By Dorinda Anderson

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Prairie Grains is the official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.

Shortages are occurring because of low commodity prices, creating a cash flow crunch for farmers, and increased loan activity. Without additional funding, North Dakota will be short between $30 and $35 million in guaranteed operating loan money with interest assistance, and an estimated $15 million in guaranteed farm ownership for non-beginning farmer loans, says Arnie Meyer, ag credit director, North Dakota State FSA Office, Fargo.

In Minnesota, FSA officials are requesting an additional $1 billion in guaranteed funding for interest assistance loans, says Mark Krinke, farm loan program specialist, Minnesota state FSA office, St. Paul. The department is also backlogged about $7.66 million in funding for non-beginning farmer guaranteed operating interest assistance loans.

Krinke says it is common for FSA to run short of money, but not this early in the year. FSA officials from both states are working with federal lawmakers and other officials to secure additional funding in time for spring planting.

Federal lawmakers are also moving to earmark $500 million to guarantee farm loans. Further, President Clinton in late February submitted a request to Congress for $152.4 million in additional funds for Fiscal Year 1999, which ends Sept. 30, to provide loans to farmers and to increase staffing levels in USDA’s FSA offices.

The president’s supplemental request includes $109.6 million in new loan authority, which USDA Secretary Dan Glickman said would enable the USDA to make approximately 10,000 new direct and guaranteed loans totaling $1.1 billion. The presidential request also includes $42.8 million to hire temporary staff for FSA county offices, to help with a deluge of service responsibilities brought on in part by last fall’s federal disaster assistance program.

FSA offices fund loans according to application dates, so officials encourage farmers to continue applying even though funding is short right now. "Just because we’re out today doesn’t mean we’ll be out tomorrow," Krinke says.

Ron Dvergsten, with the Northland Community Technical College’s Farm Business Management program, Thief River Falls, MN, agrees that it is important to get loan applications in as early as possible, and have the information as complete as possible. Also, research your credit options. One credit avenue for some may be emergency loans available through the FSA. To qualify, a reduction in yields of at least 35% from normal production levels is needed on any one enterprise raised. Also, in some disaster-affected counties, producers who have suffered losses may be eligible to defer loan payments due at the end of 1998 or early 1999.

Dvergsten says more farmers will be looking at ways to control input costs in 1999. "Two expenses farmers have the least amount of control over are chemicals and repairs. They need to budget for what they think their chemical program will be for the year," he says. "In some cases, due to weather, that may change. And when it does, that cost of chemical tends to go up on a per acre basis and rather substantially."

Operations carrying over a 70% debt to asset ratio will have a difficult time cash flowing at today’s prices, says Dvergsten. "If you are in that position there are things that can be done, such as looking at debt rescheduling. But if your debts are that high there is probably not a lot of room to restructure in order to lower your annual payment. There may be areas where there are only a couple of years left on a loan and the payments can be extended to decrease the annual payment," he says.

Another option to help reduce debt load is to sell off unused equipment or nonessential assets. If you’re carrying debt of 10% interest at the local bank, gains from the equipment could help reduce the interest costs.

Farm lenders, just like their customers, are hopeful that the price slump will lift soon. "As lenders, we need to remain optimistic. We’re still fairly optimistic wheat; what we’re thinking and hearing is that there’s still room for improvement but that the price could come up this fall. The cattle market looks pretty good, beef feeders particularly. Integrated producers will be in the best shape," says Dave Neshem, FCS loan analyst in Minot, N.D.

90’s farm finance picture different than 80’s

Ag lenders are seeing varying levels of financial uncertainty for farmers. Producers are cutting back on spending, and more farmers this year are using equipment, land, or other assets as collateral for operating loans. "As a primary lender, we’re seeking a guarantee," says Bob Bahl, CEO of Farm Credit Services, Grand Forks. "Several years of losses have eroded working capital, so farmers need to borrow more money to operate. Their machinery and collateral is a bit softer, leaving a challenge to the customer to have adequate security to borrow the operating money they need."

Lee Wagner, FCS branch supervisor in Minot, ND, says crops in that area were good on average, and many farmers still have a manageable farm financial picture. But working capital has tightened with the lower markets, and Wagner says more people may need to restructure loans, lengthen terms, or borrow against equity that doesn’t have debt against it, if prices don’t improve.

Today’s farm financial situation should not be compared to the farm crisis in the 1980s, says Jeff Kemick, president of Norwest Bank, Minnesota—West NA in Moorhead, MN. The U.S. economy as a whole is in far better shape now than it was in the early 80s, he points out. Interest rates are also much lower than the double-digit numbers over a decade ago, which gives farmers an opportunity to restructure some loans.

A change in the markets and a better safety net to help producers manage price and production risks will go far in helping to improve the current farm economic crisis. In the meantime, Kemick believes the farm crisis of the 1980s resulted in lessons that are helping financial lenders and their customers weather through today’s hard times.

"From a customer standpoint, farmers are identifying some areas where changes can be made in their operations, which is more proactive on the producers part, creating a different environment than the 80s." Producers who went through the 80s crisis are looking at more drastic changes in their operations, like possibly renting out some acres, he says.

Farmers now also have some diversified income, either from a spouse working off the farm or from working during the off season. "The whole world became more sophisticated and some made money in spite of low prices," Kemick says. "Some farmers made money by using other tools like marketing crops before prices fell. I think there are some good opportunities for producers if they want to use some of these other tools."