If bankers’ concerns are any indication, Arkansas farmers will be in for a rough off-season. Storm clouds are gathering and the signs are ominous.
After months of drought, skyrocketing input costs, low commodity prices and hurricane-spawned storms during harvest, few farmers were expected to escape the growing season unscathed. But the seriousness of many farmers’ financial plights is sobering. The Arkansas Extension Service has estimated $900 million-plus losses from hurricane damage alone.
“This is for real,” said Greg Yielding, who heads the Arkansas Rice Growers Association (ARGA). “Chicken Little is nowhere in sight. It isn’t just rice that’s affected, either. Farmers with other crops are about to get pounded too. This situation is bad and getting worse. There is a real possibility of some drastic changes.”
Legislation and letter
Arkansas Sen. Blanche Lincoln and Rep. Marion Berry, both Democrats, have introduced agriculture disaster payment bills in Congress. Even with disaster legislation already in the works, a joint letter from the ARGA and the Arkansas Bankers Association (ABA) recently hit the desks of the state’s congressional delegation.
“Along with the bankers, we wanted to make sure everyone has ample warning about what’s coming down,” said Yielding.
In part, the letter reads, “Arkansas banking institutions finance growers of rice across the state. Many of these growers are facing extreme economic hardship because of the sharply increasing costs of diesel fuel and other energy-related inputs, the low prices that are being offered for their commodities in markets constricted by the effects of Hurricane Katrina on the Mississippi River and throughout our agricultural export system.
“We are very concerned that if growers do not receive federal assistance soon, many of them will not economically survive this crop year.”
The ABA was spurred to send the letter to Congress by “communications we’ve had with some of our ag lenders,” said Charles Miller, Arkansas Bankers Association director of governmental relations. “We’ve heard from the major row-cropping areas of the state. The Delta is (hard hit)… Obviously, when our membership becomes concerned with a particular customer base — in this case, farming — we do whatever we can from government relations standpoint to assist those bankers.”
Miller makes it clear he isn’t just concerned about rice producers. Even though ARGA’s letterhead was used for the joint statement, “the disaster request wasn’t for a specific crop…That’s why we took the actions we have and we’ll continue to follow up.”
One Delta bank
If Warren Jennings is right, there will be plenty of follow up. “There are a lot of farmers in trouble,” said the president of First National Bank in DeWitt, Ark. “Yesterday, bank examiners called me with a survey. They wanted to know what things look like. I said, ‘It looks horrible.’ Right now, I’m working on a list of what I think we’ll be looking at carryover-wise. It’s bad.”
While not willing to discuss individual cases and working off preliminary figures, Jennings said 30 percent to over 40 percent of his farming customers won’t cash flow. He’s heard similar numbers from other banks in the state.
“(Producers) won’t get enough for the rice and soybeans they’re cutting right now to pay the bank back. And it isn’t the situation with the bank so much as it is the credit they’ve got out with the fertilizer and fuel companies.”
Currently, a gallon of diesel costs between $2.60 and $3.25. A ton of urea costs $345. With the price of natural gas expected to rise, urea prices could jump to $400 or $500 per ton.
“I had an older farmer come into my office the other day,” said Jennings. “He said, ‘When I first grew rice, I sold it for $3 and paid 9 cents per gallon of diesel. Now, I’m paying $3 a gallon for diesel and still getting $3 for my rice.’”
As of mid-October, over 80 percent of Arkansas rice has been harvested. Yields will be off from last year.
“We lost at least 10 percent of the yield to the hurricanes,” said Chuck Wilson, Arkansas Extension rice specialist. “When rice is down, you can drive a combine slower but still can’t get it all up. The rice shatters and a bunch is left behind.
“Overall, though, yields will be decent — maybe somewhere in the high 140-bushel range.”
A decent crop won’t pay the bills, though. Following this year’s record 1.65 million-acre rice crop, Wilson estimates next year’s crop will be down 200,000 to 400,000 acres.
“Input costs are definitely a big part of that. I’ve had farmers tell me they’re not cash-flowing. I’ve also heard some farmers may be going out. It’s not looking good.
“The biggest issue is making things cash flow. With $3 diesel and urea costing as much as $400 per ton, that’s going to be tough. It’s hard to make a living with those prices. There aren’t any good options, although I see soybeans gaining acres over rice and corn. Anything with high inputs will take a hit.”
Some of the acreage decrease — perhaps 50,000 t0 100,000 acres — was expected due to crop rotations.
“We’d have lost those acres regardless,” said Wilson. “But the input costs are responsible for the rest. This is a big story: we could lose 25 percent of our acreage.
“The only thing that could save acreage is if the price of rice jumps. But if the price stays right around loan rate and expenses go up as anticipated, I don’t see how our rice acreage won’t decline.”
Yielding has heard from many farmers saying they’re “seriously considering not planting any rice. A few farmers have told me they won’t be planting any rice, period. A few others claim they’ll stick it out with rice even though they won’t make any money this year. Most of the folks I’ve heard that from own land, don’t have high equipment costs and they’re able to handle low rice prices a little better.
“But 80-something percent of the farmers in Arkansas rent their land. That means their landlords will have something to say about the crops they’ll plant.”
Jennings said landlords may indeed have a say about whether rice is planted, but they aren’t as firmly entrenched in the driver’s seat as they have been. “There are a number of farmers who are getting out. That means there will be a lot of land out there that landlords need farmers to work. As a result, I think the landlords will have to give a little bit… in the percentage of crop they get or cash-rent prices.
“That may not happen, but without it I don’t think the farmers will be able to pay. They aren’t going to be able to give half their rice crops to the landlords.
“Some of the farmers aren’t going to be farming next year anyway. A number of older farmers have said, ‘We’re not losing our house and all our land. We’ve been losing money for the last few years and now we’re getting out.’”
For those still wanting to farm, “if they don’t get help by the end of the year, we’re going to have some big decisions to make here at the bank. We’ve got to figure out if we’ll continue loaning them money.”
Staring down the barrel
Yielding insists agriculture is “staring down the barrel of a bunch of bankruptcies. This is fish or cut bait time — something has to give or a bunch of farmers won’t be farming next year.”
Fuel costs are so prohibitive that, at least anecdotally, farms have increasingly been the target of theft. “I hear from farmers who have been ripped off and have had to lock their fuel tanks. Thieves have stolen or drained tanks. I hear that from all over the state. One producer I spoke with filled his tanks up for $20,000. The next day, his well tanks were all drained. So he had to go buy even more fuel.
“Putting extra locks and security around is another expense farmers are facing. All of that’s happening in the middle of harvest.”
Do people outside agriculture understand the financial disaster that could soon be upon producers?
“No, they don’t,” said Jennings. “And they won’t know the scope of this until harvest ends and farmers start coming in saying, ‘I can’t pay. I sold my crop and I can’t even pay my bank note.’
“That’s going to happen. Right now, everyone is going along like everything is okay. But for those in positions like me — folks who know what the money situation is — the writing is on the wall. We know what’s coming and it’s not going to be pretty.”
Gaining the attention of politicians and leaders outside agriculture-based states is where bankers’ statements are especially valuable, said Yielding. “Bankers can explain the potential effects of this with great credibility. The truth is a lot of bankers aren’t for government bail-outs — they’re philosophically opposed. They’re normally on the other side of the issue. But they know this is serious for a state like Arkansas with a huge agriculture economy.”
Jennings bolsters the point. “I don’t like relying on the government to bail everyone out. That’s bad practice.
“But sometimes things are so bad, that’s what has to happen. If everyone wants cheap food, the farmers are going to need a big break. If that comes in fuel discounts, repayments or something else, fine. Something has to be done, though.
“Everyone will pay attention to this when the price of food starts jumping. By that time, though, it’ll be too late.”
Yet more ripples
Jennings and Miller said the coming months will be bad for most rural businesses, not just farms and banks.
“The banks will survive because most have real estate behind most of the loans,” said Jennings. “But there are businesses that can’t take the hit they’re about to face. They don’t have that kind of money in reserve.
“Fertilizer and fuel providers don’t have real estate liens. I don’t know how they’re going to handle collecting from farmers. And I’m talking about large bills — $100,000 here and $100,000 there and you’re talking big money.
“Some farmer carryovers are $1,000. That’s nothing. I’m not talking about those. I’m talking about some big carryovers — real big. Some of our farmers will have to sell some property, no doubt.”
For many, farmers or otherwise, money won’t be available for a typical Christmas. That means stores on town squares will be hurt.
“By the end of this year, a bunch of people’s habits will change,” said Jennings. “This is minor, but it’s illuminating. A secretary at the bank has a sister who lives out in the country. She used to drive into town two or three times a day. Now, she doesn’t come into town unless she absolutely has to. It’s too expensive.
“I hate being so negative and I pray I’m wrong. But I’m not wrong. This just hasn’t dawned on too many folks yet. It will, though, when December ends and businesses start tallying up their holiday sales.”