Purdue News

November 20, 1998 Bankers express concern about farm finances WEST LAFAYETTE, Ind. -- A sharp drop in farm income in 1998 may cause financial problems for many Indiana farmers, said a Purdue University agricultural economist. An October survey of 36 agricultural bankers throughout Indiana revealed that Indiana farmers face many problems faced this year. The bankers also suggested some possible alternatives for dealing with the difficulties. "Bankers indicated that 35 percent of their clients would have some cash-flow problems," said Marshall Martin, Purdue agricultural economist. "This simply means that at the end of the year a farm family cannot repay all of its loans and meet living expenses without making adjustments, such as borrowing more money, liquidating some assets, or finding other sources of income." Bankers reported that 40 percent of their clients are facing declining net worth as their farms are worth less now than when the year began. "The most serious financial concern is insolvency, which means the farm business owes more than the value of its assets and may face liquidation and, perhaps, bankruptcy," Martin said. "The bankers said 4 percent of their clients may be facing this situation." The good news is that not all Indiana farmers are facing serious financial problems. The surveyed bankers indicated 40 percent of their clients would have either no financial difficulty or a positive financial year. Those farmers facing the biggest difficulties, according to the survey, are younger farmers, those with large debt loads, and those heavily involved in livestock, particularly hogs, because of the drop in hog prices. Bankers said most farmers with problems can directly attribute their problems to low grain and livestock prices and, in some cases, high production costs. Some of the ways farmers can cope with these difficulties include finding off-farm employment, selling excess assets, reducing inputs for next year's production, and negotiating lower cash rents, the bankers said. Making loans adjustments is another option. The bankers indicated they would extend 1998 loan repayments out over the next two to three years; would roll over or extend 1998 operating loans into 1999; and would extend more credit to farmers who have sufficient collateral. If conditions don't improve next year, up to 9 percent of the bankers' clients could face the loss of their farms, according to the survey. Purdue University Cooperative Extension Service will offer Indiana farmers helpful management information with a series of programs statewide this winter. Call 1-800-EXT-INFO for times, dates and locations in your area. Compiled by Chris Sigurdson, (765) 494-8415; E-mail, sig@ecn.purdue.edu Purdue News Service: (765) 494-2096; e-mail, purduenews@purdue.edu To the Purdue News and Photos Page