For decades, agricultural lending was a straightforward calculation of acreage and appraisals, but lender’s role is evolving as the global economy shifts toward renewable energy and digital infrastructure.
Farmer Mac President and CEO Brad Nordholm, who has spent 45 years at the intersection of agricultural and energy finance, sees how the farm of the future could look more like a high-tech power plant than a traditional row-crop operation.
At the International Dairy Foods Association (IDFA) Dairy Forum earlier this year in Palm Springs, Calif., Nordholm laid out how Farmer Mac is navigating the disconnect in today’s land market and why the industry is betting big on the integration of data and energy.
The Data Advantage: Why Lenders Crave Farmer Information
One of the most significant shifts in modern finance is how lenders view information. Financial companies are keen on farmer data because it transforms speculative lending into predictable project finance.
According to Nordholm, when Farmer Mac looks at high-growth areas like broadband, data centers or renewable natural gas (RNG), it isn’t making speculative bets. Instead, it is looking for data-backed certainty. Lenders value farmer data for three primary reasons:
- Securing forward commitments — Data allows producers to prove revenue streams 10, 15 or 20 years into the future. By showing forward commitments from customers, a farm operation stops being a gamble and starts being a bankable asset.
- Bridging the land-price disconnect — There currently is a gap between high land prices and lower cash flows in sectors like corn and soy. Nordholm notes that Farmer Mac no longer lends solely on an appraisal of $10,000 an acre. Instead, it uses data to size debt based on pro forma cash flows. This data-driven approach protects both the lender and the farmer from overleveraging.
- Risk management tools — Unlike the 1980s, today’s data allows for sophisticated risk management. From forward-pricing sales at the beginning of the growing season to utilizing fixed-rate loan products, data provides a suite of tools that creates resilience against inflation and market volatility.
“Financial data are the only way a lender can determine a farm’s profitability and financial soundness,” says independent dairy financial consultant Gary Siporski. “As long as a farm wants to borrow money, lenders will demand data.”
Powering the Grid: From Methane to Data Centers
The dairy industry is uniquely positioned to benefit from the electrons-and-molecules era. Nordholm highlights the massive growth in anaerobic digesters and RNG. With retail and wholesale electric rates climbing, capturing methane to produce heat and electricity is no longer just a sustainability play; it’s an economic necessity.
“We don’t allocate capital because someone says, ‘I’m sustainable,’” Nordholm explains. “We ask: Does this investment improve efficiency? Does it result in less waste?”
For dairy producers, this means looking at manure and energy management as a core financial performance metric.
This energy demand is also being driven by a massive backlash against data centers taking power off the traditional grid. The new generation of data centers is going behind the meter, looking to wind, solar and batteries — often located on or near agricultural land — to guarantee 100% assurance of their energy needs.
Why This Isn’t the 1980s
Despite sad stories in row crops like cotton and sorghum, Nordholm remains optimistic. The liquidity being stored during recent good years is helping operators ride through the current stress. More importantly, the financial system has evolved.
“In the 1980s, almost all loans were variable rate,” Nordholm recalls. “Today, the ability to lock in fixed rates and use data to manage input costs means the industry is far more resilient.” While the electric power situation will remain a challenge for the next five years, the combination of a growing global population and America’s world-class financial and transportation systems keeps the long-term outlook bright.
For the modern producer, the message is clear: Your most valuable crop might not be what you harvest, but the data and energy you produce alongside it.
