Ranch/Cattle Financing

[Oldtimer]

I picked this off another ranchers blog...I'm kind of in the shape he is where what financing I need is thru a traditional bank-and have very little debt- so except for the sorry shape of calf prices, I haven't thought much of it....

But I do know some ranchs that are heavily financed thru all kinds of financial institutions- all over the country- and some big outfits that have been living from one lending company to another- and on very tight margins already...

Along with the fact many feedlots need huge operating loans to function- and some around here that feed out large numbers of cattle owned by individual investors...

Has anyone heard if this is causing any problems in the Ag/cattle/feeding sector yet?

Like he said in the article- it would sure be nice to have a crystal ball...

The financial crisis not only rocking this nation, but the world is something. I've heard it described as the worst financial crisis since the 1930's, if not worse than the 1930's. Where this crisis is going to end and when would really be nice to know. What the world will look like at the end would be nice to know too.

Okay, I know this whole crisis seemed to have started with the burst of the housing bubble but it has gone well beyond that now to a complete lack of confidence in the whole financial system. The housing market was over leveraged and now any financial instrument that is over leveraged is vulnerable to collapse as we have been seeing.

So this really makes me wonder, what is going to happen to those agricultural producers out there that get their financing through a non-traditional bank, i.e. one that does not accept deposits. I know quite a few producers that get their financing this way and it really makes me wonder when this source of credit will dry up for these producers. I have been hearing rumbles from some of these guys that their "bankers" are demanding a certain number of dollars for their calves and if they don't get it they will be foreclosed upon. Most of the times these numbers are well over what the market will support right now. These guys sound like they are in real trouble to me. Is this a side affect of what is going on in the financial markets? It would be curious to know.

I'm not overly worried about my financing. I finance through a traditional deposit bank and the banker is not worried about my situation. With the markets the way they are I might be down a little this year but it is not a problem. I really wish I had that crystal ball though to see the future. What is going to happen out here in the country? Will this financial crisis bring down farms and ranches?

 

[Howdyjabo]

Most Ag loans are backed by Federal Agricultural Mortgage Corp.-established to facilitate affordable loans for farmers.
They were supposed to be backing only Ag and Rural loans--- but they got greedy(although they called it diversification for stabilization purposes)
And they are in deep with the rest of the foreclosure problems.

Their stock dropped like a bomb- down to $6.73

I'd guess that its gonna be tough to get a farm loan now----- unless you have the collateral to cover it and a great credit score.

 

[Oldtimer]

Herd a market commentary this noon where John Lawrence of Iowa State was interviewed on the cattle situation . He was asked about the number of cattle coming into Iowa because of our supposed glut of ethanol byproducts. He let the air out of the guys asking that question when he said cattle on feed in the large lots were 3 % less than a year ago and cattle on feed in the smaller farmer feeder lots were 27 % less than a year ago
As to the feedlots, the local cattle broker told me last week that every other lot in the south had a "for sale" sign on it. Obvious exaggeration but probably some truth to it.

I took this off another site- and this was kind of what I was wondering-- if any had heard how this is effecting feedlots- that run on a lot of borrowed money? As I know some in this state, anyway, actually have in the past had a lot of cattle owned by investors...I know one lot that has 40 different branding irons hanging on the wall- depending upon the financing/ownership set up with the cattle- and that doesn't include the retained ownership...

This and the fact that the country buyers are not being seen much- and when seen are offering less than they did 2-3 months ago made me wonder how tough tight money in these big lending outfits was going to effect the cattle industry....

Old Pat Goggins has been saying we need a good old fashioned Depression to get this country straightened out- and he may get it.... ;-)

 

[EAT BEEF]

It might hurt ,but I think he's on to something.Most people don't learn very well if it doesn't hurt.

 

[Howdyjabo]

Pilgrims Pride(chickens) stocks dropped 38% today--- they couldn't secure operating loans(feed costs have crimped them).
52 week high was $35 and now its $6.36

 

[Oldtimer]

Pilgrims Pride(chickens) stocks dropped 38% today--- they couldn't secure operating loans(feed costs have crimped them).
52 week high was $35 and now its $6.36

Yeah- they're saying today on CNN that Caterpillar- that has a sound credit standing- went in to resign an operating loan for $1.3 million- and their interest had almost doubled up to 7% ( which is nothing if you lived thru the 20% loans of the 80's)-- but guess who will end up picking up that extra cost when you buy your next Cat tractor..

 

[TexasBred]

Most Ag loans are backed by Federal Agricultural Mortgage Corp.-established to facilitate affordable loans for farmers.
They were supposed to be backing only Ag and Rural loans--- but they got greedy(although they called it diversification for stabilization purposes)
And they are in deep with the rest of the foreclosure problems.

Their stock dropped like a bomb- down to $6.73

I'd guess that its gonna be tough to get a farm loan now----- unless you have the collateral to cover it and a great credit score.[/quote]

That's the way every loan application should be evaluated. That's the way it "used to be".

 

[backhoeboogie]

That's the way it "used to be".

I remember it well.

 

[1982vett]

Most Ag loans are backed by Federal Agricultural Mortgage Corp.-established to facilitate affordable loans for farmers.
I'd guess that its gonna be tough to get a farm loan now----- unless you have the collateral to cover it and a great credit score.[/quote]

That's the way every loan application should be evaluated. That's the way it "used to be".

Let's see,,, what could have happened??? Couldn't have been lawsuits for discrimination or anything like that. :roll:

 

[mitch2]

Most Ag loans are backed by Federal Agricultural Mortgage Corp.-established to facilitate affordable loans for farmers.
I'd guess that its gonna be tough to get a farm loan now----- unless you have the collateral to cover it and a great credit score.[/quote]

That's the way every loan application should be evaluated. That's the way it "used to be".

Let's see,,, what could have happened??? Couldn't have been lawsuits for discrimination or anything like that. :roll:

collateral and credit score, should not rank as high as the ability to make the payments.

I have flat out asked people who are in deep and now whining... Why XX? Why buy XXX? Why refi? Why (insert your choice)? Why did you do that? Didn't you figure a budget? figure anything? Why did you think you could afford it? Well, the bank/broker/lender wouldn't of given me the $$ if I couldn't afford it.

WHY do no common sense people believe someone when they say here's the $$ you can afford it. But then get mad when someone says, no you can't have the $$, you CANNOT afford it?

I hear myself more and more and more saying, (especially to the kids) no, it costs too much, no we can't afford that right now, no, I don't have the money.

JUST so my kids can start understanding the concept of tightening the belt!

Michele

 

[bigbull338]

mitch you mean you can look into your cute lil boys face an tell him no we cant afford that right now.now me id be dead in the water an have to find the money for what they wanted.

 

[Howdyjabo]

I have been borrowing money to buy cattle for over 25 years.
It used to be I would have to prove I had a plan that would make money and have the paper work to prove I had a positive net worth. And they had to have enough collateral to cover the loan by 150%.
Two years ago when I went in-- the banker said that the extensive paper work I made up for them was not needed any more- that the loans were given totally based on credit scores now.

At the time I thought that was stupid- and now its proven that that is a stupid way to lend money. But I sure did like not having to do all that planning and paperwork

The ability to make the payments is good---- but more important is making sure there is enough collateral there to cover the loan no matter what happens.

 

[mitch2]

mitch you mean you can look into your cute lil boys face an tell him no we cant afford that right now.now me id be dead in the water an have to find the money for what they wanted.

See now I will fill you in between the lines. I say "NO" over my shoulder as I'm heading out the door and make the mean old clerk behind the counter look them in the face with her jaw dropping and shugging her shoulders ;-)

Michele

 

[TexasBred]

"Credit Score" IS an indication at least of your "past ability" to pay as well as your willingness to honor any and all debts. Of course it should be used....along with plenty of collateral, calculations of total payments as a percentage of income, etc. etc. People sign a note they have to have something to lose.

 

[bigbull338]

i see youve learned the art of dodging an running before they can put you in a corner.

 

[backhoeboogie]

Okay so you know what is involved in this business. Ask yourself, would you personally loan someone money to get into the cattle business, who had no colateral and a history of defaulting on their payments?

Our ancestors ran cattle and farmed for hundreds of years without banks.

 

[dyates]

Was talking to the guy at the fert. plant the other day and expressing my hopes that prices would come down. He tipped his glasses and looked over the rim and told me I better hope that they don't. Apparently the only way dealers have been able to secure a supply for next year is to pay in advance. If prices drop between now and then....well, there's another big belly flop. This same scenario also makes me wonder how big grain farmers are gonna survive. They can't guarantee their supply unless they pay ahead. I'm not sure how many lending agencies are gonna take that risk. If they do, and fert. prices fall and/or bad crop year....disaster. Of course, this is all directly tied to cattle as well.

 

[bandit80]

That's the way every loan application should be evaluated. That's the way it "used to be".

And that is the way it still is for some banks and lenders.

 

[bandit80]

collateral and credit score, should not rank as high as the ability to make the payments.

To a point. Sound lending should have 1. adequate collateral to cover the loan. Meaning the value of the collateral is more than the loan amount. 2. Adequate cash flow to cover payments. Wether this cash is generated from the collateral, (cattle) or the cash is generated from a wage earning job to make the payments, (your home). There are guidelines, some chose to throw them out. 3. Credit history showing commitment to pay. Credit score lending is not and exact science, it only provides a guideline by which to follow. They are not the end all. Two borrowers who both have 675 credit scores can be very different in their ability to repay a loan.

Sound lending will have all 3 requirements met before a loan is given. Unfortunately, numbers 1-3 above were throw out by some, leaving us in the crisis we are in.

 

[TheBullLady]

That's about right bandit! And when they bundled up all these "secondary paper" mortgages and sold them to a bunch of sucker investors, it looked so easy! Now the lenders got their money with all the fees up front, and sold them off before they could determine if the borrower could pay or not.

Don't get me started.. as most know I'm in the RE business, so I've seen it all firsthand. Something else that heavily impacted this whole mess.. is NO DOWN loans! When a borrower virtually has no equity or money to risk losing, what do they care if the get foreclosed on? It's amazing how many jobs a person will get in order to not lose a house / car / whatever when they actually risk losing money.

And I'm curious.. why would you feel guilty if you don't give them everything they ask for? That pretty much teaches them that the rest of their life they'll GET whatever they want without doing anything for it... does it not? I rarely got what I asked for, and pretty much didn't ask because I knew what the answer would be! But it sure gave me a good work ethic! Now if I want something, I know I have to make sacrifices and / or work for it! It gives it a whole lot more value that way as well.