Now more than ever, communication between ranchers and lenders imperative

Cattle raisers know all about the best-laid plans. Because it seems if it’s not Mother Nature wreaking havoc, market volatility steps in. This spring, COVID-19 has been the culprit.

With uncertainty in the markets, many have elected to delay selling. But what happens if their loan payment is due soon?

Ken Leiber, a Texas and Southwestern Cattle Raisers Association director and president of National Finance Credit Corporation of Texas, said communication is key—and the last thing lenders want is to be surprised.

“You can lay out your plan, but in the cattle business, you still have to react and adjust along the way,” Leiber said. “It’s your business to manage as the producer, but when you change your mind and your plans, it’s time to talk to your lender. Tell him what you’re thinking and why you’re thinking that.”

He said whether a rancher is considering a new marketing plan or has decided to retain ownership at the feedyard, the lender wants to know.

“Let’s say you’ve got cattle on wheat pasture right now and you know it will run out next month and you don’t want those cattle to go backward,” Leiber said. “The clock is ticking so you want to communicate, ‘Here are my options and here’s what I think I’m going to do.’”

He also encourages producers to bounce ideas off their lender.

“You might want to approach it like, ‘This is what I’m thinking. Shoot holes in it,’” Leiber said. “What’s the downside risk to this? What am I missing? What am I exposing myself to? And what are the other areas of risk that I’m blinded to?”

Market volatility is a sharp knife on both sides of the blade, he explained: “It can slice you going up or down. Just remember if you’re saying, ‘I don’t like the market today,’ you need to have a plan if it drops more next week.”

He said it’s important to be on the same page when it comes to the amount of risk you’re willing to take as a rancher, but also the amount of risk that the borrower can stand before it becomes the lender’s risk.

“It all comes back to communication,” Leiber said. “If your lender knows you’re going to be calling him to let him know where you are and how your plans have changed, he’ll go further down the road with you there. It gives your lender confidence that you recognize and are actively managing your situation. I like to my tell customers I know we have a good loan relationship when they’re worrying about their business more than I’m worrying about it.”