Agricultural bankers should be prepared for at least two more difficult lending years, a university economist warned last week.

David M. Kohl, professor of agricultural and applied economics at Virginia Tech University, told about 100 agricultural bankers at a recent conference sponsored by the Independent Bankers of Colorado that they may have to urge producers to quit farming if global commodity prices remain low.

"This year was round one," said Mr. Kohl. "We are headed deeper into a downturn."

In recent months many farmers have been forced to refinance short-term debt and cut expenses as crop and livestock prices hovered near record lows. The outlook for 1999 is poor as demand for U.S. commodities continues to be weak, according to both Mr. Kohl and the Department of Agriculture.

U.S. farm exports are expected to drop to $49 billion this year, 8.6% lower than last year's total and 18.1% below the record set in 1996, according to the federal farm agency.

Mr. Kohl, a popular speaker at agricultural banking conventions, gave bankers tips on spotting farm borrowers who are headed for trouble.

Farmers who refinanced their short-term debt in 1999 may be showing the first signs of trouble, especially if they rolled short-term debt into a long-term loan just a few years ago, Mr. Kohl said.

"That's telling you they have deeper problems," such as insufficient income or rising costs, he said.

Bankers should also warn farmers that every time they refinance short- term debt, they lose 5% to 7% of the equity they have built up in their farms. Farmers who want to preserve their net worth may be better off selling some assets to pay off debt instead of refinancing, Mr. Kohl said.

Rising credit card debt can be another sign that a farmer is under financial strain. Bankers at the conference said some farm borrowers have accumulated up to $120,000 of credit card debt in recent years.

Mr. Kohl suggested that bankers run credit checks on farm customers each year because many borrowers do not report credit card debt on their loan applications.

Bankers should also be wary of rising living expenses. Many farmers' incomes have not kept pace as they spent more on cars, clothing, and other goods.

"Ag producers are looking at the general public and saying, 'We should be able to live like them,'" Mr. Kohl said.

If a farmer is unprepared to wait out a three-year slump in commodity prices, Mr. Kohl advised, his banker should counsel him to sell the farm now.

"Make sure you bring in spouses and partners and have a real candid discussion," he said.

Bankers at the conference said they took Mr. Kohl's advice to heart.

Dennis Meier, senior vice president of $32 million-asset First National Bank of Yuma (Colo.), said he plans to start running annual credit checks on his farm borrowers and putting some on a cost-cutting plan. For others, he may suggest they leave farming now rather than diminish their net worth by borrowing further.

"We probably make the mistake of letting" farmers stay in the business "too long," he said.

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