September 04, 2002
Ag Lenders: Producers Have Financial Options This Year
LINCOLN, Neb. — Bankers might be more flexible than producers expect in exploring financial options this year.
Lenders' thinking "might surprise" producers, said Cheryl Burkhart-Kriesel, community and economic development specialist at the University of Nebraska Panhandle Research and Extension Center at Scottsbluff.
Burkhart-Kriesel interviewed 20 agricultural lenders in August from the Nebraska Panhandle, South Dakota and Wyoming about the drought's impact.
The most important advice that lenders have for their ag borrowers is to visit with their bankers soon about changes in their operation due to the drought, she said.
"They want to know – to the best of the producer's ability – an estimate of expenses and income," Burkhart-Kriesel said. "With that information they can then begin to work on ways to restructure the impact of the loss of income to make sure there is adequate cash-flow for the next year. If producers come in at the end of the year to renew their operating note without spending time with their lender now, they are doing themselves a real disservice."
With today's lower interest rates and low inflation, lenders are better positioned to help producers through losses by restructuring debts and refinancing, she said. In the '80s, high inflation and interest rates exacerbated financial problems for agricultural producers.
"Many lenders made it clear that they had come a long way from the '80s," the Institute of Agriculture and Natural Resources specialist said.
Producers and lenders alike may be adjusting their management styles and expectations.
"The drought is making us all work smarter," a lender said.
Lenders also mentioned a variety of ways to restructure and refinance debt. Some said the current low interest rates might mean options for producers to restructure their current loans using lower rates and a wide variety of possible alternatives for reducing expenses as well as generating extra income in agricultural operations.
"It was clear to me that ag lenders had information, by virtue of their position, and were very willing to share production and management ideas that they had heard from other borrowers," she said. "They were telling me indirectly, 'we have to work together to get through this'."
In terms of management, lenders also talked about the fact that farmers and ranchers were doing an amazing job of managing their operations with the little rainfall they were given.
"(We) younger guys are learning a lot from some of these old timers," a lender said.
One concern that lenders had was that because so much time was being spent on the day-to-day tasks of farming and ranching due to the drought, producers may not see all the information sources or production management options available to them.
"Besides their lender, they can access their accountant, other producers, their Farm Service Agency, crop insurance agent or a local Cooperative Extension office," Burkhart-Kriesel said. "All of these information sources should be used because every decision this year has trade-offs. We seem to be writing the book as we go along."
When it comes to the future, lenders are encouraging farmers and ranchers to carefully consider their options for next year, she said.
"They are encouraging people to think about what if there isn't a lot of rainfall or irrigation water ... what kind of crops can they grow that would still give them income in that kind of a situation."
"Farmers and ranchers also need to develop scenarios remembering the long-term impacts," she said. " If they were to sell some or all of their cattle, for instance, how does this affect them 2-5 years down the road?"
Producers also considering retirement need to think about how their actions today may influence their transition in 5-10 years.
"The main thing lenders do not want from ag producers is panic. Lenders do not want borrowers to take drastic action and then regret it," Burkhart-Kriesel said.
Lenders noted that the weather and commodity markets can change quickly. Management flexibility will be very important next year.
When asked what kind of advice would they give to people working with farm and ranch families this year, lenders said: "Listen to them and try to understand their viewpoint, find a way to work things out, be patient, help them keep things in perspective and encourage them to seek out advice and assistance when they need it."
09/04/02-SA
Cheryl Burkhart-Kriesel - Ph.D.
Panhandle Research and Extenstion Center
Community and Economic Development Specialist
(308)632-1234
Sandi Alswager Karstens IANR News and Photography (402) 472-3030
Department: Cooperative Extension
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