This year's early frost could put a chill in some Midwest banks' agriculture loan portfolios.

The first crop-damaging frost in 20 years is reducing - or eliminating - farmers' corn and soybean yields in some parts of the region, leaving farm lenders waiting to see how customers' harvests turn out.

"A significant group of farms ... are in severe financial straits," said Neil Harl, an economics professor at Iowa State University. "I think bankers in those areas that were hardest hit will see the effect showing up in their loan portfolios."

Some farmers' problems are compounded by low prices in the cattle market and proposed reductions in government farm programs - at a time when many still are recovering from heavy rains and flooding in 1993.

But Mr. Harl isn't forecasting another 1980s-style bank crisis.

"Banks are at a good, strong position going into this," he said. "In the '80s, we had a problem with bank failures. That I don't anticipate here, because we're not seeing declines in collateral value and the banks are in a healthier state."

Still, this year has brought the first crop-damaging frost since 1975, said Paul Handler, president of Urbana, Ill.-based Atlas Forecast, a long- range predictor of crops and climate.

Cold and rain this spring delayed planting in many areas for four to six weeks.

Subsequently, when the first frost hit many areas in mid-September, late corn and soybeans sustained damage that is still being uncovered as harvesting takes place. The average first frost occurs around Oct. 15.

Much of the damage was in an area with scores of small agricultural banks: north of a line from Kansas City in the west to Dayton, Ohio, in the east, Mr. Handler said.

An estimated 300 million to 400 million bushels of corn and 50 million to 150 million bushels of soybeans will be lost to the frost, he said.

"This should have a dramatic effect on prices over the next six months," Mr. Handler said. Corn and soybean prices have been notably higher than last year at this time, observers said.

Agricultural lenders' take on the early frost depended on their location.

"Considering the overall credit quality and financial condition of the borrower, it's not going to impose tremendous hardship," said Carl Norden, vice president of $70 million-asset Nebraska State Bank and Trust, Broken Bow. "There's a concern, don't get me wrong. But it's not a life-or-death situation."

This summer's searing heat also helped speed up some of the delayed crops and made the frost a little less hostile for some areas.

"This year, the results are mixed from average to good," said Jeffrey Stark, president of $45 million-asset Corn Belt Bank and Trust Co., Pittsfield, Ill.

And after two seasons of heavy rain and one of severe hail, the 1995 growing season wasn't so bad for farm lender Bill Thyne.

"We don't know what the implications of the frost are yet, but there's going to be some damage," said the vice president of $37 million-asset Clinton State Bank in Minnesota. "The weather is not going to be as large a factor this year as it has been in the past three years. This year it's kind of a gift."

Some agricultural lenders in areas where the weather wasn't so hostile said their farmers will profit from others' losses through higher prices.

"The supply factor is probably going to benefit areas like ours where the crop has been good," said Jeff Plagge, president of $87 million-asset First National Bank of Waverly, Iowa.

However, Mr. Plagge, former head of the American Bankers Association's agricultural lenders committee, advises his peers who have encountered serious problems to meet with farm customers immediately.

"The best advice any lender can give in those circumstances is, 'Start looking at the situation early,'" Mr. Plagge said. "I really think the lending community coming through the '80s really knows how important that is."

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