This Time Around, Montana Ag Bankers Taking Ranchers' Misfortune in

Agriculture lenders and borrowers in Montana are using lessons learned from the farm crisis of the 1980s to ride out problems in the state's cattle industry.

Gross revenues for livestock operators slipped 25% when an oversupply of beef sent prices falling last year, said Tim Gill, president of Montana Livestock Ag Credit Inc., Helena.

Livestock producers are extremely sensitive to market changes because they are highly leveraged, said Edward Lotterman, an ag economist with the Federal Reserve Bank of Minneapolis.

"So many of their costs are fixed, and when you have a decline in cattle prices, it really squeezes their margins in a hurry," he said.

But the several years of good profits are helping, as are the lessons of the 1980s ag crisis. Most ranchers have borrowed with care; few are in immediate danger of foreclosure. And bankers aren't very worried about loan losses - because they are restructuring troubled credits more quickly.

"Bankers learned very hard lessons in the 1980s," Mr. Lotterman said. "They are less inclined to string borrowers along. They're more inclined to seek some sort of restructuring earlier."

That's been true at $118 million-asset First Security Bank and Trust of Miles City.

Still, vice president Stanley Markuson expects about 5% of the bank's ag borrowers to go out of business this year. If the downturn continues long enough, the bank could see losses, he said.

However, some ranchers can take advantage of higher land prices as more people move into the state from other regions, he said.

If livestock producers "do get in trouble financially and they have to sell, they can still get out and realize some profits," Mr. Markuson said.

Dan Majerus, senior vice president of $62 million-asset Farmers State Bank of Conrad, has seen cattle breeders "tightening purse strings" and doesn't expect much expansion in herds or equipment in the near future.

"I wouldn't say anything's going to blow up," he said. "For a few years it'll be hard to sell a pickup to a rancher.

"When times get a little tougher like they are now, we do a little more visiting," he said. "Ag is our only game. We've got to keep them healthy and get them through it."

Despite the decline in livestock, many lenders still are aggressively seeking ag loans, Mr. Gill said.

And banks, including First Security, have seen loan demand rise. People who had not needed to borrow are doing so now, Mr. Markuson said, and others are taking longer to pay off debt.

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