Low crop prices have ag-heavy banks worried, regulator says

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Posted: Tuesday, February 25, 2014 12:00 am

Some ag-heavy banks are worried that low crop prices may hurt farm cash flows this year, U.S. regulators said Tuesday.

“Some bankers are worried about corn and bean prices and the ability of customers to operate at a profit,” said Troy Thornton, an assistant deputy comptroller in the Omaha office of the Comptroller of the Currency, which monitors 73 banks in Nebraska, Iowa and South Dakota for safety and soundness. “Some banks predict cash flow trouble in 2014 for some agricultural customers.”

The OCC, the federal banking regulator for savings associations and commercial banks with a national charter, said on a conference call Tuesday that most banks in the region are healthy and those that suffered during the crisis that started in 2007 have recovered.

Still, ag-heavy banks and their farm customers face persistent lows in crop prices, after record highs in 2013. Corn prices will decline to an average of $3.90 a bushel in the 2014-15 sales year, from $4.50 a year earlier. In the 2012-13 season, corn prices hit records, surpassing $8.

Soybean prices are seen averaging $9.65 a bushel, according to the USDA, down from $12.70 a bushel in 2013-14, while wheat is seen averaging $5.30 a bushel versus $6.80 the prior year, according to the government.

At the same time, land prices are falling after reaching peaks amid the crop-price run-up, OCC officials said on the conference call.

Most farmers, the OCC said, have enough cash on hand to handle some of the adversity. “Borrowers should be able to weather one or more bad years,” Thornton said.

OCC said that 97 percent of the banks it regulates in the three-state region have earnings rated “satisfactory” or better and that the same percentage have a high safety and soundness rating, up from 82 percent in 2011.

OCC operates four offices in the region, employing 67 examiners with an average tenure of 14 years. They contact their banks every quarter by phone or in person, the agency said.

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