When Sid Strohl started farming around Pretty Prairie in the 1970s, one of his first loans was for the purchase of a tractor — at 19.9 percent interest.
Nowadays, he has loans through Kingman-based Citizens Bank of Kansas for his farming operations with interest rates ranging from 5 percent to 7 percent.
“For somebody that uses borrowed money … this interest rate has been a godsend,” he said.
Lower interest rates have meant “extra money in your pocket” for Strohl, he said, and with strong farmland values and higher commodity prices, credit is readily available for farmers such as Strohl.
The problem – if it can be viewed as a problem – is that demand for farm loans isn’t that high.
Some farm bank executives in the Wichita area say they’d like to see more farmers seeking loans.
Recent increases in oil production have some farmers pocketing more cash for oil leases taken on their ground. Some farmers are using the money to pay down debt or pay off loans.
And that’s running counter to the national trend of increases in farm loans, according to a recent study by the American Bankers Association.
The study, 2011 Farm Bank Performance Report, says farm lending increased by 5.6 percent to $72.3 billion in 2011, compared with $68.5 billion in farm loans in 2010. Of that total, farm production loans totaled $35.5 billion, a 6 percent increase from 2010. Farmland loans totaled $36.8 billion, a 5.3 percent increase from 2010.
Farm bank executives say the Kansas farm economy — at least in south-central Kansas — is a bright spot.
“You throw in wonderful commodity and cattle prices and the farm economy is looking pretty good, right now,” said Leon Drouhard, chairman and CEO of Farmers and Merchants State Bank in Argonia. “Anytime the ag economy is good … farmers will spend money and expand, and that benefits all of us.”
Drouhard said his bank’s assets grew 15 percent “and our loan demand held very steady” in 2011. While farm loan demand may not have grown to the level at Farmers and Merchants that it did nationally last year, Drouhard said his bank “saw a little bit of growth” in its farm loan portfolio.
Gregg Conklin, senior vice president and chief credit officer of Winfield-based Cornerbank, said his $276 million-asset bank increased its farm loan portfolio in 2011, despite an influx of oil lease payments to its farm customers in southern Kansas.
“Now this doesn’t hold true in all of Kansas, but in the southern counties we just saw millions of dollars go through our bank,” Conklin said.
He said in many instances farmers receiving oil lease payments used the money not only to retire some debt, but also to buy new equipment, cattle and fertilizer. In some cases, they used the money to supplement loans, thereby lowering their exposure to higher income tax.
“A lot of landowners in those (southern) counties received oil lease money, and I’m talking a lot of it,” Conklin said. I saw checks from a quarter of a million (dollars) to a million-plus. When they get that kind of money, they buy tractors, they buy combines, they buy trucks to get the tax benefit of it.”
Some farm bank executives said loan portfolio growth has been the exception, not the rule. In many cases farm banks have lots of money to loan but little demand.
“Overall, what I’m hearing across the state is banks have a lot of cash to be lending, and the loans aren’t easy to come by,” said Sid Graber, president of Citizens Bank of Kansas in Pretty Prairie and immediate past president of the Kansas Bankers Association’s ag bankers group. “I think a lot of that is because farmers have had a pretty good run the last couple of three years.”
And it depends where in the state someone is farming as to whether farmers are benefiting from a flurry of oil and gas leasing activity. Strohl, the Pretty Prairie farmer, said he doesn’t think leasing activity is robust around him. He has benefited somewhat from oil leases, but his leases were made before the recent boom. Strohl doesn’t think he got as good a price on his leases as the deals now being offered.
Farther south, Gage Overall, chairman and CEO of Stock Exchange Bank in Caldwell, said farm loan demand in his area is the lowest he’s seen in 30 years of banking in southernmost Sumner County.
“We’re the largest wheat-producing county in the state, and the price of wheat has stayed up the last few years,” Overall said. “We’ve also had a lot of oil and gas leases, helping our producers tremendously. For the economy, that is excellent. As a banker, I think it’s made demand for our ag loans weak.”
But that low farm loan demand could be changing.
Graber, of Citizens Bank, said he’s noticed increases recently on renewals of farm operating loans and lines of credit. That means the input costs to farmers — for items such as fuel, fertilizer and seed — are rising. So while farmers may be getting paid more for their crops, cattle and leases, they are also paying more to get their products to market.
“I think the farm economy is pretty decent right now,” he said. “When the general public hears reports about cattle prices and grain prices, they don’t see those input costs are up quite a bit.
“While it’s been a pretty decent run, it’s not as good as the general public might think.”