As the Farm Bill churns its way through Congress, agricultural lenders and bankers are casting watchful eyes on lawmaking, commodity prices and weather patterns.
“The Farm Bill outcome is so critical to ag lenders because they need to know what the policies are going to be for planting this year,” said Mississippi Agriculture and Commerce Commissioner Lester Spell.
Steve Rochelle, CEO of Ridgeland-based First South Agricultural Credit Association, said if it were not for past subsidies, “there wouldn’t be any farming left in the state and a lot of municipal governments would be in trouble.”
“For the last three years, the farmers we’re financing have been able to pay us, but once they’ve paid us and other creditors, there’s been no profit left in the operation,” said Rochelle. “In 2001, after farmers paid us, there was simply no equity left in their farm operations. Now, we’re going into 2002 with farmers that are strapped financially, wondering how they’re going to cash flow. Then you stick the Grassley Amendment on top of that and you have a dim picture of how things are going to work out.”
Without a Farm Bill, $7.4 billion could be funneled to farmers through some form of payment, Rochelle said.
“We would have to rely on the current loan price and some other type of paper from the federal government to put our loans together,” he said. “We’re basically looking outside the Farm Bill.”
The Farm Service Administration (FSA) is allowing ag lenders to use the last three years of government payments to calculate cash flow for loans, and those “are going pretty well,” said Griffin Norquist, president of the Bank of Yazoo City.
“But farmers using their own money are facing uncertainty,” he said. “We’ve always known how the rules and regulations were going to work. Now we don’t. It’s the most serious situation I’ve seen in 30 years of banking.”
Fred Miller, president of the Bank of Anguilla and a member of the American Bankers Association agricultural committee, said there are fewer FSA borrowers for crop loans this year.
“We had a few older farmers who decided to get out, and a young farmer who decided to protect his equity,” Miller said.
The bank has already made about half of its ag loans for 2002, Miller said.
“Things have gone fairly well considering horrible cash flows, but they’re good enough for the bank to be protected, and we’ll do everything possible to get our growers back into the field,” he said.
“Everyone has completely used up their equity. But if we have another year like last year, I’m afraid the number of forced liquidations would increase.”
If the Grassley Amendment stands, it would represent the most significant change in agriculture since the first Farm Bill was written in the 1930s, Miller said.
“It would have a devastating affect,” he said. “Land values and rental values would decrease. Large family farms would have to be split into smaller units, and the chance of making money on an economy of scale would be eliminated.”
The Grassley Amendment would eliminate non-recourse loans.
“Without non-recourse loans, there would be huge tax implications and the loans would become worthless for growers with current commodity prices,” Miller said.
Ag lenders in the Delta have stayed in constant contact with each other as the planting season unveils, Norquist said.
“I could no more predict how the cotton farmer will do this year than I could fly to the moon,” he said. “The catfish farming situation lends a double whammy because prices to them are off dramatically. We cannot have a bad crop year with prices as low as they are.”
A common misconception is that subsidies are bailouts and that the community wouldn’t be hurt if the subsidies stop, Miller said.
“Anyone who has looked at farmers’ income statements for the last five years knows that the money is not staying with the farmers,” he said. “It’s more of a subsidy for the community and the state. They are split between the banks and farmers’ vendors, such as Mississippi Chemical Co.”
Once farmers cut back on expenditures, it moves through the community, Norquist said.
“We’re at a crossroads,” he said. “Even though financial institutions throughout the Delta are strong, the (unresolved) Farm Bill is putting incredible pressure on everyone. Farmers will be out in the fields planting while Congress is on TV working out a bill.”
Contact MBJ contributing writer Lynne Wilbanks Jeter at firstname.lastname@example.org</a.