Drouth Making Lenders Leery
Of Dealing With Ag Borrowers

LUBBOCK —(AP)— Helping farmers file for bankruptcy is a booming business in West Texas.

Since early November, bankruptcy attorney Gary Condra has barely been able to see over the pile of papers mounting on his desk. Sadly, each sheet represents a farmer, his family and the land that has sustained them for years.

But as the dust from the drouth of 1998 settles, Condra said he feels even worse about the many loan-dependent farmers who apparently are in denial about their prospects for next year.

(We keep seeing references to the "drouth of 1998," but many producers in West Texas will attest to the fact that the "drouth of 1998" has been going on for at least three or four years, punctuated in some places by brief respites that only serve to sucker folks into hanging on to livestock longer than they should. When all is said and done, the current dry spell may finally earn its place in the history books as "the 90s Drouth," alongside its decade-designated predecessor of 40 years earlier. — Ed.)

"There is a lot of integrity and a lot of courage out there, but some of these people think they're going to be in business next year and they're not," Condra said. "The banks are beginning to be a little more tight. When you have to show a bank that your only income for a year was your insurance policy, what is going to be the incentive for them to loan again?"

Those connected to banking and agriculture in the region predict that banks will be a lot less likely to finance farmers next year. Two punishing drouths in three years have taxed the limits of their tolerance.

"We're not in a panic, but of course a year like 1998 is going to be hard on banks and anyone else associated with agriculture," said Mike Wright, senior vice president in charge of agriculture lending at American Bank of Commerce in Lubbock.

Wright said banks in the region will have to be realistic in underwriting loans for 1999, realizing the risk of putting their faith in the notoriously fickle Texas weather.

"Going into 1998 we had as good underground moisture as we had going into the spring," Wright said. "The forecasts were that El Niño was going to make this one of the wettest seasons in a long time, but it didn't materialize. You're always an optimist, but you have to be a prudent lender."

Lance Thomas, a 58 year-old dryland cotton farmer in Slaton, said he took out a loan of several thousands of dollars to pay farming costs and household expenses, but had little money to repay it after most of his crop withered. He won't be able to plant again without a loan in 1999.

"Just like everybody else, we'll have to ante up, see what we've got and see what the banks will give us," Thomas said. "It's not looking too good."

City Bank, with branches in Levelland, Lockney, Lubbock and Olton, will be cautious, but will continue to have a strong presence in agriculture, president Mike Liner said.

"We don't think there is a major problem out there," Liner said. "We didn't have too many people get themselves into big jams, but this next year it could be tough if things don't improve."

Contrary to common wisdom, rain alone doesn't seem to be the answer.

Bank officials said prices were so low on many agriculture commodities that farmers who irrigated their crop spent too much money to make a profit selling it.

And dryland farmers, who yielded almost nothing this year, would have been worse off if they had produced crops. The 80 percent to 100 percent crop failure made most eligible for insurance reimbursement.

Bankers speculated that a small yield would have negated their insurance policies but been too meager to earn them any money.

Condra also blamed farmers' woes on a lack of government fail-safe programs. The Freedom to Farm Act of 1996 provides for farm insurance in place of government subsidies.

"Declining government support has really taken away the safety net that gave banks more of a reason to have confidence that a farmer would be back after a tough year," he said.

Farm Bureau legislative director Steve Pringle said farmers can never be sure how much money they'll have to repay loans for which they might apply.

"We're looking for ways to guarantee a certain amount of income for farmers," Pringle said. "It's not fair that being a farmer requires that you never be able to count on some amount of income every year. It makes it hard on us, hard on the banks and hard on this region."

On a positive note, while some banks may be more frugal next year, most are still in good position to dole out loans.

Texas Banking Commissioner Catherine Ghiglieri said that even the smallest banks have tried to make themselves drouth-proof.

"They are diversifying their portfolios and not relying so heavily on agriculture," Ms. Ghiglieri said. "And a lot of the farmers that weren't going to be able to handle this year's drouth were already weeded out by the 1996 drouth. I don't see a systemic problem with banks being unable to give loans, but there are banks here or there that have a problem."

Unless banks are willing to take a chance on farmers like himself, Thomas said, 1999 will mean fewer farmers in the field and higher prices at the grocery store.

"This is one of those situations where it won't matter what the guy down the street gets," Thomas said. "If I don't get a loan, that will be all she wrote."