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Banks to farmers: Be proactive in responding to falling commodity prices




The agricultural economy continues to experience a downturn in which low commodity prices have reduced farm incomes, and concerns about liquidity have reached an all-time high, said Steve Apodaca, senior vice president of the American Bankers Association Center for Agricultural & Rural Banking, who spoke this week at the Mississippi Bankers Association Agriculture Conference in Jackson.

With lower commodity prices, producers are more likely to be face challenges servicing their debt and need to take steps to address that issue.

“The concerns of the bankers and the American Banking Association are the decreases in commodity prices in the past three years and the resulting drop in farm income,” Apodaca said. “Cash flow is strained, which means that farmers have to dip into their liquidity. As time goes on, if commodity prices don’t increase, farmers and ranchers are going to be more strained in terms of servicing their debt.”

He recommends farmers talk to their banker early if there are signs of trouble. Make a projection ahead of the need to restructure the loan, and then get advice from a banker, CPA and the Extension Service.

“After many years of prudent management, agricultural banks have strong balance sheets that allow them to help those in distress,” Apodaca said. “Through the prudent use of techniques like loan restructuring, collateral enhancements, USDA loan guarantees and frequent visits to our customers, bankers can assist most of our clients in weathering a downturn. The good news is that down cycles lead to up cycles. The survivors are those who prepare for the next good times that eventually will come.”

Apodaca said agricultural banks are important sources of funding for many businesses and farmers, and are a part of the fabric of their communities.

The Farm Service Agency provides loan guarantees banks can use to address any issues a farmer or rancher may have with financing.

“If the bank says you are in a weak situation, a FSA guarantee on the loan will make banks more comfortable to refinance your debt,” Apodaca said. “That is a useful tool in these times, but the issue is that the program is running out of money. We have advocated to the agriculture committee in Congress that it very important not just that the FSA gets additional money to lend, but also additional staffing as the situation gets tight.”

Right now, FSA funding is level next year from this year. But more hardship is expected.

“We are not gaining ground on additional funding needed when the ag economy is going down,” Apodaca said. “So what I will say is that farmers, ranchers and bankers need to be advocating to Congressional representatives to make sure the USDA gets additional funding.”

Apodaca said other issues of importance include a shortage of rural appraisers. After the downturn in the economy in the 2007-2008 recession, it became much more difficult to become an appraiser. That especially affected rural appraisers. Apodaca said regulations need to be revised to make is less difficult to become an appraiser.

“In addition to that, we are working with Congress on tailoring regulation reform,” Apodaca said. “There were so many rules enacted because of Dodd-Frank, and all these regulations are making it cumbersome and difficult to provide new services. It makes it tough for community banks, and they don’t just do ag. The ABA is advocating tailored reform to add some relief, especially in rural areas. Most community banks are small. They don’t have a large staff. It affects ag banks especially because a lot of regulations coming out are tailored to urban situations. It is like trying to put a square peg in a round hole.”

Two other important issues the ABA is working on are making sure crop insurance is continued and fully funded, and eliminating abuses in the farm credit system that led to financing non-ag ventures like casinos and mansions.

John Barnard, president of the Mississippi division, First South Farm Credit, Ridgeland, said credit is still readily available for most producers in the state.

“Most of the producers have done a good job of managing their balance sheet,” Barnard said. “There is liquidity on the balance sheet. It is not overly leveraged. There has been concern about a drop in commodity prices. Most producers are in a position where they are going to be able to keep getting a loan. Obviously, with low commodity prices, it is more difficult to eke out a profit. But they are in a position where they can withstand some downturn.”

Some commodity prices have improved slightly this year.

“So, hopefully, producers could take advantage of some upward movement,” Barnard said. “Some have been able to benefit from a little bit of a rally in soybeans and corn.”

Barnard said the cost of borrowing money has been very stable since 2008-2009 when the feds lowered the prime interest rates. Most of ag production loans are set up where they can draw money as needed. They don’t pay interest on anything except what they borrow.

First South Farm Credit primarily does ag lending.

“First South Farm Credit has a strong balance sheet, just like many of our producers out there,” Barnard said. “From that perspective, we continue to support ag in Mississippi and support producers as best we can as they face the challenge of going forward to manage a balance sheet in a period of lower commodity prices.”


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About Ross Reily

Ross Reily is editor of the Mississippi Business Journal. He is a husband to an amazing wife, dad to 3 crazy kids and 2 dogs. He is also a fan of the Delta State Fighting Okra and the Boston Red Sox.

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