Community bankers can expect most of their farm customers to make less money in 1998 as exports level off and domestic demand for wheat, soybean, and other commodities declines.
That is the conclusion reached by Department of Agriculture economists and presented in a report at the annual Agricultural Outlook Forum held here this week.
The nation's more than two million farms are expected to produce $52 billion in net income, down from $55 billion in 1997 and a record-setting $60 billion in 1996.
Only cattle producers' profits are likely to rise measurably, according to Jim Ryan, an agricultural economist at the department's Economic Research Service.
Over the next five years farmers' net income is expected to grow only 2% annually, while inflation is expected to rise 3% a year.
"In real terms, income will decline slightly," Mr. Ryan said at the forum Tuesday.
Commercial bank lending to farmers is expected to increase 4% in 1998, to around $67 billion, according to Department of Agriculture economists.
What does this mean for the more than 2,000 community banks lending to farmers?
"It's going to be a challenging year," said John M. Blanchfield, manager of agricultural banking and rural development with the American Bankers Association.
Community banks remain the primary source of capital for most farmers. In 1997 commercial banks held $64 billion, or about 40%, of farm debt.
Mr. Blanchfield, who moderated the panel on farm finance, is not advising banks to stop lending to farmers. But he said that given the projections, banks must understand that many of their customers could be in for some hard times.
"And those projections were very cautious," Mr. Blanchfield said. "We still have El Nino to contend with."
The USDA did have some good news to report at the conference. Most notably, farm production expenses, which have risen an average of 4% since 1992, are expected to decline in 1998. The reasons: low inflation, favorable oil prices, stable interest rates, and dramatic decline in herbicide costs.
Though farm debt is increasing slightly, it is still well below levels of the mid-1980s, when farms routinely exceeded available lines of credit while paying off high-interest loans.