New growing season offers many questions, few answers

Northwestern Financial Review, Apr 1, 2001

With a new administration in Washington, D.C., a softening economy and persistent Depression-- era prices for some commodities, agricultural bankers and farmers enter the 2001 growing season with several unanswered questions. Will Congress continue to pass emergency funding bills to help farmers make up for low prices? What priorities will the new administration identify as Congress fashions the next farm bill? Will Farm Credit System institutions continue to intrude into traditional commercial bank lending territory? What can be done to assure the viability of rural communities as the digital divide leaves many small communities further and further behind the development of their urban counterparts?

Bankers throughout the nation's Heartland seem frustrated by the questions but hopeful that answers will emerge over the coming months.

"We know that the banking industry is still the largest supplier of ag credit," noted Tom Olson, president of Lisco State Bank, Lisco, Neb. "The concern, however, comes from two areas of competition: ag suppliers offering their own credit to farmers, and the Farm Credit System."

Olson cited an example of a farmer in his Western Nebraska trade area who obtained a 16-year, fixed-rate loan at 6 percent from the Farm Credit System. "This is something the banking industry cannot compete against," he said.

With the nation's farmers receiving more than half their income in 2000 from government payments, most bankers expect government payments to remain a key to the industry's survival, albeit at reduced levels. "There will have to be some form of assistance during difficult times," Olson said.

Speaking at the annual convention of the Independent Community Bankers of America March 8, Wisconsin banker Tom Sheehan said: "We have to do better to strengthen rural America." During his farewell address as the association's 2000-2001 chairman, Sheehan said: "More than stopgap emergency funding measures that only temporarily stem the pain are needed. We must continue to press Congress to pass another farm-aid package this year to help our farm customers weather the persistent depression in commodity prices. We must urge that more federal funds are provided automatically to farmers in times of low prices."

While worldwide grain production is growing, some bankers hold out hope for the possibility of rising commodity prices. Steve Lindholm, president of Farmers and Merchants State Bank in Clarkfield, Minn., said ethanol production offers a new market for corn. "The more uses we can find for our commodities, the more that will help us," Lindholm said.

Increased exporting also is part of the answer, according to some bankers. "To me, exports are still the key," said Olson. "One of the best things we could do is help Third World countries develop so they become buyers of our products."

"With one-third of our country's agricultural production sold overseas, ICBA worked hard in the coalition that helped pass a bill for normal trade relations with China," Sheehan reminded colleagues at the ICBA convention. "But we must find ways to further expand our export markets for agriculture."

The number of commercial farming operations is declining all over the country, as the average farm grows in size. In addition, the number of people making their livelihood in agriculture is shrinking as the average age of the typical farmer is increasing and the number of young people entering the industry is decreasing. These trends contribute doubt to the viability of rural communities.

"The lack of new young farmers is becoming an increasing problem," said Richard Gupton, deputy director of agricultural finance for ICBA. "The new secretary of agriculture, Ann Veneman, will have to look at how to get farmers involved. One strategy is to provide education in the urban areas about agriculture."

Sheehan commented that rural communities need to identify new areas for development. A complete reliance upon agriculture no longer seems sufficient to sustain many small communities. "We must encourage Congress to bring the economic benefits of better, high speed Internet and broadband access to rural America," said Sheehan. "And we must find better ways to provide for equity capital to help promote small business investment in rural areas."

Olson concurs and is leading a Nebraska Bankers Association task force that is trying to develop innovative rural policy that will give small towns new life in the face of ag industry troubles.

As rural communities look for new opportunities, so do the community bankers who serve them. Jeff Plagge, president of The First National Bank of Waverly, Iowa, noted very few banks can afford to limit their business to a single industry, such as agriculture. "Lenders that are purely in- an agricultural marketplace will need to push for new customers outside of their traditional marketplace," said Plagge. "These banks will want to diversify their portfolio."