Last year was a fairly good one for farm lenders.

The year "turned out to be generally quite good for American agriculture," said Marvin Duncan, chairman of the agricultural economics department at North Dakota State University, Fargo. "Prices are ... high enough so there will essentially be no government subsidies in the form of deficiency payments."

But in agriculture, you take the bad with the good. Farmers and lenders saw individual areas hit with weather- and disease-related woes and industry-specific troubles, such as the cattle industry's price dip.

And so, this year farm bankers will have a keen eye on the struggling areas such as the cattle industry. And they await with mixed feelings word on the 1995 farm bill from Washington.

Cattle producers face additional years of low prices as supply exceeds demand and producers begin selling off breeder animals to ultimately reduce supply. However, this liquidation initially will increase the supply even further.

"It's going to be a pretty tough time in '96, '97 for the cattle sector," said Bill Helming, an agricultural consultant in Olathe, Kan. "We've got the prices below the cost of production already, and we haven't even started liquidation. That's going to add insult to injury."

The dairy industry also has not seen price increases in several years, said Alec Bridges, president and chief executive of $240 million-asset Sulphur Springs (Tex.) State Bank, who has numerous dairy customers.

"The performance is not as good as it's been," Mr. Bridges said. "We're not having any real horror stories. We had tightened our underwriting standards and made sure that they performed to the point that we could go with them when things weren't as good."

On the other hand, grain prices rose this year, a result of a wet spring and early frost that brought a "short" crop, reducing supply.

"Most farmers who are producing and selling grain have less grain to sell, but they're going to have the opportunity to sell it for a higher price," Mr. Helming said.

If he were a lender, he said, he'd be encouraging his customers "to take advantage of these higher prices and sell into it. Farmers typically don't sell when the market's going up; they sell when the market's low. I know it doesn't sound logical, but that's the way it's been done for 50 years."

Mr. Helming said that although the tendency of farmers to sell at the worst time has improved - more farmers are using better farm marketing techniques to reduce the risk of price fluctuations - it's still a problem.

"When the market's going up, they think it's going to go higher," he said. "When the market's going down, they're reluctant to sell. And by the time they sell, it's a lot lower."

The higher prices also made the industry less anxious over the yet-to- be-determined government farm program, said Larry Knutson, president of State Bank of Blomkest, Minn., and current president of the Upper Midwest Agricultural Credit Council.

"We're cautiously optimistic about next year," Mr. Knutson said. "Production looks like it's going to be a pretty good year."

Still, farmers and lenders alike continue to wait for the 1995 Farm Bill to learn what government policy will be on farm subsidies.

"There was lots of discussion about the Farm Bill, and we still don't have it," said Philip M. Burns, president of Farmers and Merchants National Bank, West Point, Neb., and the current chairman of the American Bankers Association's agriculture lenders committee.

Practically speaking, Congress should implement a Farm Bill in January or February so farmers - and lenders - can organize their 1996 planting, Mr. Helming said. "There are a lot of decisions to be made in planting as you get into the spring," he said.

The consensus is that government subsidies to farmers will be diminished, whatever the ultimate bill.

Mr. Helming expects the legislation to take the form of the Freedom to Farm Act. "That's what bankers ought to plan for, which means their customers are going to end up being totally dependent on the real-world supply and-demand forces in the marketplace, as opposed to the safety net of the government."

This development has led farm bankers, already a conservative bunch, to become more cautious, said Mr. Duncan of North Dakota State.

"More risk is going to be placed on the shoulders of the farmer than in the past," he said. "They will want to have a full understanding of the risk management techniques that their customers are going to be pursuing. The bottom line for the next one to five years is substantially greater uncertainty in agriculture."

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