Ag lenders are optimistically cautious about crops in 2001, but say
additional AMTA payments hold the key to profitability for Delta farmers.
"Farmers did not have a good year in 2000, and 2001 will look much the
same," says Stephen L. Rochelle, CEO of First South Production Credit
Association in Ridgeland. "Most farmers will be able to pay their operating
loans back, but they won't have a lot of money left in their pockets after
they get through paying their expenses."
Profitability will be determined by additional government payments, which
gave farmers a reprieve last year, he says.
"Farmers missed the bullet because if they had not gotten the additional
government payments, most of them would not have cash flowed," Rochelle
says. "If they do get additional payments next year, there won't be a lot of
profits, but farmers will be able to continue."
In the last two years, government payments, from programs such as AMTA
(Agricultural Market Transition Act), and emergency assistance sources have
accounted for roughly 50% of net farm income, according to the National
Cotton Council.
"The reason Americans eat as cheaply as they do is because of this system,"
says Sells Newman, senior vice president of First South PCA. "If it weren't
for the safety net, agriculture would be out of business."
Joe Bryan, senior vice president of the Bank of Yazoo City, ag lenders for
more than 100 years, says the bank's ag portfolio has been reduced in the
last 10 years because of the economic situation for farmers.
""We had the worm problem in 1995, and that hurt many farmers badly," Bryan
says. "Production costs keep going up while prices keep going down. We
intend to keep exploring every avenue possible to continue financing
credit-worthy farmers. We especially like to take care of our old line
farmers but we're not putting the hatchet on anybody."
Crop insurance isn't required - yet, says Joe Bryan, vice president of the
Bank of Yazoo City.
"We don't have a set policy for everyone," he says. "It strictly depends on
the individual situation."
Like many agricultural lenders, First South PCA doesn't recommend a crop
mix. Instead, each proposal is reviewed, and loan decisions are made based
on farmers' business plans, Rochelle says.
"We have a very diversified portfolio over a three-state area, and the
highest concentration on any one commodity, including poultry, catfish,
cotton, and other agricultural crops, is about 28%," he says. "That's the
reason we can hang in there so that if one year, row crops don't look good,
then poultry might do well."
Alton McRee, president and CEO of the Federal Land  Bank Association of
South Mississippi, says he's seen no indication that commodity prices will
improve in 2001.
"From a price standpoint, it looks like things will continue to be
stressed," McRee says. "Then there's always the weather. We don't know what
that will be. With the weather last year and low prices, there was a double
dose of bad news with prices low and yields low. We can hope for better
weather and we can hope for better prices."
The FLBA will continue to extend credit on real estate loans, McRee says.
"The demand for credit is down by about 40% from last year," he says.
"That's an indication of the impact of prices on everything. There's a
general attitude of pulling back, but that's natural in times when the farm
economy is like this."
Real estate isn't changing hands as often as when the outlook was brighter,
McRee says.
"People are just trying to hone in on what they have and hold on to it," he
says. So far, farmers aren't using equity to finance their operations,
McRee says.
"Not yet, at least," he says. "We haven't seen an upswing in those kinds of
requests. It's still too early to tell what the effects of last year will
have in terms of taking some short term carry over debt and spreading it out
over a longer time on some their real estate equity. Everything is still
being totaled up and settled."
Woods Eastland, president of Staplcotn in Greenville, says the outlook for
production financing hinges on the possibility of additional AMTA payments.
"If we knew we were going to get an additional payment like we did before,
the outlook would be better," he says.
Staplcotn is "neutral" about requiring crop insurance, Eastland says.
"It's up to the grower," he says. "If insurance is something that would make
a bankable loan, we would certainly consider that for collateral purposes.
If a loan were on the edge pending approval, it would depend on the level of
coverage. Crop insurance provides some guarantee."
Frank Sibley, CEO of Citizens Bank and Trust in Marks, called the 2001
outlook "cloudy."
"We're in limbo waiting on this final government payment for disaster
relief," he says. "We don't know how much it will be. Most of our farm
customers would be able to handle this year's production but they would be
struggling to handle equipment payments and land payments. They would be
looking at extensions of those credits and while most farmers have
collateral, they can only pay interest and renew for so long because low
prices and yields are suffering with the cash flow. Banks have gotten in
trouble before with collateral lending so you've got to look at cash flow."
Citizens Bank and Trust's loan portfolio typically consists of 18%
agricultural loans, Sibley says.
"That's where we like to keep it," he says. "It looks like all of our
borrowers will be OK, but many are having trouble paying off their other
loans for chemicals and other supplies. Our portfolio is in good shape but
that's because we've looked at every loan real hard for the last three years
and haven't been naive about it. We've helped structure some budgets and
shared some of the risk. I've heard a couple of borrowers say they want to
sell and get out, but only because it's their choice. It's not what they
want to do in five years."
The crop insurance program is a much-needed stabilizing force in the farm
economy, Sibley says.
"We always encourage our farmers to get at least minimum coverage," he says.
"We usually do three scenarios for the farmers in working a cash flow – bad,
medium, and good. Crop insurance is part of that. We can plug in figures and
come up with a good cash flow in 15 minutes and change it around, depending
on what a farmer wants to do, such as buying more land or equipment. After
they've been with us a while, it's easy to analyze their situation in any
direction they want to go. We've pretty well perfected that little niche."
Fred Miller, CEO of the Bank of Anguilla, and a member of American Bank
Association's Agriculture  Committee, says the use of  crop insurance as a
management tool is becoming more prevalent in the Delta, especially in the
south Delta.
"For years, we didn't have a lot of customers who used irrigation because
the rains were adequate and the soil was good, but then conditions changed
and sometimes they needed it. " Miller says. "Now, with crop insurance,
farmers have another tool to figure a way to grow a cheaper crop and do it
within limitations of what crop insurance would yield so that their risk is
reduced."
Approximately 80% to 90% of the Bank of Anguilla's loan portfolio consists
of agricultural loans, Miller says.
"Potentially all of our borrowers would be in trouble if there isn't a
second AMTA payment authorized," he says. "In the south Delta, our crop
averages have been trending down, unfortunately, and if they continue, the
farmers won't be breaking even. The only thing we can really hope for is
better weather. I don't think that we can see a situation where world
commodity prices rise to the point a farmer sees much benefit."
To cope with the downturn, some borrowers have decided to retain older
equipment, Miller says.
"We've seen a lot of farmers staying with older equipment trying to make it
last longer, and in the long run, it's not a good management practice," he
says. "They'll end up having to double up when it's time to buy equipment,
which is getting much more expensive every year."