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Farmers Seeking Larger Operating Loans in 2016

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Farmers Seeking Larger Operating Loans in 2016

Warren-Graeff_
Warren-Graeff_

2015 was not a very profitable year for many Indiana producers, and 2016 does not look a lot better. As a result, bankers are seeing an increase in requests for larger lines of credit. Warren Graeff, agriculture banking and market manager for PNC Bank, states, “We are seeing an increase in requests for operating lines of credit for 2016, and we are seeing requests for increasing their lines of credit.  This is just because they do not have the amount of cash on hand as they did just a few years ago.”

Graeff said the key to getting more credit is your working capital, “In my 40 years of working in agricultural banking through all kinds of cycles, nothing is more important to a farmer than working capital.” It used to be that bankers wanted to have their farmers with working capital of 40% of their annual farm sales. But today that figure has come down for many operations. He told HAT, if you have working capital below 20%, you may find it hard to extend your operating loan, “There are things we can do to help producers improve their working capital.” These include financing some pervious cash purchases under term loans or refinancing some land purchases. He said these steps will help producers  build working capital and be in a better position to manage risk.

There have been some reports that bankers are discouraging farmers from planting corn, because it is a very costly crop to produce. Graeff says bankers want growers to plant a crop with which they can make money. He added that interest rate hikes in 2016 will have an impact on producers, but does not think it will be a major problem for most producers.