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Mr. GERHART. That is a very accurate statement.

The CHAIRMAN. Are most of the banks renewing loans to the farmers who are in distress?

Mr. GERHART. We are trying all we can to renew those loans, but it is getting to be a tougher problem.

The CHAIRMAN. Let me ask you to confirm something I have heard. Normally, you know, you have a flow of capital from rural banks to the urban centers. I understand it is the reverse this year. Rural banks are pretty much loaned up to capacity. Is that accurate?

Mr. GERHART. No; we are finding-in my own shop we have plenty of credit right now available to lend. Our farmers are cutting back considerably because they just are not making enough money to go out and take some expansion steps.

The CHAIRMAN. I think that is an accurate statement.

Senator Dole.

Senator DOLE. Well, I just glanced at the statement. Are you going to be around a while? I have a staff member who has worked a lot on the credit side and I would like to have him visit with you after while. I am trying to find him right now.

Mr. GERHART. I will be happy to do that.

The CHAIRMAN. I want to insert at this point statements for the record from Senators Bayh and Tower.*

The next witness is Mr. Robert Curry, executive vice president, First National Bank, Pulaski, Tenn.

Mr. Curry, you may insert your full statement in the record and summarize it in 5 minutes, if you will please.*

STATEMENT OF ROBERT CURRY, EXECUTIVE VICE PRESIDENT, FIRST NATIONAL BANK, PULASKI, TENN.

Mr. CURRY. Mr. Chairman, I am Robert M. Curry, executive vice president of the First National Bank of Pulaski, Tenn. I was born and raised on a farm in Giles County and still live on that farm and work with my family on a 150-head dairy farm.

My bank has assets of $57 million, loans of $36 million of which 26 percent are to farmers. The full-time farmer in my county is in trouble, and briefly I would like to express to you two things: The current status of that farmer and what my bank has done to try to prevent what has happened to him.

Sixty-five percent of the agribusiness in our county does business with my bank and mostly large farmers in our county do business with our bank and I would classify this farmer whose credit may be $100,000 or more during the year.

They are the best credit risks that our bank has. My bank has never lost a dime to a full-time farmer. And the problems with the farmers are the good farmers in our county. Ninety percent of our 1977 crop loans was carried over to 1978. Our farm loans increased $2.3 million during the year, of which $1.9 million was in farm real estate and that was a direct result of farmers having to give long-term mortgage on their property to cover short-term losses.

*See pp. 427-443 for the letter and material from Senator Bayh; pp. 444-448 for the letter and material from Senator Tower, and p. 448 for the submitted statement of Mr. Curry.

A good acre of good corn in our county brings $1,000. Three years ago, it would have brought $500; the price of corn we are getting is still basically the same. If the 10 largest farmers that do business with my bank were to quit, we would have a major land depression in our county which would affect the whole economy. And I believe this could happen.

Specifically, we have several farmers that owe us $400,000. That is the limit that we, as a national bank, can loan. Several farms have a $100,000 carryover on their 1977 crop. Most farmers I have talked to lost from $25,000 to $100,000.

One farmer told me that his son is now the fifth generation that has farmed the same farm in our county and this son lost in the last 3 years what it took the first three generations to accumulate. Our county was a disaster area and we qualified for Small Business loans at 3 percent.

I personally helped over 20 farmers in paying $1 million loans through them. However, there are some shortcomings in that they have had to mortgage what remaining equity they had in their farms to make the 1978 crop. They have given second, third, and fourth mortgage to SBA.

This is only a short-term solution to a long-range problem, in my opinion. The four banks in our county are 70 to 80 percent loaned up, which is too high.

And briefly, what my bank has tried to do is try to educate the farmer and help him make a profit and we have failed to do that. We spent $25,000 a year just promoting agriculture. We were the first commercial bank in the United States to have a bull lease program which was originated by our bank in 1963. And we have invested over half a million dollars in bulls which we lease out to the farmers.

The best farmers in our county still are not making a profit.

My personal view on it, low-interest loans even a loan with no interest is not the answer because you have got to have a realistic price to pay those loans back. In 1978 our farmers at current prices will lose in excess of $2 a bushel on beans and 75 cents a bushel on corn.

I am watching them mortgage away their equity while the cash flow is decreasing, and this cash flow is what they have got to have to pay those loans back.

I appreciate being here today.

The CHAIRMAN. Mr. Curry, I congratulate you on an excellent statement.

Did I understand you to say 90 percent of your farm loans made last year had to be renewed this year?

Mr. CURRY. Yes, sir.

The CHAIRMAN. Ninety percent.

I agree with you that credit loan is not the answer. A credit is needed. Of course, you cannot farm without the credit. Farm income and the profit is the ultimate answer, is it not?

Mr. CURRY. Yes, sir.

The CHAIRMAN. Senator Dole?

Senator DOLE. I have no questions except to indicate that there has been a little strength in the market price. Somebody has put together the most recent figures, soybeans are back up to $6.37 from the low of $4.97; wheat is still not very high but it is $2.98 as compared to

$2.44; and corn as of March 10 is $2.33 as compared to $1.86, 6 months ago; and cotton 55 cents as compared to 49 cents. So there has been some improvement.

I think we are not out of the woods by any means. And the credit needs are real and we hope to have some action next week on a piece of legislation that might be helpful.

Mr. CURRY. I read your proposal and I agree.

Senator DOLE. Thank you.

The CHAIRMAN. The next witnesses are Mr. Jerry Stillman, representing Cotton Exchange Bank, Kinnett, Mo., and Mr. Jerry Paul Combs, a Baker Implement Co., Kinnett, Mo.

Gentlemen, come around and divide your 5 minutes any way you see fit. Your statements will be inserted in the record.*

STATEMENT OF JERRY STILLMAN, COTTON EXCHANGE BANK, KENNETT, MO.

Mr. STILLMAN. Mr. Chairman, I appreciate the opportunity to appear before this distinguished body on behalf of the Midsouth farmer and smalltown banker.

By heritage, background and tradition, I am a farmer. My family has been extensively engaged in farming and farm-related business in southeast Missouri since 1925.

I am a lawyer and practice law in Kennett, Mo., and I am also a director and legal counsel for a bank in Kennett which has assets of approximately $25 million. I am in daily contact with the bank loan officers and have contact with two other banks in southeast Missouri by representation.

The typical farmer in southeast Missouri farms 400 to 800 acres of highly productive farmland. He is a hardworking, independent, and resourceful farmer. And he is most assuredly in a severe financial crisis.

During 1977 our country bank extended several million dollars in loans to area farmers. These were for crop production and farm equipment loans. Most of these farmers raised well above average crops of cotton, soybeans, wheat, and milo. And due to the price existing in the marketplace and the low loan levels of the USDA approximately 75 percent of these loans made by our bank were not met as scheduled. The cost of production, coupled with living costs, simply exceeded the amount they received for their crops.

The final page of my testimony contains projected production costs for 1978 as prepared by the University of Missouri extension farm management specialists and economists. The projected income was determined by one of our bank officers as he normally would when considering a production loan.

The result shows a loss of $50 an acre for cotton, $35 an acre for soybeans, and $32 an acre for wheat. Considering that farming is already a risky enterprise, due to droughts, floods, frosts, freezes, hails, and other uncontrollable elements, the 1978 crop loan looks extremely unsound from the bankers' viewpoint.

*See p. 452 for the submitted statement of Mr. Stillman, and p. 454 for the submitted statement of Mr. Combs.

If you consider that most bankers-most farmers, I beg your pardon, live in rural areas and small cities, like Kennett where I am from, and depend on production and depend on financial institutions similar to our bank for their production and equipment loans, one can realize the enormity of the financial problem facing both the farmer and his lenders.

This winter, if it were not for the increased or inflated value of farmland and farm equipment, there is little doubt that lenders in our area would have had to force líquidation of a great number of farmers. Because of the requirements of sound banking practices, the pressure of the regulators, and duty to our stockholders, our bank has found it necessary to refer a large number of our customers to FmHA, SBA, and other agencies.

Please be aware that these referrals include some long-time valued customers. When a rural farm-oriented bank consistently turns away crop production loans of $50,000 to $150,000, it is because of the high probability of loss, not moderate risk.

Our bank has made very few farm production loans for 1978. Normally, by this time of year, millions of dollars of crop production loans have been made. We feel this lack of activity results directly from the influence of American Agriculture Movement and also the farmers being unable to outline a sound production plan for 1978.

He is waiting to see if there is any response from Washington in the way of higher loan levels or other helpful legislation.

The CHAIRMAN. It is time for the next witness, Mr. Stillman.
Mr. STILLMAN. If I may make one more statement, please, sir.
The CHAIRMAN. Sure.

Mr. STILLMAN. The tension and apprehension in our area is substantial and we just hope that this committee and Congress will understand that we need immediate action. Of course, we also advise action because we need restoration of economic confidence in our area.

The CHAIRMAN. Mr. Combs ?

Mr. COMBS. Mr. Chairman, do I have 5 minutes also?

The CHAIRMAN. No.

Mr. COMBS. I am listed farther down in the program.

The CHAIRMAN. You may have 5 minutes.

STATEMENT OF JERRY PAUL COMBS, PRESIDENT, BAKER
IMPLEMENT CO., KENNETT, MO.

Mr. COMBS. Thank you very much.

Mr. Chairman and Senator Dole, my name is Jerry Combs. I am president of Baker Implement Co., a farm equipment dealership in Kennett, Mo. Kennett is located in extreme southeast Missouri, which is a very diversified farming area. Our major crops are cotton, soybeans, wheat, milo, and corn.

I am here today to help bring to your attention the plight of the American farmer. In the short time allocated to me, I will not try to solve all the problems of the American agriculture. I will try to convince you, the Members of Congress and this administration, that unless they get the price of farm products up to a profitable level, the American farmers, as we know him today, cannot survive.

The farmers of this country made a good crop in 1977. Many were unable to repay their production loans. And very few realized a profit from this bumper crop.

When the farmers of this country do not make a profit, it is impossible for them to purchase the goods and services that the business community has to sell them. My business is terrible. In our local community the merchants say business is the worst that they can remember, and from the latest economic indicators, business is slumping nationally.

We should not blame these poor business conditions on the weather or the coal strike. The reason is that the largest consumer group in this country, the farmers, have quit buying. This has created a chain reaction, affecting first the agriculture-related businesses, then all businesses in agricultural areas, and finally the whole economy of this country.

Why did not the farmers realize a profit from this 1977 bumper crop? The answer is simple. The cost of production is higher than the price of the products he is producing.

Until now, our farmers have overcome this problem by becoming more efficient. They have consolidated into larger operations; they have increased yields per acre; they purchased larger and more efficient equipment; and produced larger crops at less cost. But he has reached the limit of his efficiency.

Now, all farmers are in trouble. It makes no difference the size of his farm or the location. You have heard testimony from farmers and businessmen from every area of this country, North, South, East, and, West. The farmer simply cannot continue to produce food and fiber to sell at less than his production cost.

You must take action to assure a reasonable price for farm products. You notice I said reasonable price, not reasonable profit. The farmer must still overcome all the hazards in making a crop-drought, floods, hail, insects, and many others in order to make a profit.

If we do not create higher prices for all farm products, the American farmer as we know him today will disappear from this country. The farmland from America will be taken over by large corporations or foreign investors who are capable of controlling the prices of the products that they sell. And the days of cheap food and fiber in this country will be over.

You can prevent this from happening by passing legislation to insure a reasonable price for farm products. This will not be easy. If it were, we would have never heard of the American Agricultural Movement.

The farmers are not participating in this movement just to join some organization. Farmers are fiercely independent and usually resist any form of conformity or restriction on his freedom. They are participating in this movement out of necessity. They are fighting for their survival and they realize that the only practical solution is through national legislation. Mandatory reductions. not voluntary, increased world markets not embargoes. We all have a major crisis to solve and it needs your immediate attention.

I truly believe that improving the economic condition of the American farmer is more important to our national security and welfare than ratifying the Panama Canal Treaties.

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