Lending by commercial banks may be less than desired, but farm banks are continuing to finance the sector even though some borrowers are not doing so well, an executive of a major U. S. agricultural bank said.
Samuel Miller, senior vicepresident of agribusiness and food banking at Milwaukeebased M&I Bank, the seventh-largest U. S. farm bank, said the dairy sector has been hit hard by the recession, which ended in the third quarter of last year.
“We don’t change our lending practices. Our borrowers are not performing as well as they have in the past, but banks continue to lend,” he said on the sidelines of the Top Producer Seminar, attended by more than 600 farmers.
“There’s more stress than there was (in 2008), depending on the segment. Potato growers are doing great. Dairy, not so much,” Miller said, without giving details.
Agriculture was among a handful of bright spots in the economy during the recession, but prices turned down in 2009 after a blistering rally to record highs in 2008.
Chicago Mercantile Exchange milk futures prices have tumbled about 30 per cent since peaking above $20 per cwt in 2008 amid a sharp decline in exports and high input costs.
Losses in the industry pushed a dairy group, Co-operatives Working Together, to organize a dairy herd retirement program in a bid to reduce milk production and lift prices.
Dairy farmers were also taking steps to help protect them from the pitfalls of lower prices.
Miller said dairy farmers in Wisconsin, the No. 2 dairy-producing state, have increased efforts to hedge their expenses using futures contracts for feeds such as corn and soybean meal at the Chicago Board of Trade.
He also said the bank’s grain elevator clients borrowed less money in 2009 than they did in 2008.
The sharp fall in corn and soybean prices from 2008’s record highs along with the overall slump in the global economy allowed elevators to borrow less money to buy the commodities, he said.
The bank and its clients are well aware of the agriculture’s cyclical nature, Miller said, adding that market volatility provides opportunities for farmers to take advantage of peaks and valleys of the market.
“Farmers are honest. They pay their debts. They grew up on a farm, as I did, and understand that good times are followed by bad times, which are followed by more good times,” he said.