It’s getting harder to lend money to fruit growers.

“I don’t know if I’ll ever see some of these guys again. They made so much money last year,” Ed Urbanik, the manager at Farm Credit East in Batavia, New York, quipped during an interview with Good Fruit Grower.

In 2012, when the New York apple crop was cut in half by spring freezes, the remaining half sold at excellent prices and, along with crop insurance, growers did well financially. “Some growers on good sites had full crops and were able to sell their apples at high prices. It put them in a strong financial position,” Urbanik said.

Apple growers everywhere are starting to reap the rewards from their heavy investments in recent years in new high-density plantings of highly desirable varieties.

Many growers are able to self-finance, Urbanik said, and consequently, loan volume to fruit growers in western New York is lower than it used to be. “I wouldn’t want to count on fruit growers for lending activity in my area,” he said.

Good Fruit Grower talked to Farm Credit System lenders in New York, Washington State, and Pennsylvania, and found the story to be similar across the country: Apple growers have been pulling out old orchards and putting in new ones—great new varieties in high-density systems—and they’re controlling just about everything but the weather. And they’re trying to control that as well, investing in irrigation to fend off summer droughts and wind machines to help beat spring freezes.

Even in wet states like New York and Michigan, trickle irrigation is installed in almost all plantings as soon as they are made. Tall fencing to keep out deer is becoming more common.

“Yields in the new systems are reaching unheard-of levels,” Urbanik said. “Growers are now averaging 1,000 to 1,200 bushels per acre, and some are nailing 2,000 and even higher in some years.”

Fantastic run

In Washington State, Jeff Fagg said that “Growers have had a pretty fantastic five-year run, which has allowed them to strengthen their balance sheets and enhance their liquidity.” Fagg is vice president for agribusiness at the Northwest Farm Credit Services office in Moses Lake.

Growers are updating their varieties and changing orchard configurations. “There are storm clouds on the horizon for those who haven’t,” he said. “Varieties are so important.”

Even good varieties, such as Fuji and Gala, are being updated with better coloring strains, he said. Better coloring Honeycrisp are coming to a few orchards.

All the investment means more apples are coming. “Profits won’t be as big as larger crops keep coming down the road,” Fagg said. “For those who haven’t made the investments, it is a little late to start playing catch-up.”

Katie Epstein has most of Ag Choice Farm Credit’s fruit clients, working as the senior loan officer from her office in York, Pennsylvania. She’s been there five and a half years, and Adams County is her territory.

“We’ve been pretty steady financing new orchard blocks and new equipment,” she said. “Fruit growers always need to borrow money. The more they make, the more dreams they have. While many mature growers can operate out of cash, many are bringing in the next generation and it takes money to do that.”

A lot of younger people in the East are seeing the potential in direct marketing through farm and farmers’ markets, so they’re joining the farm operation and changing the nature of the investments needed to support those activities.

Interest rates

The Farm Credit System has access to the same pool of funds that the federal government has, and that’s both good and bad. “A change in fed policy would affect us pretty quickly,” Urbanik said.

“The effective interest rate for operating loans is below 3 percent with our patronage,” Urbanik said. Epstein said the same. Their borrowers pay about 4 percent and then get 1 percent back at the end of the year as patronage.

Still, the price of short-term money is “artificially down,” Urbanik said, as the federal reserve keeps rates low to stimulate lending to spur economic growth. Savers who have money to invest have few high-return options, but most are unwilling to lend long-term money at low rates.

“We expected a rise in rates three or four years ago,” Fagg said. Continuing stagnation in the general economy has kept the rate of federal treasury bills under 3 percent, and the Farm Credit System obtains money from that source.

This has created an historic reversal in which short-term money can be borrowed at 4 percent or so while long-term money to purchase real estate and other fixed assets costs 6 percent and more.

Infrastructure

Fagg noted that the investment is being made to support the new orchards and the big crops they are producing. “New storage is being built, and a lot of new technology is going in on the warehouse side,” he said. New sorters and new equipment for automated palletizing is going in.

Urbanik noted that bins to store New York’s big crop were much in demand last fall.

None of the lenders saw many growers investing heavily as yet in orchard platforms or harvest aids to make labor more efficient, but they agree that automation-friendly technology is the next order of business.

Despite all the fears growers express about labor shortages, it appears that most of the apples got picked in a timely way last fall in all the major growing areas.

Established by Congress in 1916, the Farm Credit System is a network of borrower-owned lending institutions and service organizations. Farm Credit provides more than $191 billion in loans, leases, and related services to farmers, ranchers, and others. •