Agricultural bankers are worried that a contemplated change in the Uniform Commercial Code could bump them from the head of the line when borrowers come up short.
A committee formed to revise the section of the code that regulates lenders' liens - claims against property to ensure repayment - is considering such a change.
Changing the priority on farm liens, already a complex issue, could make farm lenders more cautious.
"If the bank doesn't know where it is, it is going to be a little bit leery on financing," said John Dean, president of $60 million-asset Glenwood (Iowa) State Bank.
Typically, the first lender to a farmer has first priority for repayment. But supply companies that sometimes lend to farms want to to cut into line.
Their proposal has riled farm bankers.
"If a bank lends to a farmer who subsequently gets additional financing from another source, such as a fertilizer supplier, bankers believe the initial lender should not lose its priority status on the lien," said the American Bankers Association's John Blanchfield.
"Our position is: Maintain the status quo," said Mr. Blanchfield, who is associate director of the ABA's agricultural bankers division.
Banks "have an indebtedness with the borrower that they want protected," said Barbara Strickfaden, executive director of the Idaho Bankers Association.
Mr. Dean suggested that one way to find a balance could be for suppliers to see if individual banks were willing to release their liens up to the amount the supplier is lending.
A committee is studying this and other proposed changes to Article 9 of the Uniform Commercial Code, a set of laws adopted by all 50 states.
The article gives rules for secured lending, including lending secured by farming.
The last major revision of the code was in 1972, said Steven C. Turner, an Omaha attorney who leads a law industry task force on revising the article in question.
If the committee votes to revise the code, each state's legislature would then vote on the changes. The voting could take a couple of years, he said.