogen, now, more than ever, there is a need in the agricultural credit industry.
“Larger farms are coagulating across the country and the size increases demand for capital,” said Ozdogen. “That means larger loans and more risky investments.”
The agricultural industry saw a historic level of Chapter 12 bankruptcies that shifted acres under fewer, larger farms. To add to the challenge, operating expenses continue to rise. The U.S. Department of Agriculture reports operating expenses grew 22 percent in the fourth quarter of 2018 - the highest fourth-quarter level in history. The agency also found farm debt projections rose nationally to $426.7 billion, depicting an unstable landscape for agriculture.
“These conditions may trigger a huge volume of non-accruing loans or, most likely, a larger than normal volume of loan readjustments for institutions managing high-risk portfolios,” said Ozdogen. “Some institutions will shy away from agricultural lending, but the truth is, the agricultural industry needs investors. Our tool supports those that support agriculture.”
To learn more about navigating the changing agricultural economy and managing financial institution risk using Agrograph, contact us at [email protected].
About Agrograph: Agrograph, is a global platform for field-scale predictive modeling that delivers accurate and timely information on crop yields, land suitability, risk management and other agricultural production information by combining satellite observations, weather data and machine learning algorithms into field-scale forecasts. For more information visit www.agrograph.com.