Farm Banks on Alert as Cattle Prices Fall
Bronstien, Barbara F., American Banker
Falling cattle prices over the past year have prompted agricultural bankers to take a closer look at their cattle customers' future.
"It's like a big cloud coming your way," said Danny Bishop, senior vice president in charge of agricultural correspondent lending for Texas Independent Bank, a bankers' bank in suburban Dallas. "You've got to find a way to get through it without getting hit before you can see sunshine on the other side."
Cattle prices rode a longer-than-usual boom for several years in the late '80s and early '90s, as farmers took longer to regroup after the agriculture crisis, experts said.
But prices took a downturn last year, and no one is certain when the trend will be reversed. "We anticipate that prices will trend lower over the next two years," said Bret Fox, a research analyst at Englewood, Colo. based Cattle-Fax, an information company serving cattle operators.
That's because existing industry expansions have not yet peaked, he said, and operators who liquidate cows will add even more to the saturated beef market.
What do low cattle prices mean for lenders?
Some of their customers will give up, being unwilling or unable to ride out the low-price cycle. Banks will play a key role for those that remain in the business.
"I'm very concerned," said Stephen Ebert, vice president and agriculture representative of $34 million-asset Farmers State Bank, Westmoreland, Kan. "Some ... will make it through this and tighten their belts. Some ... are not going to make it."
His bank will stick with customers that have the financial wherewithal to endure, he said. "If we can see we're just digging the hole deeper for that customer, we're probably going to say, that's enough."
Jerry Janz, vice president of $120 million-asset First American Bank, Detroit Lakes, Minn. …