Opinions vary on credit crunch, Wyo banks remain healthyWritten by Jennifer Womack
“If you’re going to be in banking right now,” says Platte Valley National Bank President and COO Keith Geis of Wheatland, “Wyoming is the place to be.” Geis, after participating in a conference call including bankers from across the nation, says agricultural and community banks from coast to coast remain largely healthy.
“While access to credit has been impacted to some degree,” says Farm Credit Services of America CFO Craig Kinnison, “we are still able to meet the operating needs and long-term credit needs of our customers. It’s business as usual at FCSA.”
If it weren’t for the national news, Geis says Wyoming may not have noticed much of a difference given the state’s strong economic times.
“The banks in rural America have a good asset base,” says Walt Hackney, a cattle market analyst from Omaha, Neb. “It’s the investment type banks on the coastal areas that have got themselves in a huge mess and, consequently, taken the rest of this country down with them.” Hackney says he’s not heard of credit difficulties in the feedlot sector and says the general economic health of agriculture remains strong.
“If the bailout does work,” says UW College of Agriculture Associate Professor in Agricultural Economics Chris Bastian, “it should at least relieve some pressure on the credit market and mitigate general impacts on the economy.” Tighter credit, he says, while the outcome remains to be seen, could result in higher interest rates.
Geis says his customers in the livestock sector have seen a recent downturn in prices as a result of the national situation. That’s met, however, with falling input costs. According to AAA, national average diesel prices peaked July 17, 2008 at $4.85 per gallon. Fuel prices continued to decline as of press time with diesel posting a national average of $3.80 a gallon on Oct. 15. Corn and other commodities are also on the decline in a situation that Hackney says is reducing gain costs at the feedlot.
Hackney says last week’s Wall Street news did result in losses at the feedlot level ranging from $5 in the south to $7 in the north. “All that was due to emotion and the economy and had nothing to do with cattle numbers,” says Hackney.
Based on Superior Livestock Auction’s market report following their Oct. 10, 2008 sale broadcast from Fort Worth, Texas, losses in cattle country were felt beyond the feedlots. “The stock market crash, financial system failure and worldwide worry of recession have dampened demand,” says the sale report. “In short, no one knows when to buy or when to sell.”
“The financial situation is not likely to have huge supply-side impacts in the short run,” wrote University of Nebraska-Lincoln Associate Professor Darrell R. Mark, Ph.D. in an Oct. 13 online column. “While the economic uncertainty and recent large drop in cattle prices may slow marketings and add weight to slaughter animals, the larger effect (if any) may be longer run. And, there are both bullish and bearish supply arguments to make there, too. The corresponding drop in corn prices has mostly offset the drop in fed cattle prices and improved the profit margin for cattle feeders. This should help encourage more feeding this winter and thereby support feeder cattle prices. However, the general economic uncertainty will keep cattle feeders cautious. Further, the availability of credit is likely to impact cattle feeders and investors. Already, reports that lending institutions have as much as doubled their customers’ equity requirements in cattle on feed create a disincentive to feed cattle. Plus, if credit availability becomes a larger issue in the agricultural sector, cow-calf producers may be increasingly strained to maintain production in the upcoming years and therefore may not expand the cowherd.”
“One of the problems that led to the credit crisis was home lenders loosening their standards,” says Kinnison. “We’ve maintained strong credit underwriting standards for quite a few years and will maintain those standards moving forward. Our mission is for times like these and we will certainly be there to meet the needs of our customers and agriculture.”
Geis says he’s beginning to see people take a more conservative approach. “While it may not directly affect them,” he says, “on the emotional and mental side of the ledger they’re being more conservative. It’s not a result of tighter credit, but the overall weight of what’s going on with the national economy.”
“It doesn’t do much good to try and anticipate a market right now because it all seems to be driven by the DOW and oil prices,” says Hackney. “It’s those outside influences creating our market, not the supply and demand of beef.”