or in some cases may actually disappear completely.Although commercial lending institutions are currently seeing their lowest default rates in over a decade, less than 1 percent, they are also aware of what is on the horizon and are already taking steps in anticipation of the potential market adjustment. Commercial lenders as a whole are not in a scare by any means. They believe that lending institutions, farmers and the government are more proactive today than they were in the 1980’s. They look for potential problems ahead of time instead of reacting to problems like they have in the past. They believe this will give them the added edge that they need to make it through unscathed. Banks have also invested billions in technology, which enables them to provide better customer service and be better lenders. In the 1980’s banks’ credit analysis tool was a calculator, today they have credit analysis software and credit scoring systems.Denny Everson, Chairman of Agricultural and Rural Banking Committee of the American Bankers Association, said, “Agriculture is in a tough situation that’s going to get tougher. What bodes well for our ability to work out of this situation is the difference in interest rates. In the early 1980’s we were dealing with 15-year high interest rates. Today they’re at 25-year lows.”Nationally, banks are well positioned to deal with a temporary downturn in the economy, but some of the banks in rural communities that are heavily dependant on agriculture and ag related businesses are viewing the current situation as a major concern.Another contributing factor to the increase in farmland value has been Federal farm programs. They contribute to farmland values by increasing the expected returns from land and reducing the income variability of farm operations. Research has shown that the increased net returns, from government subsidies, for owners of farmland are partially ca...
