Falling cattle prices over the past year have prompted agricultural bankers to take a closer look at their cattle customers' future.

"It's like a big cloud coming your way," said Danny Bishop, senior vice president in charge of agricultural correspondent lending for Texas Independent Bank, a bankers' bank in suburban Dallas. "You've got to find a way to get through it without getting hit before you can see sunshine on the other side."

Cattle prices rode a longer-than-usual boom for several years in the late '80s and early '90s, as farmers took longer to regroup after the agriculture crisis, experts said.

But prices took a downturn last year, and no one is certain when the trend will be reversed. "We anticipate that prices will trend lower over the next two years," said Bret Fox, a research analyst at Englewood, Colo.- based Cattle-Fax, an information company serving cattle operators.

That's because existing industry expansions have not yet peaked, he said, and operators who liquidate cows will add even more to the saturated beef market.

What do low cattle prices mean for lenders?

Some of their customers will give up, being unwilling or unable to ride out the low-price cycle. Banks will play a key role for those that remain in the business.

"I'm very concerned," said Stephen Ebert, vice president and agriculture representative of $34 million-asset Farmers State Bank, Westmoreland, Kan. "Some ... will make it through this and tighten their belts. Some ... are not going to make it."

His bank will stick with customers that have the financial wherewithal to endure, he said. "If we can see we're just digging the hole deeper for that customer, we're probably going to say, that's enough."

Jerry Janz, vice president of $120 million-asset First American Bank, Detroit Lakes, Minn., who also is involved in an organization for Upper Midwest agricultural bankers, said farm lenders in his region are leery of making new cattle loans because of the poor prices.

But many lenders believe they and their customers can weather the storm until the business rebounds, and most intend to maintain their niche.

"I don't plan on abandoning them," said Glen Thurman, president and chief executive of $23 million-asset First National Bank of Moody, Tex. "I think that most community banks that are ag oriented would not."

However, cattle loan volume is likely to diminish, with some operators leaving the business or cutting back, observers said.

That means some small banks could get new business, Mr. Bishop said. "Sometimes when you have downturns in the market, a lot of the large agriculture lenders tend to get out," he said. "You may have movement from some of these (cattlemen) back to a smaller community bank."

As for loan problems, some cattle financiers, including Mr. Thurman, expect increased nonperformers in the fourth quarter. But he said he wouldn't know the extent of the damage until the 1995 cattle are marketed or sold later this fall.

But today's bankers - and farmers - are in a better position to weather declines after surviving the 1980s' farm crisis.

"I think the farmer has been much more conservative now than in the past ... along with the banks," Mr. Janz said.

And if they wait long enough, clear skies will come again. "There's a carrot hanging out there in a few years," Cattle-Fax's Mr. Fox said, though he acknowledged that today, "It may seem like a long way away."

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