No credit crunch here
By Dairy Herd staff  |  Tuesday, March 24, 2009

In the midst of disconcerting news about bankruptcies, bailouts and extreme market volatility, there’s good news for dairy producers — there’s money to be had for farm loans. That was the message of several agricultural lenders at the Professional Dairy Producers of Wisconsin Annual Business Conference last week.

“Speaking of community banks, commercial banks, and the Farm Credit Service, there is money available for lending,” says Greg Steele, vice president for agribusiness capital at AgStar Financial Services. Steele is based in Baldwin, Wis.

Agricultural lenders are especially strong, he adds. “Our funding sources are solid; we’re able to provide credit; we’re committed to sound credit practices, and we’re dedicated to serving agriculture in the long run.”

Panelist Brad Guse, vice president/agricultural banking officer for M&I Bank in Marshfield, Wis., agrees. “The balance sheet in the agricultural world is still strong,” he says.

After pointing out the unprecedented volatility in financial markets, the bank liquidity crisis and the volatile prices of corn, soybeans and milk, Guse asks, “So, how has this changed the ag-lending business? It hasn’t. We are still lending money under the sound practices of the six Cs: Character, credit, capacity, capital, conditions and collateral. It’s going to be a tough year, but we can manage through it.”

Guse believes that volatility in the marketplace creates an opportunity for farmers to improve risk-management and financial-monitoring systems. “If you use these tools in today’s environment, you’ll stabilize your business.”

How does Wisconsin compare to other areas of the country in terms of the health of the agricultural-lending business? The panelists agreed that Wisconsin and the Midwest are doing somewhat better than other parts of the country. Wisconsin has a large number of agricultural lenders and a long-standing tradition, says Doug Hein, senior agricultural lending officer at the State Bank of Newburg in Newburg, Wis.

Steele points out that, in terms of lending to dairy producers, Wisconsin has two advantages compared to western dairy states: Many Wisconsin dairy producers grow their own feed or have control over it; and there’s a higher base price for milk in Wisconsin compared to western states.

Even though money is available for lending to farmers in Wisconsin, the panelists did point out that the cost of lending that money is likely to go up. “We’re early into this financial downturn. We anticipate the cost of operating will go up,” Steele predicts.

“Our cost of money has gone up, regardless of what the prime rate is,” Guse adds. “The prime rate is a managed number — managed by the Federal Reserve. The actual cost of money is higher.”

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