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Panel says credit is plentiful for farmers

 

 

By DAVE BLOWER JR.

Farm World Senior Editor

 

WASHINGTON, D.C. — Credit is plentiful for America’s farmers and ranchers, and it is being provided at rates near historically low levels. This was the general opinion of those who testified June 25 before the U.S. House Subcommittee on Livestock, Rural Development and Credit.

"The ag economy has experienced record prices, allowing farmers to pay down debt. Livestock producers are also now benefiting from lower feed costs and higher prices providing much-needed profits," said Sean Williams, president and CEO of First National Bank of Wynne, Ark. He offered testimony for the Independent Community Bankers of America (ICBA).

"The rapid rise in farmland values has slowed or stalled, meaning that land prices are expected to be stable or slightly decline if crop prices continue declining or remain below the cost of production."

Representing the American Bankers Assoc. (ABA), Leonard Wolfe testified more than 5,470 banks reported agricultural loans on their books at the end of 2013, with a total outstanding portfolio of more than $149 billion.

"More farmers and ranchers receive credit from the banking industry than from any other source," he said. "Agriculture is a vital industry to our country, and financing it is an essential business for many banks, mine included."

Wolfe is president and CEO of United Bank and Trust in Marysville, Kan. United Bank is a $570 million bank with more than $176 million in agricultural real estate and production loans in its portfolio. Wolfe is also chair of the Kansas Bankers Assoc. and vice chair of ABA’s Ag Credit Task Force.

Nathan S. Kauffman, assistant vice president of Federal Reserve Bank of Kansas City, testified since the 2013 harvest, changes in farm commodity prices have led to changes in the outlook for the farm sector and agricultural finance.

"Current corn prices are about 40 percent less than last year," he reported. "Conversely, average fed cattle prices are approximately 25 percent higher than a year ago and, overall, higher livestock prices and lower feed costs have contributed to a rebound in livestock sector profitability."

He said lower crop prices and persistently high input costs have reduced profit margins for U.S. crop producers and have affected recent trends in ag lending. "Toward the end of 2013, declining profit margins reduced farm cash flow and, as a result, demand for operating and other agricultural loans began to rise and lending activity jumped considerably in the first quarter of 2014," Kauffman said.

"Looking ahead, the level of working capital and liquidity in the farm sector will be crucial components of the financial health and credit conditions surrounding U.S. farm operations. If profit margins remain under pressure in the crop sector and debt continues to rise, the ability of crop producers to withstand an increase in financial stress may be a concern, even as the outlook for the livestock sector has improved."

Ag strong since 2009

 

He reported the U.S. agricultural economy has been strong since 2009. Crop prices surged and farmland values increased dramatically from 2010-13 – rising by more than 20 percent annually in key crop-producing states.

"Although the overall financial position of the farm sector had improved, some agricultural producers were more at risk for financial stress than others," Kauffman reported. "Our banker contacts consistently voiced concerns about the viability of some livestock operations facing steep losses, as well as young and beginning farmers with significantly less equity in their operations."

Williams provided the subcommittee with the following conclusions from a recent ICBA banker survey:

•The farm bill and crop insurance are vital to extending credit

•Reference prices are "adequate" but won’t cover production costs

•Drought and weather problems exist in many states and are a concern

•More farm bill details and decision-making tools are needed

Wolfe added the USDA’s guaranteed farm loan program is vital to making additional credit available to farmers and ranchers. He thanked Congress and the agricultural committees for repealing borrower term limits.

"Term limits restricted farmer access to capital and with the expansion of the farm economy over the past 10 years, there are some farmers who are not able to obtain credit from banks like mine without a guaranty from USDA," he said. "We urge you to continue to support this very worthwhile program."

Wolfe closed his testimony by expressing the banking industry’s commitment to providing ag credit.

"When the agricultural economy collapsed in the middle 1980s, the banking industry worked closely with farmers and ranchers to restructure their businesses and to rebuild the agricultural economy. Since that time banks have provided the majority of agricultural credit to farmers and ranchers," Williams added.

"While other lenders, including the Farm Credit System (FCS), shrank their portfolios of agricultural loans or exited the business altogether, banks expanded agricultural lending. Bankers saw opportunity where others did not. Bankers still see great opportunities in agriculture."

Jill Long Thompson, board chair and CEO of the Farm Credit Administration, told Farm World the FCS remains important to rural economies as the System approaches its 100th anniversary.

"As when it was created, the System must be available to provide competitive credit to all eligible, creditworthy farmers and ranchers, and to the agribusinesses and rural service providers on which they depend through good and bad economic times," she said.

"In bad times, commercial lenders may be reluctant or unable to provide the credit that is the lifeblood of these operations. In good times, the competition provided by the System in the agricultural lending marketplace greatly benefits the nation’s farmers and ranchers."

7/2/2014