As the nation's largest seed supplier, Pioneer Hi-Bred International Inc. casts a long shadow in the world of agriculture.

So when the Johnston, Iowa, company recently announced that it was stepping up its lending to farmers, plenty of bankers took notice.

"Competition is going to be more and more intense," said James M. Godke, vice president of Joy (Ill.) State Bank.

The latest move by Pioneer-adding operating lines of credit to its previous menu of short-term financing for seeds-illustrates how large bank and nonbank companies are shaking up ag lending.

Unlike community banks, these players enjoy the marketing muscle and technological expertise that comes with size. They are harnessing these resources to identify pro-spects, review loan applications, and dramatically reduce turnaround time. And some of them already have formidable distribution networks.

Pioneer offers a clear window on the trend. Though its subsidiary lent only $85 million in short-term credits last year, observers expect it to outpace banks by leveraging the 3,800 Pioneer employees who sell corn and soybeans for planting.

Those salespeople "have a lot of face-to-face contact with farmers throughout the United States," said Michael G. Reed, president of PHI Financial Services Inc., Pioneer Hi-Bred's financing arm. "They are our eyes and ears to the country."

Mr. Reed is backing up the efforts of that sales force with sophisticated data-base management-a combination that many local banks would be hard-pressed to match.

A number of other companies have embarked on similar strategies.

Northwest Farm Credit Services, for instance, began investing in loan technology in the early 1990s to speed up an excruciatingly slow credit approval process, said Jay B. Penick, president and chief executive officer of the Spokane, Wash., company. The result: A $150,000 operating line application now takes hours, rather than weeks, to process. And BankAmerica Corp. last August started targeting midwestern middle-market companies in farming and related businesses.

While Northwest and BankAmerica are longtime ag financiers, Pioneer has made a stir after less than a decade in the lending business.

Despite small bankers' fears, Mr. Reed said PHI doesn't try to compete with the industry directly. Rather, it seeks to finance underserved farmers or those who have additional borrowing needs, Mr. Reed said.

"In some parts of the country, the commitment of banking to agriculture has diminished because of consolidation," he said.

Ron Simpson, a farmer in Atalissa, Iowa, certainly meets the characterization of "underserved." Although his farm is worth about $500,000 and has federal crop insurance, banks have shunned him ever since he filed for bankruptcy in 1987 because of sour real estate deals.

"They won't talk to a person unless it is to say no," he said. He has relied on PHI Financial and other finance companies for credit ever since.

This type of lending has also been highly profitable for the seed giant.

With roughly 10,000 credit customers, PHI Financial has generated returns on average assets ranging from 4% to 6% over the past four years, Mr. Reed said. The unusually high returns are attributable to low overhead, a low cost of funds, and fee income from its parent.

This year, the unit plans to make $110 million in short-term credits in a 35-state market area, Mr. Reed said. By comparison, Bank America Corp., a major ag lender, is hoping to generate several hundred million dollars in additional ag loans in the Midwest through mid-1998.

But late last year, PHI Financial decided to branch out beyond its core business-short-term financing for seed purchases. In a joint effort with John Deere Credit, another formidable nonbank ag lender, Pioneer has entered the lines of credit business.

In this business, unlike short-term credit, PHI Financial will simply be marketing and servicing the lines of credit, while John Deere handles credit administration and most of the underwriting.

Mr. Reed said that he hopes the partnership will produce $60 million in operating lines of credit this year. "It's a good fit," he said.

Meanwhile, building on data amassed by its parent and itself, PHI Financial has created an automated credit scoring model. The system helps speed credit approvals and monitor the portfolio, which consists of credits averaging $12,000 to $15,000.

Much of the lending process is still paper-driven, so the whole lending process often takes several days, Mr. Reed said. The company hopes to cut waiting time to a single day within the next three years. Already, PHI is making some loans on a pre-approved basis.

As Mr. Reed sees it, data mining like this only will become more important in the future.

"It will become critical as ag lending trends more toward an electronic process," he said.

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