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Ag prices to determine relationships
Fluctuating commodities prices and higher fertilizer costs could impact the relationship farmers enjoy with local banks in coming months.
Winnsboro State Bank president Mike Woods said the economic downturn has not impacted the ability of local banks to make crop loans to farmers. However, farmers will still have to show they can turn a profit on the crops they produce.
"There will be the same requirements we've always had," said Woods. "The farmer will need to be able to show a cashflow."
That's far from a given with current commodities prices and rising input costs.
"We're still uncertain what the price of fertilizer is going to be and how it's going to be in the mix," Woods said. "There's also a lot of uncertainty about commodity prices because they've been fluctuating."
LSU AgCenter's Carol Pinnell-Alison added producers could face difficulties borrowing crop cash in 2009 because of the 2008 storms.
"There are some issues still lingering out there and I think it's just one of those things that it's going to take this winter to work out," said Pinnell-Alison.
Specifically, there is a big question hanging over producers who plant the crops, the elevators that buy them and the banks that lend the money: In the event of a farmer's failure to meet his contract to the elevators, who gets the money?
When Hurricane Gustav pounded the region earlier this year, it damaged many crops beyond salvage. That left farmers without the means to meet their contractual obligations and elevators holding onto the little money available to meet the contract obligations.
That left the banks without the guarantee of first lien, according to Pinnell-Alison.
"Lending institutions might not be willing to loan money on crops," without that guarantee, Pinnell-Alison said.
Woods said the concerns are valid.
"It's something that we all need to come to agreement on, to get a resolution on," Woods said.
"It came up because of the economic situation and because of the damage of the crops due to the storm," Woods said. "That's what brought to light this issue."
Woods said he expected everyone would come together and hammer out an agreement about how to prevent the problem in the future.
"What we will do in working with our legislators, the local elevators and suppliers is to find some middle ground," Woods said. "We need them just like they need us to provide financing."
Franklin Parish banks dodged the bullet with the 2008 crop, but it was a close call, according to Woods.
"It wasn't that big of an issue for us," Woods said. "But I know that it could have been had we had more damage here from the storm or if things had varied any more than they did in the commodity market."
Woods expects resolution to come quickly, but added that banks, producers, elevator operators and legislators must all be a part of the solution.
"If any of those variables are not in the equation, the system could break down," Woods said. |
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