For Northwest Farm Credit Services, these are the best of times.


The federally chartered ag-lending cooperative has been growing at 12 percent to 13 percent a year for the last four or five years, and the outlook for the farmers it serves likely will remain rosy for at least the next two years.


Agriculture in total is in a pretty positive period right now, and that reflects well for ag lenders, says Jay Penick, Farm Credits president and CEO. Earnings are at a level we havent seen in years. Having grown up in agriculture, and having been a part of agriculture for 40 years, its really good to see farm families be able to get rewards for their efforts. Most would tell you that if they have a good crop, theyre having a good year.


Penick, whos been with Northwest Farm Credit since 1989, adds, Over the last 10 years, weve always had a commodity or two that was struggling. For the last two or three years, the crop has matched up with the market and the weather patterns.


He predicts that, Weve got a pretty good run for the next 24 months. Beyond that, its hard to say.


Other lenders are enjoying the sunny times down on the farm, too.


All of our agricultural credits are doing really, really well right now, says Jack Heath, president and chief operating officer of Spokane-based Washington Trust Bank.


While agriculture is less than 5 percent of Washington Trusts business, its strength has made the banks expansion into Central Washington pan out well, says Heath, who describes the markets for wheat and apples, both signature Washington crops, as strong.


The same is true at Spokane-based Wheatland Bank, which just opened a branch in Wenatchee and is planning to open one soon in Yakima, says Sue Horton, its chairwoman, president, and CEO.


Ag has been so strong, says Horton, who heads an institution that started out as an ag lender in Davenport, Wash., and still has much of its portfolio in ag loans. Its just great news. Its been a long time coming. These people have worked really hard. They deserve it.


Both Horton and Penick say that farmers, because of their improved results, are getting ready for the future by paying down debt, beefing up operations by buying land or machinery, and setting aside capital theyll need later.


Yet, for banks such as Washington Trust and Wheatland, which also provide commercial banking services, ag lending isnt everything. It is for Farm Credit, which is enjoying a resurgence after wrenching, lean times when Penick signed on in 1989.


At the time, the nations Farm Credit System was going through a consolidation that trimmed the number of organizations to 93 across the U.S., from 1,000 in 1985. Northwest Farm Credit is the third largest of those institutions.


When Penick arrived, Northwest Farm Credit had a lot of mismatch in the marketplace in that it mostly had short-term assets and long-term loans, Penick says.


We went in and bought back a bunch of debt, he says. That took a few years to put the discipline in place.


At the time, he says, anyone could get a loan from us.


Not any more.


In addition to making sure that Northwest Farm Credit had the right employees in the right positions, and that those people had a desire to develop a culture of customer service and sound business practices, the lender had to learn how to practice customer selection, Penick says.


We want customers that are going to be long-term contributors to agriculture, that have a plan for where they want to take their businesses, and are willing to make the changes that are necessary to succeed, he says.


Sometimes, theres not a good philosophical match between a grower and Farm Credit, and when that happens, lifes too short for the borrower and the institution to try to work together, he says.


Its not our job to say whether theyre right or wrong, he says. It is our job to decide whether we want to be a part of it.


Today, he says, Most folks know if they can get a loan from us. Our standards are pretty well-known in the industry.


It took about six years after he arrived for Farm Credit to have its new team up and running well, Penick says.


Your core values of your company have to be instilled, he says. The first five or six years, I traveled to change practices and instill a culture. Now, its to work with our people to help them be successful.


The cooperatives results have been consistently good in recent years, with its net income rising to $109.4 million last year, up from $91.5 million in 2005, and its net loans climbing to $5.8 billion in 2006, up from $5 billion the year before.


Through the first three quarters this year, it earned $80.6 million in net income. That was down from $90.8 million in the year-earlier periodalthough its results were so good in the first nine months of 2006 that it had reversed $11.2 million in allowances it has set aside for problem loans and added that money to earnings.


Farm Credit now employs about 150 people in its offices at 1700 S. Assembly, on Sunset Hill here. Thats about the same number as it employed five years ago, but since then it has consolidated its technology operations into a service corporation it owns thats stationed in the building that employs between 40 and 50 people, Penick says.


The cooperative serves almost 13,000 farmers, ranchers, agribusinesses, commercial fisherman, timber producers, rural homeowners, and crop-insurance customers in Washington, Oregon, Idaho, Montana, and Alaska and employs about 360 people at its 44 branch offices.


While its administrative, accounting, marketing, legal, and risk-management people, work at its Spokane office, as do some credit specialists, its loan officers work at its branch offices, Penick says.


Agricultural customers expect you to do what you say you will do in the timelines in which you expect to do it, he says. You have to understand the business and what theyre trying to accomplish. A very large part of our employee base grew up in rural areas. They understand those expectations.


Crop insurance is an important niche for producersand one that Northwest Farm Credit increasingly has filled for its customers. It now serves 25 percent of that market in the areas where it does business, up from less than 5 percent earlier. It has built much of that increased market share by acquiring seven crop insurance companies.


You have cases in which individuals have been in crop insurance for a long time, and as the business became more complicated, and risk-management tools became more complex, they decided to sell out, Penick says. While crop insurance provides a small piece of Northwest Farm Credits net income, its important to our producers, he says.


Northwest Farm Credit also has sought to serve professional people who own acreages outside of the regions cities and want to have small agricultural operations on their property to derive income and help pay the bills, Penick says.


Theres a lot of people who have a desire to have a rural lifestyle, he says.


Penick came from the Louisville, Ky., district of Farm Credit Services. He grew up on a farm in Ohio where his family raised corn, soybeans, wheat, and cattle, and says hes done his share of farm chores and harvest work.


He attended Ohio State University, where he studied agricultural economics. For the first seven years of his career, he worked for the American Angus Associations youth activities program, helping with livestock shows in several states. With Farm Credits Louisville district, he held several positions, wrapping up his time there as senior vice president of credit, the districts top credit position.


Penick travels 60 percent of the time as he administers Northwest Farm Credits far-flung system.


The days I enjoy the most I spend riding around in a pickup with an ag producer whos telling me about their operation, he says. He drives to destinations he can reach within three hours and flies most of the rest of the time.


Agriculture, so dependent on weather and markets, faces constantly changing conditions, and Penick says one of the most interesting things hes seen in his 40 years in agriculture is how competition has begun to emerge between different commodities for acreage in the Northwest. If farmers cant get a certain price for their crops, theyll plant something else, he says. While the rise of the ethanol industry in the Midwest has led to huge plantings of corn and soybeans and put pressure on growers of other crops for their land, such pressures now are beginning to surface here, he says.


Also, as Penick was being interviewed on Dec. 6, he talked about how the tremendous flooding that had stricken Western Washington was hurting Northwest Farm Credits customers there.


We have dairymen right now who are having to pour out their milk, he said. They cant get the trucks in to move their product. Of course, those cows continued to need to be milked, he said.


In the first few days of the flooding, high water drowned an estimated 1,000 cows, and Penick said that losing herds in such a tragic way can be both a business loss and an emotional loss for dairymen whove produced their animals through selective breeding.


Contact Richard Ripley at (509) 344-1261 or via e-mail at [email protected].