Farm woes prompt banks to adopt conservative tact

Mother Nature dealt area farms a bad hand last year, and as a result some agricultural lenders will play their cards close to the vest this year.

“1995 was not a good year for a lot of the operations, so you’re going to see banks play it pretty conservatively for a year or two,´ said Max Ellis, senior vice president and chief agricultural lender for First National Bank of Greeley.

“Ninety-six looks like a good year, provided that you can grow a crop. You’ll need above-average production, and 1996 will probably be a pretty good year,” Ellis said.

Weld County is the fourth-largest agricultural county in the nation, and the highly capital-intensive industry can be profitable for banks in the field for the long run.

“Most of the money ends up going into large dollar items, like machinery and equipment, land and things like this,´ said Jack Taylor, agricultural lending officer at Union Colony Bank in Greeley. “Certainly, agriculture is not like a service business.

“Agriculture has a very large financing need,” he added.

Typically, Taylor said, ag lending falls into three categories: short-term operating funds, usually loaned on a year-to-year basis; machinery and equipment loans, which ordinarily are on a three- to five-year schedule; and real estate, generally structured on 20- to 25-year terms.

And typically, agricultural real estate loans are offered at rates that parallel commercial real estate rates, about 1.5 percent to 2 percent higher than home loans. Equipment loans are usually linked to the prime rate, and the typical farm line of credit for operating expenses is between 1.5 percent and 2 percent above prime.

But agriculture is not an area of finance that lenders can enter without a substantial commitment, said First National Bank of Greeley president Gary DeFrange.

“I think there are two critical things. First, you have got to have an ag lender who really understands the ag business,” DeFrange said. “People who are farmers and ranchers want to come into the bank, sit down in front of Max Ellis and know he knows what they’re talking about.

“Second, they want to know a bank is in ag lending, and going to stay in ag lending. They don’t want a situation where after the first bad year, the bank decides to get out. The worst time to move is when you just had a bad year; that’s when you need your banker most.”

Farm Credit Services, a member cooperative funded through the sale of bonds, holds notes on about $200 million in agricultural real estate loans in Larimer and Weld counties, and about $35 million in short-term operating loans. The agency maintains its competitive edge in the market by making only ag loans, said Fletcher Monroe, assistant vice president at the Fort Collins office.

“As agriculture goes up and down in profiability, banks will say, ?We wanna get some of that business.’ But agriculture is very cyclical,” Monroe said. “When ag starts losing money, banks may say, ?We can make more on credit cards and cars.’

“We do ag lending all day, every day. We’re not going to sell checking accounts, or trusts or securities.”

Ellis said some large agribusinesses, Agland Inc. among them, have taken on some of the higher-risk loans, offering to cover operating expenses with only the potential crop as collateral.

“It only started in the last three to five years, and the idea behind that is that they want to sell product. So if you buy your fertilizer, fuel and seed from them, they’ll help finance the operation,” Ellis said.

So far, Agland’s loan program hasn’t cut into First National’s business. The bank’s portfolio is about 24 percent to 25 percent agriculture-related.

“What I see happening is that people would rather have the banking relationship first,” Ellis said. “But if for some reason you can’t get financing through the bank, you can get the operating money through that. Typically, we need more than just crop as collateral.”

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