Get Ready To Assume More Risk

When heading to the bank or farm-credit lender, have your ducks in a row and expect to answer plenty of questions about

When heading to the bank or farm-credit lender, have your ducks in a row and expect to answer plenty of questions about how you’ll manage the risk and tighter margins that are expected, says Jason Henderson, executive vice president of the Federal Reserve Bank in Kansas City.

His advice on seeking cattle and other ag loans were part of the program at the annual Southwest Beef Symposium last week in Midland, TX.

Texas and New Mexico ranchers and feeders were also advised of the likelihood of even more pressure on the beef industry in Washington. They also listened closely to a forecast of gasoline, diesel and other energy prices for 2009 and other factors that can impact their operations.

Henderson says that despite the financial crisis facing the U.S. and world, ag lenders have more money to lend “than a year ago” and interest rates are also lower. “But you’ll need more collateral to get the loan,” he says. “And farmers and ranchers will be asked to assume more risks.”

The debt-to-asset ratio, good debt management and the manner in which producers have been “managing the margin” will be among the questions bankers will have for ag loan seekers, he says.

In many cases, “land values are declining by 3-4% from the third quarter of 2008,” he added. “Land is collateral, so it will be a real challenge (in obtaining a loan).”

Lower fuel prices should continue, says Jason Johnson, Texas AgriLife Extension economist. His projections, as of Jan. 13, were that gasoline prices would average $1.87/gal. this year, diesel will average $2.27/gal., heating oil, $2.22/gal., and natural gas, $5.78/mcf.

Those projections change nearly daily, but should still remain far below the surge in prices in mid-2008. “Prices are not going to be stable and low,” he says. “They’re going to be volatile and low.”

“We know they are coming after us,” warns Colin Woodall, National Cattlemen’s Beef Association chief lobbyist in Washington, D.C., speaking about the potential for more costly regulation on beef production and processing.

With more apparent influence from anti-beef culprits like Wayne Pacelle, president of the Humane Society of the U.S. (HSUS), and environmental activists, there could be added anti-beef sentiment from a Democrat-controlled Congress and White House, Woodall says.

He says new USDA Secretary Tom Vilsack was Pacelle’s “number-one choice” for the Obama administration cabinet post. And Pacelle’s main goal is to “put animal agriculture out of business,” Woodall stresses. “We could see an office of animal welfare under a possible USDA reorganization,” he adds.

Woodall believes congressional leaders will push for other measures NCBA opposes. Colin Peterson (D-MN), chairman of the House Ag Committee, for instance, sees “mandatory animal ID by the end of the year” as a main priority, Woodall says, and “NCBA will fight that tooth and nail.”

He also adds that NCBA will continue its fight to repeal the subsidy paid to ethanol producers saying, “All we ask for is a level playing field with ethanol.”
-- Larry Stalcup