Feds' Disaster Loan Program May Be Little Use To Rancher

Feds’ Disaster Loan Program
May Be Little Use To Rancher

SAN ANGELO — The good news is that the rest of the country has finally realized — after four years or so — that there’s a drouth on, and federal assistance is available to help agriculture producers cope with the economic burdens.

The bad news is that, in its current form, the assistance probably won’t be of much help to ranchers.

With the recent declaration of Texas as a federal disaster area, USDA is making emergency agricultural loans available through its "Rural Economic and Community Development" program.

The loans are available to cover up to 80 percent of documented drouth-related losses at an interest rate of 3.75 percent.

The program is geared toward farmers, however, and for a variety of reasons, its rules may make it difficult for stockmen to participate.

Fred Greenway represents USDA’s Farm Service Agency here, and his office serves 10 area counties. Greenway explains that eligibility for the low-interest loans is triggered by a loss of at least 30 percent in forage production, crops or livestock value.

That is usually a simple matter for farmers to document, particularly if they have a history of participating in various USDA programs and thus a "base" against which to compare currrent yields.

For ranchers, however, establishing losses may not be nearly as easy.

"It works real slick for a stocker operation," Greenway notes, because records can usually be found to establish previous years’ gains and/or prices.

It can be an entirely different matter for a cow-calf operator, particularly one who is forced to sell down or out for lack of grazing, and in the process takes a whipping on the price of stock cows. The "base" against which current prices must be compared is the best four of the past five years, Greenway says, and auction receipts or other sale documents will suffice to establish past prices.

The problem, he readily acknowledges, is that most cow-calf producers — or lamb or kid producers, for that matter — routinely sell only cull animals, not productive breeding stock. That means the only documentation they can provide will reflect the sale of animals of considerably lower quality than those they must sell now. Apples and oranges.

A cow herd that should be worth, say, $650 a head on average might bring half that in a drouth market, but if the depressed price must be compared to previous sales of cull cows, it will look right in line.

Another avenue for the cow-calf operator is a reduction in the calf crop, as might happen because of poor breed-up, but that can take months to establish, and may not be evident until after the program expires.

Losses can also be calculated on forage shortfalls or increased feed costs, but the former is often a subjective matter and the latter can only be determined after all the scores are in.

"I want to emphasize that we’re not here just for farmers but for ranchers, too," Greenway says. "It’s just unfortunate that (this program) was written mostly with farmers in mind.

"We know we need to help ranchers more than some farmers, because they have insurance and the rancher has nothing to fall back on; he’s just hung out to dry."

Greenway and other FSA personnel say they keep hearing rumors about efforts to provide an "old-time" disaster program for ranchers, but so far, those are just rumors.

Meanwhile, he encourages stockmen not to write off the existing program without checking into it first. "Every operation is different," he reminds, "and they may qualify for more help than they think."

The following is information on the emergency loan program (referred to below as an "EM loan") from an explanatory release provided by FSA:

WHO CAN GET A LOAN?

To qualify for an EM loan an applicant must:

1. Be an established family farm operator (owner or tenant), who was operating and managing a farm at the time of the disaster in a county which has been named as an area eligible for EM loans. An applicant can be farming as an individual, cooperative, corporation, partnership, or joint operation.

2. Be a citizen of the United States or legal resident alien. If an applicant is a cooperative, corporation, partnership, or a joint operation, more than 50 percent interest in the entity must be owned by U.S. citizens and/or legal resident aliens; and the entity must be primarily engaged in farming, i.e., derive more than 50 percent of its income from all sources from production of agricultural products.

3. Have the industry, ability, training and/or experience necessary to repay the loan, and realistically project the ability to do so.

4. Provide evidence of having suffered a qualifying physical loss, or a production loss of at least 30 percent in any single enterprise (individual crop) constituting an essential part of the total farming — operation.

Except for crops planted for harvest in 1988, 1989, 1990, 1991, 1992, and 1993, applicants may not count crop production losses to crops that could have been insured by comprehensive crop insurance programs sponsored by the Federal Crop Insurance Corporation, but were not insured.

5. Be unable to obtain suitable credit from a lender(s) other than RECD (USDA’s Rural Economic and Community Development program) when offering all assets owned as collateral to such lender(s).

6. Provide adequate security and show repayment ability.

7. Be able to realistically project a feasible plan of operation for the term of the loan

All applications will be considered without regard to age, race, color, creed, sex, marital status, handicap, or national origin.

WHAT IS THE PURPOSE OF THE PROGRAM AND HOW CAN LOAN FUNDS BE USED?

RECD EM loans are made to eligible applicants to help them overcome the adverse effects of a natural disaster. Loan funds must be used to

- Restore or replace damaged property;

- Pay all or part of production costs associated with the disaster year and/or the year following the disaster year;

- Pay delinquent debt installments;

- Pay essential family living expenses;

- Construct, buy or improve essential buildings;

- Purchase essential machinery, equipment and foundation livestock;

- Pay costs to reorganize a farming system, when justified; and

- Refinance short, intermediate and/or long-term debts, when justified.

WHAT IS THE LOAN CEILING?

Eighty percent of the calculated actual production loss and 100 percent of the actual physical loss, or $500,000, whichever is the lesser amount, for each disaster.

DO RECD LENDING CONDITIONS DIFFER SIGNIFICANTLY FROM TROSE OF PRIVATE LENDERS?

Yes. Some of the more significant of these conditions are:

1. Applicants must agree to maintain records acceptable to RECD on their farming operation.

2. Applicants must agree to operate in accordance with a plan of operation jointly developed and agreed upon with RECD.

3. Applicants must agree to obtain RECD's prior consent whenever: (a) changes are needed in the agreed upon plan of operation; (b) assets, with a valid RECD lien, are to be sold or otherwise disposed; or (c) proceeds derived from the sale of assets with a valid RECD lien are to be used for any purpose other than applying them on the RECD debt.

WHAT ARE THE TERMS OF THESE LOANS?

Loans to recover from production losses to crops and/or livestock production, and loans to recover from physical losses to supplies, livestock and equipment will normally be scheduled for terms up to seven years, as needed. Under conditions of special need, terms of not more than 20 years may be authorized for production type losses, providing the loan(s) can be secured for the longer term. Loans to recover from physical losses to essential buildings and facilities are normally made for terms not exceeding 30 years. However, under conditions of special need, terms of not more than 40 years may be authorized.

ARE BORROWERS REOUIRED TO RETURN TO PRIVATE CREDIT SOURCES?

Yes. EM loans are intended to be a temporary source of credit. Therefore, all EM loan borrowers who were not able to obtain their needed credit elsewhere at the time of receipt of their initial EM loans will be reviewed for "graduation" to other creditors three years after their initial loan is made; or at any earlier date when it appears they can obtain their needed credit elsewhere; and every other year thereafter, until graduation is accomplished.

WHAT IS THE INTEREST RATE?

Currently the interest rate is 3.75 percent per annum for all new EM actual loss loans made, and all EM actual loss loans rescheduled or reamortized, on or after January 24, 1994.

WHAT SECURITY IS REOUIRED? (For loans closed after May 17, 1994) Production Loss Loans (Subtitle B - operating type purposes)

Primary (adequate) security must be available for the loan, except when adequate security is not available because of the disaster. If available, the total amount of security required will be at least equal to 150 percent of the loan amount. A first lien is required on all property or products acquired, produced, or refinanced with loan funds.

If the security value of all property or products acquired, produced or refinanced with loan funds does not provide security equal to at least 150 percent of the loan amount, the best lien obtainable will be taken on other chattel security up to the point of security equal to at least 150 percent of the loan amount. Security in excess of 150 percent will only be taken when it is not practical to separate the property, i.e., same type of livestock — dairy cows, brood sows.

The security value of the crop and/or animal production will be considered to be 100 percent of the amount loaned for annual operating and family living expenses.

A lien will be required on all or part of the applicant's real estate when crop and chattel security does not provide security equal to at least 150 percent of the loan amount.

A lien will not be taken on the applicant's personal residence and appurtenances, when the residence is located on a separate parcel and the farm tract(s) being used for collateral, in addition to any crops or chattels, meets the security requirement of at least equal to 150 percent of the loan amount.

A lien will be taken on all nonessential assets, with an individual/combined value exceeding $5000, if an applicant cannot or will not dispose of the assets and use the proceeds to reduce the RECD credit needs prior to loan closing. When the value does not exceed $5000, the County Supervisor will estimate and document such value in the case file. The 150 percent security requirement does not apply to nonessential assets.

Physical Loss Loans (Subtitle A - real estate type purposes)

Primary (adequate) security must be available for the loan, except when adequate security is not available because of the disaster.

Each loan must be secured by real estate, except a first lien will be required on equipment or fixtures purchased or refinanced with loan funds whenever such property cannot be included in the real estate lien, and the best lien obtainable has been taken on all real estate and does not provide primary security for the loan.

The total amount of security required will be the lesser of 150 percent of the loan amount, or all real estate owned by the applicant (Nonessential assets are not considered in the l50 percent requirement). Security in excess of 150 percent will only be taken when it is not practical to separate the property (i.e.. tract of land).

A loan will be considered adequately secured when the real estate security for the loan is at least equal to the loan amount.

Chattel or other security will only be taken when the best lien obtainable on all real estate (excluding the dwelling when on a separate parcel) will be taken and does not provide primary (adequate) security for the loan.

A mortgage will be taken on all real estate acquired, refinanced, or improved with loan funds, and any additional real estate needed to meet the security requirements (primary security) of this section.

A lien will not be taken on the applicant's personal residence and appurtenances, when the residence is located on a separate parcel and the farm tract being financed, refinanced, improved, or otherwise used for collateral; provides primary security for the loan(s).

IS CROP INSURANCE REOUIRED?

After April 8, 1994, all recipients of EM loans must agree, as a condition of the loan, to obtain multi-peril crop insurance under the Federal Crop Insurance Act for the coming year's crop.

Applicants will not be required to obtain crop insurance when (1) crop insurance is not available for the crop, i.e., there is no open season and no opportunity to acquire crop insurance; or (2) the financial projections on which the loan approval is based indicate that the premium cost of the required insurance would prevent the applicant from projecting a feasible plan.

When EM loans are based on physical losses only, crop insurance will only be required when loan funds will be used for annual production expenses.

IS THERE A TERMINATION DATE FOR FILING APPLICATIONS?

Yes. Applications for EM loans must be filed within eight months of the date of the disaster decision announced by the President, the Acting Secretary, or the RECD Administrator.

WHERE ARE APPLICATIONS FOR LOANS RECEIVED?

Applications are received in RECD County Offices. These offices are listed in the telephone directory under U.S. Government, Department of Agriculture, Rural Economic and Community Development Service. Application information may also be obtained by writing the Rural Economic and Community Development Service, Washington, DC 20250, giving your name and address and the name of the county in which the farming operation's headquarters is located.