'When to Sell'
by Scott Yates, staff writer
Bankers describe what happens as wheat prices keep climbing
Who's in charge here? Is it the banker who makes the decisions about when to sell, or the farmer?
As wheat tops $10 a bushel, these questions are being asked within an industry that has already sold 70 percent of its production. Jay Penick, president and chief executive officer of Northwest Farm Credit Services, addressed the issue head-on.
"I would say 95 percent of the time, Farm Credit or anyone else would tell you it is the producers' responsibility to market their crop and meet their obligations, and the bankers don't get in the middle," he said.
The one exception to that rule would be a farmer who is having financial problems and whose bank funding is contingent upon selling when certain thresholds are met. Penick didn't know of anyone currently under such a requirement.
On the other hand, the bank president said he is certain credit officers and farmers talk about the market to different degrees depending upon the length and depth of their relationship.
"I believe those discussions go on all the time," he said, adding that a credit officer surely has an opinion. If the price is at a level the producer can make a profit, Penick can even imagine credit officers making a recommendation.
"But I would be surprised that a farmer would think he is forced to sell his product," he said.
John Blanchfield, director of the American Banking Association's Center for Ag and Rural Banking, agreed.
"The farmer is always in the driver's seat," he said, adding there is federal case law to back up that point. "The banker is not the manager. The banker provides capital."
So, why is 70 percent of Washington's crop sold?
Blanchfield said it might have something to do with marketing plans that many banks require as a part of loaning money. These plans frequently establish price points when the farmer will pull the trigger.
"You are asking me to finance your crop this year. What are your plans to sell? Because that is where repayment of the loan comes from," he said.
As the manager of a farm business, Blanchfield said success should be defined as achieving a sales price that meets the needs of the operation, plus a return to the operator. This year that threshold was met long before the market exploded.
The fact the market has gone beyond anything that had been planned for is not a failure. Unfortunately, he's concerned the net effect of the rising market will be farmers who are "unwilling to plan for the future on the idea it didn't work out for me last year."
As a banker with a farm on the side, Mark Grant said it's ridiculous to blame banks for farmers selling before the market reached its current market high. He counts himself among the 70 percent or so who sold long before now.
He forward-contracted half his crop at $5 a bushel and sold the rest off the combine at $6.40 a bushel. He believed the sale was prudent at the time.
"Am I mad? Yeah, but I can't blame my banker," said the manager of the Bank of Whitman's Walla Walla office.
He said some customers took out a Marketing Assistance Loan through the Farm Service Agency, providing them enough to pay off their operating line, while permitting them the opportunity to buy the crop back, less some interest and storage fees. Fewer farmers than normal, however, appear to have taken advantage of the program.
Chris Beiker, outreach coordinator for the FSA in Spokane, said 523 marketing loans worth $26.5 million were taken out in November 2006. So far, this year, there have been 144 wheat loans worth $2.6 million taken out.
Keith Bailey, who manages Odessa Union Warehouse and Reardan Grain Growers, follows the market as closely as anyone. His job depends on it. So far, across the two companies, about 67 percent of what wheat farmers produced this year is spoken for. He said he suspects 75 percent of the crop at other elevators with earlier harvests has been purchased.
"I think a lot of folks contracted earlier, when they saw the numbers before harvest were better than the previous year," he said. Farmers began selling when the price hit $4 a bushel. He doesn't know the average price of his intake for the year, but he knows it's well below today's market.
So how would the elevator manager have done in a market as topsy-turvy as this one? As a matter of fact, Bailey said, his parents have wheat from some leased land. He suggested they sell "a few dollars ago."
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