Field

Restored by rains and new fencing, this parcel of Clark County, Kansas, land remains somewhat tender, yet ready to receive livestock. (Photo by Larry Dreiling.)

Hundreds of thousands of acres of rangeland, once scorched to the blackness of night, are coming alive again in a sea of green.

In parts of southwest Kansas and the Oklahoma and Texas Panhandles, big bales of hay remain staged at the ready but aren’t needed as much these days as abundant rains have fallen since those terrible days of early March, returning the land to its useful purpose.

“It’s been amazing that we’ve received more than 10 inches of rain since April,” said Kendall Kay, president of the Stockgrowers State Bank, located at Ashland, Kansas, considered the epicenter of the Kansas wildfire. “It’s unreal and was a true blessing. Here, just a few days after the Fourth of July, we had an inch of rain. From that perspective it could not be any better.

“In the south part of the county, the hills where there’s sand on them, it’s taken a bit longer to recover, but it’s still quite a difference.”

Yet, it’s a common saying around Ashland, spoken not only by bankers, but the clerk at the convenience store and the waitress at the cafe: “It’s amazing to see how much has been done in four months time, but there still is much to be done.”

The tens of thousands of miles of fencing that were clipped, ripped and melted by the firestorm are slowly being replaced.

Bringing the thousands of head of cattle to place behind those fences is another matter.

It’s now up to community lenders to offer financial and moral support as ranches recover not only from the fires, but low grain prices and returning the ranches to their historic importance in offering quality genetics to friends and neighbors across the county and around the country.

“It’s going to be next year and the year after before we really see the effects of the fire on our livestock growers,” said Lindsey Martin, branch manager of The Bank of Ashland. “I think the rush of getting things back together has ended and now a new reality has set in.

“We’ll need to help each customer the best way we know how to get them through this. Much of the grass has come back, but there are some places where pastures are still short of rain. Fences are going up, but it’s still going to be a process for a while yet. Summer in the middle of the day isn’t exactly the best time to be putting up fence.”

 

The challenge ahead

Both bankers say the real financial challenge will appear this fall when the calves of several thousand cows won’t be around to be sold and bring another profitable growing season to a close.

“It will be a challenge in future years for a bit,” Kay said.

Barbed Wire

Photo by Larry Dreiling.

The wildfires did not help the situation for farm income on the High Plains, which as a whole, has been in transition for the last couple of years, said Nathan Kauffman, Ph.D, assistant vice president and Omaha, Nebraska, branch executive at the Federal Reserve Bank of Kansas City, Missouri, where he’s also the bank’s lead expert in agricultural economics.

Farm income peaked in 2013 and has declined 50 percent since that time, Kauffman said. That decline has been seen in practically all commodities.

“Farm income growth is likely to be subdued the remainder of the year,” Kauffman told attendees at the recent KC Fed agricultural symposium. “The largest driver in this change has been the alteration in commodity markets.”

The questions of when and by how much will those markets go back up are frequent. The answers, Kauffman said, are hard to come by. Yet there are some positive signs, particularly in overall demand for typical commodities and the overall demand for ethanol.

“Demand has been strong, even when we look at some major commodities, exports have been up as much as 16 to 20 percent compared with last year. We are producing and exporting as much ethanol as ever,” Kauffman said.

China and East Asian markets are areas of good growth for commodities, especially since China has opened their markets to U.S. beef.

“Demand growth is different, though, than it was 10 years ago,” Kauffman said. “We don’t have the same kind of growth as we’ve had in the past. The supply side is what’s really strong.”

Yield trends among wheat and feed grains were up 27 percent in 2016 compared with 2015, Kauffman said. Even though demand has been stable, three years of strong production has weighed heavily on producers around the world, not just in the U.S., but also as from away as Brazil and Argentina.

What will it take to bring profits back up to where they need to be to support a recovery in the once blackened lands of the southern Plains, Colorado and Nebraska?

“We have seen production costs drop, primarily fertilizer, but land values, seed costs and others haven’t seen the cost declines as we have in others,” Kauffman said. “We have seen an increase in loan demand for four consecutive years, meaning that we’ve seen an overall downturn in the ag economy the last four years, primarily in the area of demand for loans for short-term cash flow needs rather than for land.”

Despite the reduction in prices and profits, Kauffman said delinquencies have not begun to pick up—yet.

“Delinquencies have been increasing just a little bit, but they remain historically low,” Kauffman said. “The question is why we haven’t seen more delinquencies is that we must remember how strong things were prior to the downturn.

“Farmland markets represent more than 80 percent of the farm balance sheet. We haven’t seen the fall in land values that we have in commodity values. In some areas they’re down more in some areas than others, but the fact they remain strong have given lenders lots of opportunities to work with borrowers. Even if we see a lot of pickup in carryover debt and extensions from one year to the next, there is opportunity to work with producers to take on additional collateral in terms of additional farmland.”

 

A cyclical business

Kauffman’s words are echoed by the two community bankers in working with clients in times of need and situations created by no fault of their own. Primarily, that ever since the farm crisis of the 1980s, bank leaders have come to understand they need to maintain high capital levels because agriculture is so variable and nothing stays the same for very long.

“This is now how every community bank does business,” Kay said.

Added his is one example of how quickly things can change but at the end of the day the bank has been there since 1885 and it has the ability to support customers through this very difficult time. 

Farmland values have decreased, but with four consecutive years of low commodity prices, it does create liquidity concerns.

“Obviously we are mindful of the issues of liquidity, but it hasn’t turned into issues of solvency,” Kauffman said. “They aren’t the kinds of declines we see in other parts of the country. In our district, we see land values that are far off peak values than other places.

“With farm income facing more pressure, we see more stress on the periphery of the Corn Belt. It’s important to see crop insurance remain a key part of the protection against downside losses as lenders depend on that.”

In the livestock sector, Kauffman said, prices have rebounded since the first of the year. The prolonged, intensified, downturn that’s allowed producers to lock in lower interest rates while, at the same time, giving producers pause to consider liquidating assets to make things work long term.

Those lower rates are, in a way, good news to bankers like Kay and Martin because it has enabled producers to rest a bit easier while trying to sort out things after the wildfire.

“The hay and fencing supplies and cash donations later on are overwhelming,” Kay said. “The assistance from the rest of the country has been phenomenal, and you certainly don’t expect to be made whole by any means but it sure has helped significantly.

“The help in the way of financial assistance through the Ashland Community Foundation and the Kansas Farm Bureau Foundation and the Kansas Livestock Association and other means have just been tremendous, too, and it gives the producer extra help.”

 

Government aid helps

Both bankers say U.S. Department of Agriculture disaster funding, part of the 2014 farm law, has been key to getting assistance for losses ranging from cattle to fencing.

“The Livestock Indemnity Program has been a very good program, despite it being a bit frustrating because of the $125,000 limits and the sequestration that goes along with it,” Kay said.

“Still, I saw requests on Monday that had checks cut on Thursday. I mean, do you see many other government programs pay out like that? When you had the magnitude of the losses some of our cattlemen took, the payment limit didn’t go very far. Then again, no one is looking to be made whole.

“Besides, there likely was some fence that needed to be replaced anyway, and now it will be. The grass looks great, you want more cattle out there, but the fence is coming, which means more cattle will be in place soon,” Kay added. Rather than give credit to themselves at bankers both Kay and Martin credit the perseverance of their clients.

“They deserve way more attention than any banker could give them,” Martin said. “You meet with them, ask them what we could do for them and they make you feel great with their attitude.”

Kay said, “There’s no give up in anyone here. It’s truly inadequate to say just two simple words to describe what everyone feels here to everyone that helped out around here, but ‘thank you’ works so well. It’s amazing to see the support from all over rural America.

“It’s been challenging and you wouldn’t wish this on anybody. People are moving forward and that’s why progress has been made in such a short period of time. It’s where we are at and we’re moving forward. It’s going to take time, but we’ll get there.”

Larry Dreiling can be reached at 785-628-1117 or ldreiling@hpj.com.

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