Ag lenders here say demand for loans is strong as improved farm markets and low interest rates are leading growers to buy more land and equipment.


Loan volumes at Spokane-based Northwest Farm Credit Services grew a healthy 10 percent last year, to $4.5 billion, and though volume have ebbed about 5 percent through the first eight months of this year, demand remains good, says Jay Penick, the lending cooperatives president and CEO.


Last year we had our greatest growth in 25-plus years, says Penick. It was a record year for loan requests. The low interest rates resulted in customers that had been planning expansion deciding to do it.


AmericanWest Bank, of Spokane, also is racking up impressive ag-lending results.


Through the first six months of this year, AmericanWests agricultural loans totaled $138 million, already surpassing last years total, says Tim Cassels, the banks chief financial officer. Last year, AmericanWests agriculture loans totaled $124 million, up about $3 million.


In another key indicator of farm health, the average farm debt in the region that includes Spokane, Colfax, and Walla Walla currently is about $261,000, says Penick, and the average farm has debt equal to about a quarter of its assets.


The debt load is moderate, Penick says. In 2004 we have seen a lot of improvement in the agricultural balance sheets. For the most part, there will be some decent profits. Cattle, apples, and the rest of the fruit business make up 30 percent of the portfolio. Wheat will hold its own.


Thats important, says Brent Mathison, vice president of Farmers & Merchants Bank, of Spokane.


Ninety-five percent of agricultural operations continue to be viable, Mathison says. Those with minimal to moderate debt loads have been the most successful and continue to be.


Tim Bruya, a vice president at AmericanWest and the chairman of the Washington Bankers Associations agriculture committee, says, Low interest rates have benefited the ag industry. However, the economics of agriculture in the Palouse still have pressured margins. Farmers are looking at prices in the ranges of what they were in the 1970s. Health-care, fuel, and fertilizer costs are significantly higher, and all of these things roll up to the farmer.


As a result, many farmers have been forced to find ways to be more efficient, managing day-to-day operations more closely than ever before, says Bruya.


There is a lot better risk management than two years ago, he says. People are more cautious about debt than they used to be. They have tight cash flows, so there hasnt been tremendous expansion in the industry.


Agriculture is watched closely here because, as Eastern Washingtons largest industry, agricultures fortunes affect the Spokane areas economy.


It touches every aspect of the general economy, says Penick. When agriculture is having a good year, the economy in Spokane is pretty good.


Buying equipment


That effect is evident at farm-implement dealerships, which say business has been picking up.


Mike Parrish, general manager and co-owner of Arrow Machinery Inc., a Colfax dealer of John Deere farming equipment, says sales have increased slightly this year, with growers buying machines ranging from combines to drills.


Weve seen some increased sales compared to the last three or four years, Parrish says. Weve sold a little bit of everything. Weve sold some things that weve had a hard time selling.


Still, he says, much of the equipment farmers are buying these days is used, rather than new, and they appear cautious about spending on big-ticket items. Many merely are replacing older equipment rather than expanding operations.


Theyre not going into a huge amount of debt to buy things, says Parrish. Most of our sales are under $30,000. But weve also had some purchases of combines.


Scott Hennessey, owner of St. John Hardware & Implement Co., of Fairfield, says hes seen similar activity, though spending on expensive equipment is brisk for him.


Our sales are slightly up. Ive seen the biggest increase in our big-ticket items. We have sold about 40 (new) tractors and about 80 used ones.


A new combine can cost between $200,000 and $275,000, Hennessey says. He expects to sell about 12 this year, a few more than last year.


Cost challenges


Growers must maintain a delicate balance to remain profitable, those in the industry say. Northwest Farm Credits Penick says that rising energy costs are among the most difficult challenges farmers face today, along with unpredictable weather conditions and unstable world markets.


If the agriculture industry can keep its hard costs in line, 2005 will be a good year, he says. But its hard to say with energy costs because they affect so many things, from tires to fertilizer to diesel fuel.


Valoria Loveland, director of the Washington state Department of Agriculture, says the outlook for the industry is pretty good, despite the higher fuel costs and the uncertainty of world commodity markets.


For the most part people are holding their own, she says. Were a big supplier of products and jobs.


Still, agriculture can be a tough business, and most people arent starting new farms or buying farms, says Mathison.


Growers used to routinely pass down their farms to their sons and daughters, but now are selling their farms to larger operations as their children opt for white-collar careers, in some cases cutting off family ties to the land that go back generations, Mathison says.


Its a sign of the times that there arent a lot of farmers passing the operations on to their sons because their sons dont perceive it to be a success, he says. Its kind of sad, but its the reality of it.


Jim Walesby, who owns about 4,000 acres of farmland near Wilbur, about 50 miles west of Spokane, says that despite modest increases in wheat prices, operating costs are challenging farmers to stay in business.


Rising fuel, fertilizer, and health-care costs continue to chip away at his farms bottom line, leaving him pondering the future.


The business isnt as much fun as it used to be, says Walesby. It has been squeeze, squeeze, and pretty soon there arent any more things to cut, and the costs keep going up. What do you do?


I am 57 years old and I am starting to think about getting out. I probably will finish out my years until I retire, he says.


Still, Walesby has seen a few of the children of his fellow farmers attend college, work in the business world, then return to agriculture.


They want a certain lifestyle, he says. Its nice to see them come back.


Meanwhile, the spouses of many farmers have taken jobs off the farm to supplement family incomeand even more importantly to obtain health-care benefits, says AmericanWests Bruya.


Health care keeps taking such a bigger bite out of their bottom line that many are forced to earn off-farm income just for the benefits, Bruya says.


Mathison says the economic viability of maintaining a small- to medium-sized farm is in doubt, and believes the U.S. government might have to step in to help save those operations.


With the competition and the prices being suppressed, the government is going to be a factor in propping up the industry even more, he says, but there is real pressure to cut back subsidies it already gives to farmers. There is a competition for dollars, especially with the war going on. Its a real struggle, and I dont know how thats going to play out.


Loveland, the states agriculture director, says the trend toward corporate farming hasnt gone unnoticed.


Were seeing larger numbers of larger specialty farms, she says. Operations have bought other farms and gotten larger. The good news is that we are seeing some younger farmers, and there are more women and Hispanics coming into agriculture.


Also, corporate farms are investing in technology and research, says Loveland.


Theyre smart because theyre trying to get more efficient, she says. Thats a big reason to be optimistic.