Economists are predicting there will be a rebound in the sector next year, and bankers expect to earn more business from their farm customers.
At the American Bankers Association's National Agricultural Bankers Conference here this week, economists said farmers are in better shape than a year ago and will continue to improve as commodity prices recover.
"There are still some marginal producers struggling, but by and large I think we've turned the corner and prices will be better," said Kelly Matthews, executive vice president and chief economist with First Security Corp. in Salt Lake City.
Prices for a host of commodities, including pork, cotton, rice, and soybeans, have plunged in the past two years to some of the lowest levels in decades. That sent farmers' income spiraling down, raising concern among bankers that more loan defaults could be imminent.
But Mr. Matthews said farm loan quality has picked up at his bank since last year, and many farmers across the country are rolling over operating debt by tying it to collateral in real estate loans.
The agricultural sector is "going to have to work at it, grind it out, and compete on an international stage," he said.
Assuming that important markets in Asia for U.S. agricultural exports continue to improve, next year should be a good one for American agriculture, said Carl Tannenbaum, senior vice president and chief economist with LaSalle Bank/ABN Amro in Chicago. He said the agricultural sector might even outpace the U.S. economy as a whole in 2000.
However, bankers said that until a full agricultural recovery is reached, the government must intervene by providing more money for guaranteed farm loans through the U.S. Department of Agriculture's Farm Service Agency. In fiscal 1999 banks lent $3.9 billion to farmers through the guarantee program, which minimizes risk to financial institutions, but Congress appropriated only $2.1 billion for the program in fiscal 2000, which started Oct. 1.
"That money is really critical for us," said Harley Bergmeyer, chairman, president, and chief executive officer of Saline State Bank in Wilber, Neb. "We still have some farmers that are really struggling."
Bankers said the current fluctuating state of the agricultural economy also could provide an opportunity to sell farmers services such as estate planning for those interested in exiting the business and risk management tools such as crop insurance for those who plan to stay.
"We need to do more than lend money," said Duaine Espegard, president and chief executive officer of Bremer Bank in Grand Forks, N.D. Bankers such as Mr. Espegard said farm customers value the advice and other services banks can offer in troubled times.
"But they don't want you running their farm," said Donald Anderson, president and chief executive officer of Wells Fargo's Norwest Agricultural Credit Inc. in Sioux Falls, S.D.