Checks are in the mail to cash-strapped farmers, but agricultural bankers should not assume the money will be used to pay off bank loans.
The U.S. Agriculture Department this week began distributing about $3 billion of emergency aid to farmers and ranchers hard hit by severe weather and low crop prices. The payments are part of a nearly $6 billion farm aid package approved by Congress last month and signed into law by President Clinton.
Though some farm subsidy payments automatically go to lenders, that is not the case with this money, warned John M. Blanchfield, manager of agricultural banking at the American Bankers Association.
Banks that want to use the new payments as collateral must get farm customers to sign a form that can be obtained from local Farm Service agencies.
Under the 1996 Freedom to Farm Act, the government makes annual direct payments to farmers that do not have to be repaid. To ensure that bank loans are repaid with the money, checks often are made out jointly to farmers and their bankers.