July 15, 2009

Ag lender to help crop producers understand lending environment

WEST LAFAYETTE, Ind. - Compared to the rest of the general population, grain farmers are in pretty good shape from a lending standpoint, said an Indiana agricultural lender who will speak at Purdue University's 42nd annual Top Farmer Crop Workshop.

"Despite what you hear in the news, well capitalized banks are still actively lending money," said Cary Mawbey, a senior commercial and ag lender with First Farmers Bank & Trust. "We've just shifted our paradigm.

"For the last 10 years, many banks have focused on extremely rapid loan growth, and it was a highly competitive market. Now, with everything that has unfolded during the last 12 months, there are not as many players in that market and banks are focusing more on building capital."

The workshop is scheduled for July 19-22 in West Lafayette. Mawbey will discuss interest rates, credit availability, what's happened during the last 12 months and where the big banks stand, as well as where he expects interest rates and consolidation to go in the future during his presentation at 11 a.m. Monday (July 20). A question and answer session will follow his presentation.

Banks used to like participating with other banks on loans to get quick loan growth, explained Mawbey.

"But a lot of those opportunities have dried up, partly because they don't have the capital to do that," he said. "Banks want the full relationship with the customer's deposit accounts or they want one that is extremely solid."

Banks have to be very diligent in the analysis of credit, he said.

"The risk rating and the credit analysis of loans has changed because we're in a deflationary market - it's hard to determine the worth of something," Mawbey said.

In looking at the agriculture side of things, Mawbey said, real estate values have held steady and the grain markets have been strong for the past two growing seasons, benefitting the balance sheet of many customers. However, they are obviously affected by the global economy, and cash flow projections for 2009 were not nearly as strong as the previous year, he said.

"As usual, when I sit down with a farmer, I look at the expected input costs for the year, the expected price for the crop and the cash flow projection," Mawbey said. "The main difference that we have now is our need for more security, on things like equipment and real estate to compensate for the volatility in the grain markets. We clearly have less of a safety net in the form of ag program payments than we had in the past."

Lenders will be more selective with the loans they take on and we've already seen that, Mawbey noted.

"Loan applicants that are in good financial health and understand the limits of their operation are going to be fine," he said. "It's those who don't have as much balance sheet strength or don't recognize their inefficiencies that could incur problems.  I'll be looking at your earned net worth, and if you are highly leveraged, you may have a tougher time getting the same type of loan this year and next year."

For individuals who may not have a strong balance sheet, Mawbey has some advice.

"In good years like last year, think about all the pros and cons to the decision before you go out and buy equipment just for the tax benefits," he said.  "Retain earnings, pay down debt and build up capital and liquidity.

"If leverage is not your problem but liquidity is, you should sit down with an ag lender and work to restructure your debt."

Short-term debt can be moved to long-term debt, and this opens up more liquidity, he said.

When working with banks to get a loan, the Kokomo-based ag lender said, "The best thing you can do is be open, honest and transparent so we can work together to build the best structure for your balance sheet."

Having a well-structured balance sheet means a grower has been able to make money and keep money in the farm, Mawbey said.  However, he realizes this is more difficult for young farmers because they need to keep growing their farm operations.

"The decisions you make every day of every year influence your balance sheet strength and the credit that's available to you," Mawbey said.

For now, he encourages growers to base their decisions on margins and utilize risk management tools, maintain cash/capital, make informed decisions on purchasing new equipment and real estate, and maintain good communication with banks and lenders.

"It's important for farmers to remember that we have their best interests at heart, because if they are not successful, then we are not successful. So we will do everything we can to help them succeed," Mawbey said.

The Top Farmer Crop Workshop is designed to help farmers financially position their operation, assess new technologies and network with other farmers, agribusiness leaders and university experts.  For more information about the workshop, visit http://www.agecon.purdue.edu/topfarmer/conference2009.asp

Individuals can register online at http://www.conf.purdue.edu/TOPCROP  or by calling Tom Robertson at 765-494-7220. Registration is $300 for the first representative from a farm and $100 for each additional attendee from the same farm.  Included are two meals, coffee breaks, workshop proceedings and the opportunity to test farm plans using the B-21 linear programming analysis. First-time workshop participants will receive a $100 discount when they register for the full conference by using the discount code "TCFIRST." Individuals may also register on-site.

Writer: Julie Douglas, 765-496-1050, douglajk@purdue.edu

Sources: Bruce Erickson, Top Farmer Crop Workshop coordinator, 765-494-9557, berickso@purdue.edu

Cary Mawbey, cary.mawbey@ffbt.com

Ag Communications: (765) 494-8415;
Steve Leer, sleer@purdue.edu
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