Academic journal article ABA Banking Journal

Farm Banking in an Unpredictable Climate

Academic journal article ABA Banking Journal

Farm Banking in an Unpredictable Climate

Article excerpt

A panel of bankers and producers assesses the farm economy in a bewilderingly different atmosphere

After Sept. 11, Washington State farmer Mike Roozen was talking with some local apple growers from his region.

"I sat with one fellow I know, a young guy, family of two, about 35. He's spoken to Congress twice. His comment to me -- and I was shocked by it -- is he just wants to pull in his horns. It was almost like he was going isolationist."

In rural Morris, Ill., banker Dennis Hackett found a different reaction. He had attended a meeting of a committee set up by his town's mayor. It looks like Morris, lust off I-80, will be erecting a memorial to the Sept. 11 victims.

"That we would do a memorial to N.Y., sitting here in the heartland, is really a statement," says Hackett, "because, you know, the East Coast is relatively foreign to us.

Both stories are symptoms of the times. Agriculture and ag banking are having to handle a series of events that take some adjusting to. In the last year or so, we've seen a boom economy rapidly hit the brakes; a major shift in White House politics; an overnight shift in Senate politics when the Republicans lost their majority; record-setting Federal Reserve interest-rate cuts; cataclysmic terrorist attacks; drought in some regions; and the temporary near-shutdown of Congress, due to a disease with its roots in agriculture, and the virtual shutdown of legislative action on most issues for the duration, with the exception of those related to security--and, interestingly, to agriculture.

To probe the implications of such issues, we gathered four members of the ABA Agricultural and Rural Bankers Committee. We also asked each to invite one of their local producers. Also participating in this telephone conference call was John Blanchfield, director of ABA's Center for Agricultural and Rural Banking, and a veteran ag banker himself. Participants in our roundtable are identified at length near their photos. (In the following sections, producers' names are bold and italicized, while bankers names appear in bold only.)


The Federal Reserve's aggressive rate cutting, both before and after Sept. 11, has had varied effects around the country.

Finkbohner (Wash.): I'm getting an awful lot of interest from folks, especially in the dairy sector, who are looking at term financing for remodelling barns, that sort of a thing. The challenge is that rates have gotten so low, especially at the short end, that it's more difficult to price these deals comfortably. I've seen institutional lenders that might have done some term financing in the past, step out of the market.

Roozen (Wash.): Low short-term rates are offering some very attractive financing and we are looking at taking advantage of that. This atmosphere certainly benefits anybody who's in the process of construction, which we are.

Mauldin (Texas): From the bank side, it has just killed our profitability. Our net interest margin has been hammered. On the farm side, customers' operating expenses have been reduced quite substantially by this drop. Those who have the ability to make capital purchases are now anxious to make them, as well as to restructure debt while rates are low.

Firestine (Penn.): We're seeing a great deal of refinancing-even with our existing customers who have fixed rates, and even though we, of course, have prepayment penalties built in. They are willing to pay the penalties to do the refinancing. We're seeing some interest in farm machinery purchases, and we've done quite a bit in the last month. That's due to good dairy prices, as well as the low rates. The pricing has become very competitive between the banks, leading to concern over net interest margins.

Cobb (Penn.): We restructured and refinanced about a year ago. We purchased another farm and did some updates in our dairy operation. …

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