"Business as usual is anything but usual these days for Wisconsin ag lenders," says Gary Steele, vice president of Agribusiness Capital with AgStar Financial Services. Steele was one of four ag lenders who spoke on a panel recently at the Professional Dairy Producers of Wisconsin Annual Business Conference in Madison. Other lenders included Gary Sellen of Badgerland Financial who was panel moderator; Brad Guse, M&I Bank, Marshfield; and Doug Hein, State Bank of Newburg.
"Five years ago, who ever heard of counter-party risk? Now you have to worry if you pre-pay for feed or farm inputs, will you get it," Steele asked.
All four panelists discussed the impact on ag lending of declining livestock values, milk prices and cash flows on Wisconsin dairy farms across the state. Steele contrasted the 1980s farm crisis with what's happening today.
"Interest rates today are a lot lower than they were in the 1980s," he noted. "Ag lenders are financially strong and have enjoyed good profits. Banks are well capitalized and are above regulatory requirements." Steele acknowledged that while most Wisconsin dairy producers are struggling right now, he believes "the vast majority of producers will survive."
Guse echoed Steele's comments.
"Cash flow is king," Guse said. "That's what repays loans. How you invested in your operation in the last three years may determine how you get through the next six months."
Guse said there are a number of options dairy farmers who have net worth can take to shore up limited cash flows.
Paying interest only.
Setting up a line of credit with your lender to get you through the next six months. Restructure your debt to pay the bridge loan back over two to three years instead of one year.
Cut expenses by 10%.
"I challenge all of my borrowers to cut 10% out of their expenses," Guse said. "The important thing to do is communicate with your lenders and vendors."
Hein said he helps borrowers figure out what will work best for them on a case by case basis.
"In some cases, they may be on an aggressive payment schedule," Hein said. "If their credit is good and they have a viable plan, I can see extending short term loans from five up to seven years. I can see restructuring real estate loans for 20 years."
Hein said the financial meltdown that took place last September on Wall Street has reenergized bank examiners.
"They are going to do their job as regulators," he said. "They want to make sure we're keeping on top of the situation. They understand we're working with our farmers. They want us to be proactive."
Ag lenders aren't interested in putting farmers out of business, Hein said.
"We've all been in ag lending a long time. It's a cyclical business," he noted. "We're all in it for the long term and bottom line, we're going to work our way through this."
Guse said there are sufficient funds available to make farm loans.
"Lending policy is relatively consistent despite market volatility," he added. "It's not business as usual for the banking industry or for your business so get done what you need to get done, get over it and get back to work."