Pennsylvania farmers "do better in recessions," said Tom Jordan, head of the lenders who finance farm, real estate, and small-business deals across most of the state for Univest.
"When inflation hits, prices shift, and some of those increases will trickle back to our farm clients, and dairy farmers, egg and chicken processors will do a little better," said Jordan, whose team at Univest, the old Union Trust Co. of Souderton, the biggest bank still based in the state's southeast, finances 3,500 enterprises — "family-owned farms, closely owned businesses" — from Easton to Pittsburgh.
"Our clients make hay when the sun shines," he said. "And when it's not shining, they still do OK."
Here are highlights from The Inquirer's chat with Jordan, edited for clarity and brevity:
Q: Aren't farms and small-town businesses under pressure, with fuel prices rising, and demand slowing?
A: 2021 was a record year for us. 2022 is a record year also. I'd be reluctant to say 2023 would be a record year on top of that, but I don't see that it will really slow down. [Business borrowers] are recalibrating. You could borrow money last year at 3.5%. It's now 6%. That's almost double, but it's not going to put them out of the box.
Q: So often we've heard that 'family farms' are disappearing. Not in Pennsylvania?
A: I was told for 25 years that the small farm is going away. In California or Wisconsin, it's almost all big, corporate farms. In the Midwest, you need 5,000 acres to have a grain farm.
In Pennsylvania, there are also large farms, like the Star Rock Dairy in Manor Township, or Kreider Farms in Manheim. Kreider has eggs, broilers, and a large dairy, 1,500 cows.
But here we also have the small family farms, and they are doing things very differently. Here, they are typically Plain-owned, Mennonite or Amish. The average Amish farm is 50 to 70 acres. They may be milking 50 to 70 cows. They may plant fruit and vegetables, with greenhouses. They are very diverse, and they do off-farm things to supplement their income. They're in a welding shop. They sell things at retail.
So, generally speaking, the farms are the same size they have been since I can remember. We are not seeing mass consolidation here.
It's the big farms that are now studying how the small farms have diversified. And that is what they are planning to do, too.
Q: Are small-farm loans extra risky?
A: In Lancaster County and nearby areas especially, the wealthier Amish business owners have continued to help [church] members to buy farms, to supplement the ability of families to stay on the farm.
I've been working with these farmers for 33 years now. We have had loan issues, but I don't think we've ever lost money on a Plain farm. (Jordan was at the former National Penn Bank and other lenders before leading his team to Univest after Nat Penn was sold to an out-of-state company in 2015.)
Culturally there's a pride, a team spirit. They are willing to try to help each other and work things out.
Q: You lend against property. Won't higher interest rates and falling property values squeeze your borrowers?
A: In commercial real estate, you are seeing prices pull back. As rates go up, that increases the cost to acquire properties, and prices tend to come down. But there is still today a higher level of real estate [development] than I would have guessed with rates nearly doubling.
Q: What caused this inflation?
A: There is still an enormous amount of money in the system, including among the wealthiest American families. People still think there are opportunities to buy things, to invest, to make projects work.
It is a result of some of the policies we have seen in the past several years. Pushing trillions of dollars of (debt-fueled pandemic-related government spending) into our economy, [higher rates and prices] are some of the spillover, almost unintended consequences.
Q: How are you preparing for a recession?
A: Most of our leaders at the bank have a long tenure. We know history repeats itself. We just don't know when and how.
So, when the Fed (created so much extra money) in the whoo-hoo times, we didn't get super-stupid aggressive. So we won't have to get super conservative in a pullback. We stress-test our loans. We communicate with our borrowers about why we're asking questions. We won't avoid every problem. We will avoid the 'holy crap' ones.
Q: If the economy is slowing, why are rents still rising?
A: We are seeing $1,500-, $1,600-, $1,800-a-month rents, not just in the Philadelphia area, where my son is studying accounting at Temple, but around the state.
You had a period (during the COVID-19 lockdowns) when the (new housing) supply fell behind. We had massive supply-chain issues. Massive price increases. So more people went to apartments before buying a home. They couldn't afford to buy. Those rents are going to stay high until you see supply catch up.
Q: How much will home values fall?
A: Great question. You're starting to see prices fall a little bit now. Mom and Dad were helping a lot of the kids buy houses. That's going to slow down. It will likely take a couple of years. And if you are waiting for house prices to go down 30% to where it was pre-COVID, I don't think it's going to happen.
Q: So many imbalances. Consumers paying merchants and farmers more. Finance costs rising, but developers still building, even with weak demand. Is this how a recession starts?
A: I think we are going to overbuild. And there will be some pain. The strongest will survive, and the weakest will be shaken out. I don't know that we are there yet.
But you can't turn a faucet off. Just don't get drunk from it.
