Ag Bankers, Producers Warn
Lawmakers Of Drouth Effects

ELK CITY, Okla. —(AP)— Bankers, ranchers and farmers told a congressional committee on Saturday that financial problems caused by the lingering drouth eventually will affect the entire economy if appropriate steps aren't taken soon.

"The pressure on ag borrowers and banks will increase as long as cattle prices remain low and the drouth continues," John Yorke, senior vice president of the Federal Reserve Bank of Kansas City, said in testimony before a field hearing of the House Banking Committee, chaired by Rep. Jim Leach, R-Iowa.

"Clearly, some ag banks could face an increase in problem loans. However, borrowers and bankers appear to be in a better position to handle these problems than they were during the agricultural downturn of the 1980s."

Yorke pointed out that most ag banks have higher levels of capital and reserves than they did in the 1980s and also that borrowers are not as leveraged as they were during that same time period.

Dean Marriott, deputy comptroller of the currency, concurred with Yorke's assessment, saying, "at this time, we do not see any significant deterioration in the performance of the national banks in the drouth area."

"This is not to say that some borrowers and some banks will not experience difficulties, particularly if the drouth extends through another year," Marriott said. "Banks with high proportions of stressed borrowers are likely to show increases in loan delinquencies throughout 1996. Going forward, our analysts will be monitoring three items: the length of the drouth, corn prices and the price of marginal wheat land."

Marriott also said a strong banking industry requires a strong local economy.

"For that reason, we have encouraged and will continue to encourage, this region's national banks to work with distressed borrowers to the maximum prudent extent," he said. "We are hopeful that this course of action will reduce long-term stresses on the regional economy and help assure the future vitality of its banks."

Keith Seibold, director of the Dallas region of the Federal Deposit Insurance Corp., said the next six months will be critical for bankers, ranchers and farmers in drouth areas.

"An extended drouth would hamper the planting of wheat in the fall and may continue to hold cattle prices down," Seibold said. "This, in turn, could lead to longer-term problems as farmers and ranchers are unable to repay their loans, increasing the possibility of defaults, foreclosures and liquidations."

Ag banks in western Oklahoma, Seibold said, have started to experience slight increases in delinquency rates and early deterioration in the financial condition of some borrowers.

"However, it is important to reiterate that these problems are weather-related and vastly different from the speculative boom-bust agriculture cycle of the 1980s," he said. "Also, due to improved underwriting practices, farmers and ranchers, in general, are not over-leveraged and are in a better position to withstand the drouth."

Mick Thompson, commissioner of the Oklahoma Banking Department, said that out of concern for a potential agricultural crisis his agency visited 11 banks in western Oklahoma in May and June and did not see an excessive volume of bankruptcies or liquidations.

"It appears that most cattlemen have absorbed the bigger part of their losses, and higher wheat prices are helping to alleviate the results of lower wheat yields," he said. "Both regulators and bankers need to continue to monitor the situation and take appropriate action without overreacting."

Eldon Merklin, president of the Oklahoma Farm Bureau, told the committee that if banking regulations were relaxed for the next 12 to 18 months it could help some people stay in business.

"Our rural communities are struggling financially," Merklin said. "What hurts farmers and ranchers hurts rural Oklahoma. A little relaxing of banking regulations could go a long way toward keeping our rural communities economically viable and would be good for everyone in the long run."

Phillip Klutts, president of the Oklahoma Farmers Union, told the committee, "the reason we are here today is not altogether weather related."

"If it were the natural disasters alone, most would be able to weather such calamities," Klutts said. "In God we trust with regard to these things. It is much more difficult to trust those who operate with monopolistic or oligopolistic practices while government sits by and does nothing."

Stanley Barber, a rancher and president-elect of the Oklahoma Cattlemen's Association, said ranchers "are facing a tremendous paradox in the cattle business today.

"Feed grains are selling at premium but the farmer has none to sell. Grain inventories are low and prices continue to escalate. Cattle inventories are growing, as the market price falls," he said. "These challenges are persistently making it more difficult for cattlemen to increase their bottom line."

During the hearing at Elk City High School, Leach spoke against "would-be governmental interventionists who might be tempted to trigger a politically expedient grain embargo."

"Markets are simply better allocators of resources than governments," he said. "Any efforts of government to modify artificially agricultural trade patterns would jeopardize long-term market development prospects and undercut worldwide reliance on U.S. farm exports."

Rep. Frank Lucas, R-Okla., a member of the banking committee, called the hearing "a chance to create a base to educate those in Washington that, yes, there are real problems out here."

The hearing followed a morning agriculture information seminar hosted by Lucas and Oklahoma State University.