With hog prices hovering near 60-year lows, banker Dennis Utter has already lost a borrower to bankruptcy-and it may not be his last.

Six months ago, this customer was operating a profitable, 600-sow farm and had a net worth of $400,000. Since then, the farmer has lost $600,000 and declared bankruptcy.

Mr. Utter, president of $50 million-asset Adams County Bank in Kenesaw, Neb., said he will have little choice but to write off part of the customer's debt this year.

Meanwhile, Mr. Utter is trying to help other farmer-customers avoid a similar fate, extending loan repayment periods, using federal guarantees to roll over debt, and, above all, urging caution.

"Farmers need to cinch up their belts and act conservatively so we can weather the storm," he said.

Low prices made 1998 a tough year for all farmers-not just hog producers. The situation improved somewhat in late October, when Congress approved $7 billion of aid to farmers. But by December, a glut of hogs going to slaughter had pushed prices as low as 14 cents per pound, a 50% drop in two months. For many farmers, that meant losses ranging from $30 to $40 per hog.

The glut can be traced to turmoil overseas and farm consolidation at home. Lingering financial troubles in Asia and South America have weakened demand for U.S.-bred pork. At the same time, the industry is undergoing a consolidation that has resulted in fewer but more efficient farms.

The drop in prices is a sudden reversal of fortune for hog farmers, who until recently had enjoyed a string of profitable years.

And it has alarmed the likes of Rep. Jim Leach, chairman of the House Banking Committee. In a December speech, the Iowa Republican urged community bankers to continue lending to small hog farmers who might otherwise be forced to sell.

"A loss of a family farmer is a loss of a longtime community bank customer, to be replaced by a large corporate entity," said Rep. Leach. Megafarms, he added, "frequently obtain financing through noncommunity bank avenues."

Community banks are taking Rep. Leach's advice.

Mark Noll, senior vice president of Green Belt Banks and Trust in Iowa Falls, said he plans to tap the Farm Service Agency loan guarantee program to aid customers looking to extend loans.

The program, which got $1 billion of additional funding for hog farmers last month, insures banks for up to 90% of a loan. The program is particularly attractive when lending to young farmers with little equity in their operations, Mr. Noll said.

Farmers and Merchants National Bank in West Point, Neb., said it, too, would rely on Farm Service Agency guarantees if necessary. But for now, the bank is aiming to raise awareness, sending hams to elected officials with a letter describing the hog farmers' plight.

"People have lost what has taken in some cases 10 years to build," said Philip M. Burns, chairman and chief executive officer of the $80 million- asset bank. "We need to bring attention to the problem."

Hog farmers were promised some relief this month when President Clinton unveiled a $50 million aid package. Prices have also begun to recover: In Iowa and Minnesota last week, hogs were selling for $30 a hundredweight.

Still, neither the aid package nor the price rebound may be enough to save some farmers. A few bankers said that, as a last resort, they would counsel farmers to sell their operations.

"A farmer's statement looks better than two weeks ago, but we're still seeing the wrong color ink," said William E. Vetter, vice president of Wilton (Iowa) Savings Bank.

Mark Drabenstott, director of the Center for Rural America at the Federal Reserve Bank of Kansas City, said bankers should expect more hog farmers to quit the industry. That points to a larger problem for rural community banks-a diminishing customer base.

Since 1990, the number of hog farms has declined by 50% as more family farms have been sold to large, corporate operations. And with hog prices well below farmers' break-even points, Mr. Drabenstott said this trend is likely to accelerate in 1999.

"The pork industry is having a near-term crisis, but it's also at a long-term crossroads," he said. Preserving customer bases, he added, will be difficult for banks.

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