Most people meet with a banker on rare occasions, maybe twice every 10 years when a home mortgage or a car loan is needed.
The meetings usually aren’t fun either, especially for people already heavily indebted or smitten with shabby credit history.
But for the clients of Robert J. Foley, an officer at Roseau Citizens State Bank in the small town of Roseau, Minn., the banker-client relationship is a casual one, maybe even a warmone. Most of his clients are farmers.
“We might meet monthly, if not more often,” Foley said. “It’s a different relationship than the one we have with the average person who receives a paycheck every two weeks.”
Those monthly meetings allow farmers to hammer out loan repayment schedules and evaluate where they’re likely to fall short as they plan out seed, fertilizer and livestock costs at the beginning of each season.
Bankers like Foley, though, don’t call so many meetings just to chitchat about farm reports and hog futures. It’s a necessity to pay extra attention to farmers since, among other reasons, they are such excellent customers.
Ninety to 95 percent of farmers use operating loans to cover at least part of their expenses at the start of a growing season. And, the percentage is expected to grow this year as farm incomes continue to dip lower on account of commodity prices depressed by over supply and weak overseas demand.
“There’s a tremendous amount of pessimism,” said Robert Craven, a professor of applied economics who concentrates on agriculture and banking.
The worries revolve around farmers who rely on operating loans too much and who already have a fair amount of debt. This year they might have a tougher time securing loans for next season, said Roy E. Abbott, of Abbott Futures, Inc. in Minneapolis. Unfortunately, there are many such farmers.
It’s common for farmers to finance their spring start-up costs by borrowing money. Bankers approve the borrowed funds based on a farmer’s current debt and the forecasted crop yield and prices, hence the forecasted income of the farm and the likelihood of a loan’s repayment.
Foley and other bankers throughout the state will likely soften the lending criteria next spring, but that still might not ease requirements enough to allow credit to be extend to everyone who needs it. Slackening the borrower requirements isn’t the best option either since it pushes interest rates higher due to the increased chances of loan default.
The real danger for farmers lies ahead, said Les Peterson, a banker at Farmer’s State Bank in Trimont, Minn. Peterson explained that a greater number of farmers will face bankruptcy if crop reserves aren’t reduced and prices stay stuck in the basement.
About one-third of farmers rely entirely on loans to make it through the start-up phase of the season, Peterson said. Most farmers use borrowed funds to cover only a small percentage of their expenses. If those farmers carry over debt from this year, he said, they are likely to face tougher scrutiny when they apply for loans next year. If the funds aren’t granted, it’s likely that loan-dependent farmers will have to close up shop.
Still, farmers have a better chance of staying in business now than during the 1980s crisis when farmers laden with debt and high interest rates had to sell off their land to pay off loans, said Sung Won Sohn, senior vice president and chief economist at Wells Fargo Bank in Minneapolis.
Federal aid provided by the omnibus spending bill Congress passed late last month will help alleviate the burden on farmers, Peterson said. But even that funding might not save all farmers from calling it quits.