Growers Still Get Credit

Banks see vineyard land as a sound investment; operating loans may tighten

REGION: NORTHWEST

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Horse Heaven Hills AVA 

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Prosser, Wash. -- Demand for land may be softening, and credit market woes have complicated the financing for major developments such as the Vineyards Resort near Zillah, Wash., but that didn't stop lenders from being ready to finance purchases at the auction of 680 acres of vineyard land in Washington in early November.

None of the 19 parcels making up the Alder Creek and Windy Ridge vineyards owned by David Groth and offered for sale at the Nov. 6 auction were sold, but Craig King, president and CEO of auctioneer J.P. King Auction Co. of Gadsen, Ala., expects "to close a sale with one or several" of the bidders within a few weeks.

The interest in land, and more particularly access to credit to finance it, is one thing that makes grapegrowers and wineries different from many other businesses right now.

"Talking with one of the nation's largest ag lenders, they're telling me that the demand for good agricultural ground is high and there's a lot of money available for it," Groth told Wines & Vines, while preparations for the auction moved forward in late October.

Indeed, the latest U.S. Department of Agriculture forecast projects that real estate-related farm debt will top $111.1 billion nationwide this year, up 3.1% from 2007. That's faster than the growth of total U.S. farm debt, which is forecast to grow 0.1% over last year.

"I would have thought it would have been going the other way, but actually what they're telling us is that people are looking at (land) as one of the only safe places that they can put their investments into and know they're not going to lose it in the future," Groth said.

The easy money may not last, however. Where the crunch may hit is operating lines of credit, which vineyards and wineries typically secure early in the new year to carry them through the season.
 
 

Grapegrower Paul Champoux says that winegrapes are still "the sweethearts" of agricultural finance providers.

"Winegrapes are still a sweetheart of the agricultural business, so (financing) hasn't been an issue at this point," said Paul Champoux of Champoux Vineyards LLC near Prosser, during a recent interview with Wines & Vines. "But we'll see next springtime when lines of credit need to be gotten for the operating year." Champoux is set to renegotiate his company's own line of credit early in 2009, and is bracing for changes.

There's a similar attitude north of the border in Canada, where federally backed agricultural lender Farm Credit Canada anticipates some increased opportunities among farmers as banks reduce exposure to risk. FCC currently holds about one quarter of agricultural debt in Canada, said Dan Bergen, executive vice president and COO of the Regina, Sakatchewan-based lender.

It could pick up additional business in spring 2009, however, as many farmers are reporting that banks plan to tighten operating lines of credit in spring 2009. "I wouldn't be surprised if in the coming spring we get asked to do more," Bergen said.

On the other hand, that won't necessarily reduce financing to Canada's grapegrowers. "We don't see any reason that we'll be restricting funds," he said.

The bigger concern is just how severe the economic woes will get, and how long they'll last. "I think what's on everybody's mind, particularly the banks, is how deep the recession is going to be," Bergen said.