Perspective: Barry Sturdivant, Bank Of The West
What’s the best way to describe the financial health of the commercial greenhouse industry these days? According to Bank of the West’s Barry Sturdivant, our industry’s financial health as a whole is “very good.”
At Bank of the West, the country’s third-largest bank for agricultural production, Sturdivant has seen just about every agricultural commodity encounter stress over the last two years. But the commercial greenhouse industry, perhaps to your surprise, has been a bright spot–at least for the bank. In fact, Bank of the West has identified greenhouse operations as a key area for expected growth this year.
Recently, we caught up with Sturdivant to get his perspective on how greenhouse growers are faring compared to nursery producers, what he expects for our industry in 2011 and more.
GG: How does the greenhouse industry’s financial health compare to the state of the nursery industry’s?
BS: For the past few years, commercial greenhouse growers and commercial nursery growers have gone in two different directions. Nurseries have a much higher dependence upon new housing and commercial real estate development. In fact, many historically sold only to landscapers and developers–two sectors obviously experiencing difficulty. There was a tremendous oversupply of shrub and tree inventory the past two years, which depressed prices and accelerated the downward spiral for an industry already hurting. Most of the survivors are trying to “right size” and find new customers. Any grower of long-cycle material has experienced some degree of stress related to the economy. That has not been true of the greenhouse industry.
As I walk greenhouses around the country, I am seeing more and more gallon-sized perennials, roses, hydrangeas, flowering vines and small woody ornamentals. This can’t be helpful to the shrub growers who have historically supplied similar material.
GG: Because of the industry picture you just painted, what do you envision developing in 2011 on the financial front?
BS: In 2011, I expect to see more consolidation in the greenhouse industry. This will be mainly in response to the big box stores continuing to limit the number of their vendors and asking more of their primary suppliers. We expect to see the larger greenhouse growers continue expanding. Some will do this through acquisitions, but for the most part we expect the growth to come from on-site expansions. As an alternative to consolidation, some operations will seek more contract growers to supply the needed plant material. Of course, this means some operations will have to convert from direct suppliers to contract growing for the growers that still have the relationships with their customers. However, we expect to see very few greenhouse operators close their doors in the coming year.
Many nurseries will have another mediocre year in 2011. While we believe it will be much better than the prior two years, they need a good year to get back on track. Some will probably have to liquidate in the coming year. It is still unclear whether there is an oversupply or undersupply of material in several size categories. Many in the industry believe a perceived shortage will bring prices back to historic levels. Others believe there continues to be an oversupply and prices will continue to be low, hurting profits and cash flow. They will continue to seek new markets for their plant material and to find ways to cut costs.
GG: In 2011, do you envision growers having more access, less access or about the same amount of access to credit as last year?
BS: Growers will have more access to credit in 2011. After two years of timidity, banks are once again seeking to build loan volume. They have already recognized their loan losses and are ready to get back to business. Bank of the West, which has the only office dedicated to this industry on a national basis, is very interested in extending credit to greenhouse growers.
GG: Any thoughts on the U.S. economy in 2011? Do you expect improvement, more of the same or something else to take place?
BS: I believe the economy will be mixed. People who have retained their jobs will start spending more, but unemployment will remain high and that will limit the recovery. Housing starts, while improved from the trough of the past two years, will remain at historically low levels not perceived before 2008. Greenhouses should continue to do well in spite of the economy, but nurseries will have to continue to find new markets and keep costs under tight control.
GG: From your point of view, what should greenhouse and nursery growers be doing to put themselves in better states financially?
BS: They need to build working capital and watch their cash. One of the surprising, but very positive, things about the good spring in 2009 was the fact that most greenhouse growers were determined to hang onto their money. The temptation was strong to add greenhouse acres and invest in automation, but most realized that given the current economy and banking environment it was important to have more of a cash cushion to ensure they got through the next spring. Running out of cash during the shipping season is a bigger concern for nurseries and greenhouses than sustaining an operating loss.
Inventory control is also a huge factor for both nurseries and greenhouses. In fact, in our experience this is often the reason both nurseries and greenhouses get into serious financial difficulty. Greenhouse growers have to be careful not to overinvest in speculative inventory late in the spring shipping season.
Shrub and tree nursery operators have their own set of inventory challenges. Excess supply has reduced their selling prices and they are still finding themselves with excess material that continues to absorb cultural costs. It can be difficult to decide whether to destroy the inventory or hold it for next spring’s sales. There have also been several incidents where nursery operators couldn’t resist the urge to buy in long-cycle plant material at a low cost without being able to move it when expected. The bargain they thought they had created critical cash shortages, which threatened the existence of their company.