Farm bankers from around the country will gather in Kansas City today to look back on a year of success and ahead to a year of challenges.
Grain prices soared this year, and demand, boosted by a robust export market, stayed high, resulting in one of the best years for farm income on record. Total farm assets topped $1 trillion for the first time.
But as agriculture lenders meet for the 44th annual national agriculture bankers conference of the American Bankers Association, two problems in the past year will have repercussions for the future.
First, the livestock market is still moribund at best, and it's likely that many bankers will have to carry producers into the next year.
"With the exception of livestock, nationwide it's been one of the best years ever to be in ag lending," said John L. Gilbert, president of Bank of Latah, Wash., and chairman of the ABA's agricultural division.
The second problem in 1996 was the imbroglio over hedge-to-arrive contracts in the upper Midwest. But where the difficulties in livestock are cyclical, many bankers worry that the hedge-to-arrive problems could set back the cause of farm marketing for years to come.
"One of the things that have come out of our discussion with bankers is the worry that the hedge-to-arrive losses could put back the idea of risk- management and marketing management back 200 years," said John M. Blanchfield, associate director for agriculture issues at the ABA.
Hedge-to-arrive contracts were first offered by several grain elevators a few years ago, most aggressively by a grain elevator in Blue Earth, Minn. The contracts allowed farmers to postpone delivery as long as they wanted, the result of which was that the rapid rise in corn prices this summer led to huge losses by the elevators. Lawsuits and regulatory actions have ensued over the legality of the contracts.
Mr. Gilbert said he worries that the boondoggle could sour farmers on farm marketing - hedge-to-arrive contracts are just one in the panoply of risk-management tools generally called "farm marketing."
"Everybody seems to know somebody who lost money in a hedge-to-arrive contract," Mr. Gilbert said.
Mr. Gilbert said the ABA will focus in on farm marketing at the conference because it will become much more important in coming years as the farm-income safety net is phased out as a result of last year's farm bill.
Mr. Gilbert said the other area the 550 conference attendees will focus on is competition and the rising tide of new entrants into the agriculture finance business.
