In the most competitive banking environment Jay Penick has seen in his 17 years as president and chief executive officer of Northwest Farm Credit Services, the farm lender posted another impressive profit in 2006.

The $109 million isn’t a record. That belongs to 2004, when the bank earned $148 million, but Penick called 2006 a “good solid year” of the sort that should be expected from a portfolio the size of the regional lender.

That portfolio has grown about 12 percent a year for the past two years, performance the bank president doesn’t expect will continue into 2007 because of increased competition from private banks, as well as the fact many farmers have gotten their operations in a position to require fewer capital expenditures.

Then again, if commodity prices hold, Penick said, the bank may have to rethink its forecast.

Despite competition from a new bank on the block, Robobank, an international agriculture lender based in Europe that is opening more Northwest branches, Penick is optimistic Northwest Farm Credit will continue to hold its own.

“They are an additional player at the table that producers have an option to look at, but I think there are several banks out there that are aggressive. Large regional banks are coming back that haven’t been in the market the last three or four or five years,” he said. “When you take a look at the whole marketplace, it is much different now than it was two or three years ago.”

The agricultural industry’s generally positive financial performance has attracted the added interest, but he said service, the quality of loan officers and return on value has allowed for Northwest Farm Credit’s continued growth.

He specifically referred to the $27 million in profits the bank returned to lenders in 2006 as part of its patronage program as “a pretty attractive relationship” that is difficult for private banks to compete against.

Although he has spoken before agricultural audiences in the past about the growing consolidation of farms squeezing out producers in the middle, Penick said the bank is now putting more of an emphasis on what is considered the traditional market.

“We restructured our business model in 2006, and a significant portion of our staff are now focused on the traditional and part-time operator,” he said. “I believe our growth over the next five years will be equally balanced across all different sizes of agricultural operations.”

Operating and real estate loans to commodity producers continue to be the bank’s bread and butter.

This year, operating loans made up about 60 percent of the bank’s growth with 40 percent in real estate loans, a reversal from the past.

The ag lenders crop insurance and rural loan businesses also are growing. The bank started buying insurance agencies four years ago. It added $5 million to the bank’s bottom line in 2006.

“This is a business that fits very well with our production agriculture loans. We have gone from about 3 percent of the market share in the crop insurance business to about 25 percent,” he said, which makes Northwest Farm Credit “probably the largest” crop insurance presence in the region.

The rural loan program, which often is criticized by the American Bankers Association as unfair competition because of Farm Credit’s access to government funds, also has been increasing. It now represents about $400 million within Northwest Farm Credit’s $6.2 billion portfolio. Penick said a majority of the loans are made to individuals and families who want to live in the rural Northwest and are not for second homes or recreational property.

Dairy now makes up the largest portion of the lender’s portfolio, at 14 percent. Livestock follows at 12 percent, then small grains and timber each at 9 percent and potatoes and fruit and tree nuts each at 7 percent.

Dairy has been growing about 1 percent a year for the past four years, with growth being experienced throughout a wide arc of the Northwest, Penick said, citing Ontario, Sunnyside, Wash., Caldwell and Twin Falls, Idaho, as hot spots.

On other subjects, Penick said he would like to see the farm bill function as it has in the past, but with nonprogram crops getting a larger share of the proceeds.

“If you take a look at the farm bill, it has been heavily focused on grains. Balance is good,” he said.

On the other hand, he doesn’t want a wholesale shift.

“We have gone through some good years in agriculture, but in the grain industry, there have been more break-even years than good profit years,” he said. “The thing you have to be careful of is that there is an adequate safety net that, when (producers) have either low yields or prices.”

Looking into his crystal ball, Penick sees the lineup of commodities this way:

?Dairy has gone through a pretty tough year, and although the price outlook for 2007 is better, dairymen have to fight against the rising cost of their feed ingredients.

“We look for most of the dairy industry to get back to break-even, but we do realize feed costs will be an issue they have to deal with,” he said.

?Cattle and livestock probably have peaked from the past two or three good years, and he expects prices will trend down in 2007, especially for cow-calf producers. They, too, will be faced with higher feed costs.

?Timber will see a downturn as a result of a reduced number of housing starts, and Penick predicted a tougher year for that industry in 2007.