Facing Lean Years, Cattle Producers May Strain Lenders

By Bronstien, Barbara F. | American Banker, September 3, 1996 | Go to article overview

Facing Lean Years, Cattle Producers May Strain Lenders


Bronstien, Barbara F., American Banker


Despite encouraging signs in the livestock industry, rangeland bankers say it could take a couple of years to rustle their cattle customers back to profitability.

"We can start to see that light at the end of the tunnel," said Bret Fox, a research analyst at Cattle-Fax, an Englewood, Colo., information company serving livestock producers. "It's just a question of ... summoning the ability to make it through the next couple of years."

Lenders to cattle producers have watched their customers struggle in recent months, beset with low prices and high feed costs after a period of expansion and good profits since 1990. Such price declines are a typical part of the economic cycle after a period of expansion, analysts said, but this one is especially hard.

Though observers predicted a recovery in about two years, followed by several years of a strong cattle market, getting borrowers to that point is the challenge for lenders.

The recent price declines have pushed some operators out of business and forced others to begin liquidating cattle. As pricing uncertainties continue, lenders don't yet know the full impact of the downturn and what potential losses their loan portfolios may contain.

"We've just kept our loan-loss reserves steady," said Jeff Klick, vice president of First American Bank, Woodward, Okla. "We are recognizing that the agricultural sector could tap it a little bit."

Some bright news came last week when the U.S. Agriculture Department reported the number of cattle in feedlots as 14% lower at Aug. 1 than a year earlier. Feedlots fatten livestock before they're sold for slaughter.

"We're short on feed cattle supplies through December," said Dean Witter vice president and senior livestock analyst Dale Benson in Chicago. …

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