Dust-Bowl Bankers' Worry Is What Comes Next

After the driest weather in decades in the south-central United States, lenders there are anticipating problems with agricultural loans, but none that will break the bank - yet.

The drought in Texas, Oklahoma, and Kansas wiped out big chunks of the winter wheat crop (the rest was harvested in June), adding to the woes of already-suffering cattle producers and their lenders.

Drought-related agricultural losses have been estimated at more than $1 billion in Oklahoma and more than $2 billion in Texas.

Banks can probably handle one year of drought-related loan stress, bankers and other observers said. But further farm woes could spell big trouble for some banks, they said.

"We're very rapidly adding loans (from livestock borrowers) to our 'classified' loan list," said John Zacek, senior vice president of $450 million-asset First Victoria National Bank, Victoria, Tex.

The 40% farm lender already provides for such downturns in its bad-debt reserves. However, "if this drought situation continues into 1997, it will begin to have effects beyond what that general reserve provision has allowed for," Mr. Zacek said.

"In row crops, the worst problems will be those where this is not the first year" of drought, said Danny Klinefelter, an agricultural economics professor at Texas A&M University. But "we're going to have a lot of stressed loans this year.

"If we have another year like this next year, then Katie bar the door," Mr. Klinefelter said. Some banks could fail, he said.

To ease the strain, government-guaranteed farm loans will get more use in the region, bankers and others said.

Of course, the drought did not hurt everyone equally. As prices rose, farmers whose crops were hurt the least profited.

Also, insurance and government farm payments could boost agricultural income, as could sales of a second round of crops - including milo - that farmers planted after harvesting the wheat.

Dennis Buss, president of $19 million-asset Service Bank of Tonkawa, Okla., said many of his farmers still are likely to have difficulty making loan payments. However, he said, producers in his part of the state had fewer wheat crop losses than other areas.

"We're going to have a tough time, but we're going to be able to survive," Mr. Buss said. "I do not foresee any major losses at this point.

"We're kind of blessed."

Instead, it's the region's livestock producers who have "taken it on the chin," said Arthur Barnaby, a professor of agricultural economics at Kansas State University.

Already suffering from low cattle prices, producers saw the drought dry out their grazing pastures and raise feed prices, beyond what many could afford. Many are liquidating their herds.

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