The Rural Voice, 1980-10, Page 33Hv - EST
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PG. 32 THE RURAL VOICE/OCTOBER 1980
Can't be "good
weather bankers"
By Jack HAGGARTY, Farm Management Specialist
"It's easy to be a good weather lender." ['flat's what a bank
manager said as he fidgeted in his chair. He was referring to
loans his bank made to a Perth County farmer now in financial
trouble. He went on, "and we can't be good weather bankers
only --we've got to hang tough, not panic, and help the farmer
cope in these days of low pork prices and high interest cost."
That's good news!
This farmer in question hasn't much more to lose financially.
He's already in the hole by at least 5100,000. At today's value, if
he sold everything he might get 5400,000. His loans are over
$500,000 -all but 537,000 owed to this one bank. He pays out $250
per day (592.000 yearly) in interest. And he's to pay back $425
per day (5155,000 yearly) in principal. Obviously he's got too
much short term debt.
I used Canfarm cashplan cashflow forecaster. And at today's
hog prices and interest rates, he'll be short of cash by $161,000
at year end. Which means that the banker will have to "hang
real tough!"
I can almost hear the readers saying "Why doesn't the farmer
declare bankruptcy?" The simple answer is he's a fighter! He's
an optimist! He's convinced that prices will improve.
Why doesn't the bank force bankruptcy? Remember, they
don't like to take such action. They don't need to be tagged
"good weather bankers only". Another more legalistic reason is
at the time of the depression in 1934 the Federal Government
passed the Farmers' Creditors Arrangement Act. This means
that banks can't petition farmers into bankruptcy. During the
depression millions in indebtedness was forgiven.
I did a second computer run -based on the same situation -150
sows farrow -finish. And using some big ifs -if hog prices
increased 20%, if interest rates go down 10%, if debt payback is
spread out over a longer term, if his attitude remains positive, if
his health remains good, if--if--if--he'll make it. There's little
doubt in his mind that things will improve. He says "you've
got to be faced with failure before you really win."
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